As filed with the Securities and Exchange Commission on April 18, 1997
Securities Act File No. 33-[ ]
Investment Company Act File No. 811-7626
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-2
(Check appropriate box or boxes)
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 5 [X]
----------------------
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
(Exact name of registrant as specified in its charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 292-1000
----------------------
John R. Verani
Vice President
Putnam Municipal Opportunities Trust
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
Copies to:
Frank P. Bruno, Esq. John W. Gerstmayr, Esq.
Brown & Wood Ropes & Gray
One World Trade Center One International Place
New York, New York 10048 Boston, Massachusetts 02110-2624
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Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
It is proposed this filing will become effective when declared
effective pursuant to Section 8(c).
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of Securities Amount Being Registered Proposed Maximum Proposed Maximum Amount of
Being Registered Offering Price Aggregate Registration Fee
Per Unit Offering Price
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<S> <C> <C> <C> <C>
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Remarketed Preferred Shares,
Series B and Series C 3,240 $25,000 $81,000,000 $24,545.45
===================================================================================================================================
</TABLE>
<PAGE>
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
Cross Reference Sheet Pursuant to Rule 495(a)
Under the Securities Act of 1933
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
Item No. Registration Statement Caption Location in Prospectus
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<S> <C> <C>
1. Outside Front Cover ................................................ Outside Front Cover
2. Inside Front and Outside Back Cover Page............................ Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis ............................................. Not Applicable
4. Financial Highlights ............................................... Financial Highlights
5. Plan of Distribution ............................................... Cover Page; Outside Front Cover; Prospectus
Summary; Underwriting
6. Selling Shareholders ............................................... Not Applicable
7. Use of Proceeds .................................................... Outside Front Cover; Inside Front Cover;
Prospectus Summary; Use of Proceeds;
Investment Objective and Policies
8. General Description of Registrant................................... Outside Front Cover; Inside Front Cover;
Prospectus Summary; The Fund; Investment
Objective and Policies; Other Investment
Practices; Risk Factors and Special
Considerations; Investment Restrictions;
Taxation; Portfolio Transactions; Description of
Shares; Description of RP; Financial Statements
9. Management ......................................................... Inside Front Cover; Prospectus Summary;
Investment Manager; Trustees and Officers;
Investment Management Contract;
Administrative Services Contract; Portfolio
Transactions; Custodian, Transfer Agent,
Dividend Disbursing Agent and Registrar;
Financial Statements
10. Capital Stock, Long-Term Debt,
and Other Securities ............................................... Prospectus Summary; Dividends and
Distributions; Description of Shares;
Description of RP; Taxation
11. Defaults and Arrears on Senior Securities .......................... Not Applicable
12. Legal Proceedings .................................................. Not Applicable
13. Table of Contents of Statement of
Additional Information ............................................. Not Applicable
14. Cover Page ......................................................... Not Applicable
15. Table of Contents .................................................. Not Applicable
16. General Information and History .................................... Not Applicable
17. Investment Objective and Policies .................................. Outside Front Cover; Inside Front Cover;
Prospectus Summary; Investment Objective and
Policies; Other Investment Practices; Risk
Factors and Special Considerations; Investment
Restrictions; Appendix B
18. Management ......................................................... Trustees and Officers
19. Control Persons and Principal
Holders of Securities .............................................. Description of Shares; Description of RP;
Principal Holders of Securities
-2-
<PAGE>
<S> <C> <C>
20. Investment Advisory and Other Services ............................. Prospectus Summary; Investment Manager;
Trustees and Officers; Investment Management
Contract; Administrative Services Contract;
Portfolio Transactions; Financial Statements
21. Brokerage Allocation and Other Practices ........................... Portfolio Transactions
22. Tax Status ......................................................... Dividends and Distributions; Taxation
23. Financial Statements ............................................... Experts; Report of Independent Accountants;
Financial Statements
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</TABLE>
* Pursuant to General Instructions for Part B of Form N-2, all information
required to be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus.
PART C
The information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
-3-
<PAGE>
PROSPECTUS
Subject to Completion
Preliminary Prospectus Dated , 1997
$81,000,000
Putnam Municipal Opportunities Trust
Remarketed Preferred(R) Shares ["RP(R)"]
1620 Shares, Series B
1620 Shares, Series C
Liquidation Preference $25,000 Per Share
Putnam Municipal Opportunities Trust (the "Fund") is a closed-end,
non-diversified management investment company. The Fund's investment objective
is to seek as high a level of current income exempt from Federal income tax as
Putnam Investment Management, Inc., the Fund's investment manager ("Putnam"),
believes is consistent with preservation of capital. The Fund seeks to achieve
its investment objective primarily by investing in a portfolio of Municipal
Bonds issued by or for the benefit of entities principally engaged in those
sectors of the Municipal Bond market that in the opinion of Putnam, present the
most attractive opportunities to attain a high level of current income exempt
from Federal income tax, consistent with the preservation of capital.
The Fund is offering hereby 1,620 Remarketed Preferred Shares, Series B
(the "Series B RP") and 1,620 Remarketed Preferred Shares, Series C (the "Series
C RP" and with the Series B RP, "RP"), both with a liquidation preference of
$25,000 per share plus accumulated and unpaid dividends. Dividends on each share
of RP will be cumulative from the Date of Original Issue and will be payable,
when, as and if declared, subject to certain exceptions, on each Dividend
Payment Date for each such share. The Initial Dividend Period for the Series B
RP will end on _______, 1997. The Initial Dividend Payment Date for the Series B
RP will be _________, 1997, and the Applicable Dividend Rate on the Series B RP
for the Initial Dividend Period will be ___% per annum. The Initial Dividend
Period for the Series C RP will end on ______, 1997. The Initial Dividend
Payment Date for the Series C RP will be _________, 1997, and the Applicable
Dividend Rate on the Series C RP for the Initial Dividend Period will be ___%
per annum. After the Initial Dividend Period for such series of RP, each
subsequent Dividend Period for each series of RP will generally be a 7-day
Dividend Period, provided that prior to a Remarketing the Fund may elect subject
to certain limitations and upon giving notice to holders, a Special Dividend
Period. The Applicable Dividend Rate in effect from time to time on the shares
of each series of RP will be determined by the Remarketing Agent in a
Remarketing in advance of the Dividend Period for such series, as more fully
described herein. After the Initial Dividend Period, the Dividend Period and the
Applicable Dividend Rate for such Dividend Period for each series of RP may
differ.
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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====================================================================================================================
Price to Sales Proceeds to
Public(1) Load(2) Fund(1)(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $25,000 $______ $______
- --------------------------------------------------------------------------------------------------------------------
Total $81,000,000 $______ $______
====================================================================================================================
</TABLE>
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund has agreed to indemnify the Underwriter for certain liabilities,
including certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting offering expenses payable by the Fund, estimated at
$______.
-------------------
The shares of RP are offered by the Underwriter, subject to prior sale,
when, as and if issued by the Fund and accepted by the Underwriter, subject to
approval of certain legal matters by counsel for the Underwriter and certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
one certificate for each series of RP will be delivered to the nominee of The
Depository Trust Company on or about ______, 1997.
(R)Registered trademark of Merrill Lynch & Co., Inc.
Merrill Lynch & Co.
The date of this Prospectus is ______, 1997.
<PAGE>
(continued from front cover)
Under normal market conditions, the Fund invests at least 80% of its
total assets in Municipal Bonds rated investment grade at the time of investment
or, if not rated, determined by Putnam to be of comparable quality. The Fund may
invest up to 20% of its total assets in Municipal Bonds rated below investment
grade or, if not rated, determined by Putnam to be of comparable quality at the
time of investment. Such lower-rated securities involve a higher degree of risk
and are predominantly speculative. The Fund may not invest more than 20% of its
total assets in Municipal Bonds not rated by a nationally recognized rating
service. There is no assurance that the Fund will achieve its investment
objective. The Fund may invest an unlimited portion of its assets in Municipal
Bonds that pay interest that is subject to the Federal alternative minimum tax.
See "Investment Objective and Policies" and "Taxation."
The Fund commenced investment operations in 1993. As of March 31, 1997,
it had net assets of $259,790,772 and $40,000,000 in outstanding Remarketed
Preferred Shares, Series A ("Series A RP"). The RP will be on a parity with the
outstanding Series A RP as to payment of dividends and on liquidation.
The Fund's address is One Post Office Square, Boston, Massachusetts 02109,
and its telephone number is (617) 292-1000. Investors are advised to read this
Prospectus carefully and to retain it for future reference.
-----------------------------
Dividends on the RP, to the extent payable from tax-exempt interest
earned on the Fund's investments, will be exempt from Federal income tax in the
hands of holders of such shares, subject to the possible application of the
Federal alternative minimum tax. The Fund is currently required to allocate net
capital gains and other taxable income, if any, proportionately among shares of
Common Stock, Series A RP, Series B RP, and Series C RP. The Fund may either
(i) give notice of the amount of any taxable income to be included in the
dividend prior to the Remarketing in which the Applicable Dividend Rate for such
dividend will be determined, or (ii) include such taxable income in that
dividend without giving such notice and increase the dividend by an amount to
offset (on the basis of certain assumptions) the Federal tax effect thereof, all
as more fully described herein. See "Taxation" and "Remarketing--Remarketing
Schedule; Advance Notice of Allocation of Taxable Income; Inclusion of Taxable
Income in Dividend."
Each share of RP subject to Tender and Dividend Reset may be tendered in
a Remarketing by submitting to the Remarketing Agent no later than 12:00 noon,
New York City time, on the Remarketing Date an order to sell such share on such
date. Prospective purchasers should carefully review the Remarketing procedures
described herein and should note that (i) any notice to tender or to hold shares
is irrevocable, (ii) Remarketing will be conducted through telephone
communications, (iii) settlement for purchases and sales will be on the Business
Day following the Remarketing and (iv) ownership of RP will generally be
maintained in book-entry form by or through the Securities Depository. There can
be no assurance that shares tendered will be sold in a Remarketing. Shares of RP
can only be transferred pursuant to a Remarketing or in the secondary market, if
any. Shares of RP are redeemable, in whole or in part, at the option of the Fund
(except during a Non-Call period) on each Dividend Payment Date, and under
certain conditions, will be subject to mandatory redemption at $25,000 per share
plus accumulated but unpaid dividends (plus, in the case of an optional
redemption, any applicable premium). Shares of RP will not be redeemable at the
option of the Fund during the Intitial Dividend Period. See "Description of
RP--Redemption."
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<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to
the more detailed information included elsewhere in this Prospectus and the
Appendices hereto. Capitalized terms not defined in this Summary are defined in
the Glossary appearing on page 78 of this Prospectus or, in certain cases, are
defined elsewhere herein.
THE FUND
Putnam Municipal Opportunities Trust (the "Fund") is a closed-end,
non-diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Fund commenced investment operations on May
28, 1993. The Fund has outstanding 16,157,092 shares of common stock traded on
the New York Stock Exchange under the symbol "PMO," and 800 shares of Series A
RP (together with the RP, the "Preferred Shares"), liquidation preference
$50,000 per share, which were issued on August 3, 1993. As of March 31, 1997,
the Fund had net assets of $259,790,772. See "The Fund." The Fund is managed by
Putnam Investment Management, Inc. ("Putnam").
THE OFFERING
The Fund is offering 1,620 shares of each of the Series B RP and the
Series C RP at a purchase price of $25,000 per share. The shares of RP are being
offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated as underwriter
(the "Underwriter" or "Merrill Lynch").
The RP will be preferred shares of the Fund that entitle their holders to
receive cash dividends at a rate per annum that may vary for the successive
Dividend Periods for each series of RP. After the Initial Dividend Period, each
subsequent Dividend Period for both series of RP will generally be 7 days in
length or such other period as the Fund may determine for such series, as
described below. The Applicable Dividend Rate for a particular Dividend Period
for each series of RP will generally be determined by a Remarketing conducted on
the Business Day next preceding the start of such Dividend Period. The RP will
be on a parity with the outstanding Series A RP as to payment of dividends and
on liquidation.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek as high a level of current
income exempt from Federal income tax as Putnam, the Fund's investment manager,
believes is consistent with the preservation of capital. The Fund seeks to
achieve its investment objective primarily by investing in a portfolio of
Municipal Bonds issued by or for the benefit of entities principally engaged in
those sectors of the Municipal Bond market that in the opinion of Putnam present
the most attractive opportunities to attain a high level of current income
exempt from Federal income tax, consistent with the preservation of capital.
There is no assurance that the Fund will achieve its objective.
Under normal market conditions, the Fund invests at least 80% of its
total assets in Municipal Bonds rated "investment grade" at the time of
investment, or, if not rated, determined by Putnam to be of comparable quality.
Investment grade Municipal Bonds are rated BBB or higher by S&P or Fitch or Baa
or higher by Moody's (or equivalently rated by another nationally recognized
rating service). The Fund may also invest up to 20% of its total assets in
securities considered below "investment grade" and rated BB or B by S&P and
Fitch and Ba or B by Moody's (or equivalently rated by another nationally
recognized rating service) or, if not rated, determined by Putnam to be of
comparable quality. The Fund will not invest more than 20% of its total assets
in Municipal Bonds not rated by a nationally recognized rating service. See
"Investment Objective and Policies," "Special Considerations and Risk Factors"
and "Appendix C--Description of Municipal Bond Ratings."
Under normal market conditions, the Fund may invest up to 50% of its
total assets in any sector of the Municipal Bond market.
The Fund may invest an unlimited portion of its assets in Municipal Bonds
subject to the Federal alternative minimum tax. See "Taxation."
-3-
<PAGE>
In order to preserve capital, the Fund may engage in interest rate and
other hedging transactions by purchasing and selling financial futures contracts
and options on Municipal Bond indices and on U.S. Government securities. The
Fund may also enter into forward commitments and repurchase agreements. These
investment practices entail risks and may give rise to taxable income.
The Fund may implement various temporary "defensive" strategies at times
when Putnam determines that conditions in the markets for Municipal Bonds make
pursuing the Fund's basic investment strategy inconsistent with the best
interests of its shareholders. These strategies may include an increase in the
portion of the Fund's assets invested in high-quality Municipal Bonds and
investments in taxable obligations.
INVESTMENT MANAGER
Putnam has been a manager of mutual funds since 1937. Putnam serves as
the investment manager for all funds in the Putnam family of funds, with
approximately $133.7 billion in assets under management in over 7 million
shareholder accounts as of December 31, 1996, including approximately $18
billion invested generally in Municipal Bonds. Putnam currently employs six
portfolio managers dedicated to the Municipal Bond market, supported by 23
investment analysts and other research personnel. The Putnam Advisory Company,
Inc., an affiliate, manages domestic and foreign institutional accounts and
foreign mutual funds. Putnam Fiduciary Trust Company, another affiliate,
provides investment advice to institutional clients under its banking and
fiduciary powers. In addition to the Fund, the Putnam family of funds includes
17 closed-end funds, 8 of which, Putnam Investment Grade Municipal Trust, Putnam
Investment Grade Municipal Trust II, Putnam Investment Grade Municipal Trust
III, Putnam California Investment Grade Municipal Trust, Putnam New York
Investment Grade Municipal Trust, Putnam Tax-Free Health Care Fund, Putnam
Managed Municipal Trust and Putnam High Yield Municipal Trust, invest primarily
in Municipal Bonds. Putnam and its affiliates managed approximately $173.5
billion in assets as of December 31, 1996. See "Investment Manager."
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICE FEES
The Fund pays Putnam a quarterly investment management fee based on the
average weekly net asset value of the Fund at the annual rate of 0.50% of the
first $500 million of the average weekly net asset value of the Fund, 0.43% of
the next $500 million, 0.39% of the next $500 million, and 0.35% of any excess
over $1.5 billion of such average net asset value. The Fund pays Putnam a
quarterly administrative services fee at the annual rate of 0.20% of the first
$500 million of the average weekly net asset value of the Fund, 0.17% of the
next $500 million, 0.16% of the next $500 million, and 0.15% of any excess over
$1.5 billion of such average net asset value. Such fees will be reduced as
described herein if dividends payable on the Preferred Shares including the RP
during any dividend period plus expenses attributable to Preferred Shares for
that period exceed the gross income of the Fund during that period attributable
to the investment of the proceeds of the Preferred Shares. Putnam pays a fee
from its own assets to Princeton Administrators, L.P., an affiliate of Merrill
Lynch, at the rate of 0.15% of the Fund's average weekly net asset value for
certain administrative services reduced if, among other things, the net asset
value of the Fund exceeds $500 million. See "Investment Management Contract" and
"Administrative Services Contract."
DIVIDENDS AND DIVIDEND PERIODS
The Applicable Dividend Rate on the Series B RP for the Initial Dividend
Period ending ______, 1997 will be ______% and the Applicable Dividend Rate on
the Series C RP for the Initial Dividend Period ending ______, 1997 will be
______%. For each Dividend Period thereafter, except as otherwise described
herein, the Applicable Dividend Rate on the shares of each series of RP will be
the dividend rate per annum determined by the Remarketing Agent in its sole
discretion (which discretion will be conclusive and binding on all holders of
such series) in accordance with the remarketing procedures described below. See
"Remarketing--Remarketing Procedures--Applicable Dividend Rates." Dividends on
shares of each series of RP will be cumulative from their Date of Original Issue
and will be payable, when, as and if declared by the Trustees, commencing on
______, 1997 for the Series B RP and ______, 1997 for the Series C RP.
Thereafter, in the case of Dividend Periods which are not Special Dividend
Periods, dividends will be payable generally on each succeeding ______ for the
Series B RP and each succeeding______ for the Series C RP, subject to certain
exceptions. Dividends for the RP will be paid through the Securities Depository
(The Depository Trust Company or a successor securities depository) on each
Dividend Payment Date for such series. The Securities Depository's normal
procedures provide for it to distribute dividends in same-day funds to Agent
Members, who are in turn expected to distribute such dividends to the person for
whom they are acting as agent in accordance with
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<PAGE>
the instructions of such person. See "Description of RP--Dividends--Dividend
Payment Dates." After the Initial Dividend Period for each series of RP, each
Dividend Period will generally consist of 7 days (a "7-day Dividend Period").
However, the Fund may elect, prior to any Remarketing, a Special Dividend Period
for either or both series. A "Special Dividend Period" is a Dividend Period
consisting of a specified number of days (other than 7), evenly divisible by
seven and not fewer than seven nor more than 364 (a "Short Term Dividend
Period"), or a Dividend Period consisting of a specified period of one whole
year or more but not greater than five years (a "Long Term Dividend Period").
Although the Fund does not currently intend to request a Special Dividend Period
for either series of RP, it may elect to do so in the future. See "Description
of RP--Dividends--Notification of Dividend Period."
DETERMINATION OF MAXIMUM DIVIDEND RATE
Except during a Non-Payment Period, the Applicable Dividend Rate for any
Dividend Period for either series of RP will not exceed the applicable Maximum
Dividend Rate. The Maximum Dividend Rate will depend on the credit rating or
ratings assigned to such shares and on the duration of the Dividend Period. The
Maximum Dividend Rate for any Dividend Period of a series of RP will be the
Applicable Percentage (specified below) of the Reference Rate on the applicable
Remarketing Date. "Reference Rate" means (i) with respect to any Dividend Period
having 28 or fewer days, the higher of the applicable "AA" Composite Commercial
Paper Rate and the Taxable Equivalent of the Short-Term Municipal Bond Rate,
(ii) with respect to any Short Term Dividend Period having more than 28 but
fewer than 183 days, the applicable "AA" Composite Commercial Paper Rate, (iii)
with respect to any Short Term Dividend Period having 183 or more but fewer than
365 days, the U.S. Treasury Bill Rate and (iv) with respect to any Long Term
Dividend Period, the applicable U.S. Treasury Note Rate. The "Applicable
Percentage" on any Remarketing Date for a series will be determined based on (i)
the lower of the credit rating or ratings assigned on such date to shares of RP
by Moody's and S&P (or if Moody's or S&P or both shall not make such rating
available, the equivalent of either or both of such ratings by a Substitute
Rating Agency or two Substitute Rating Agencies or in the event that only one
such rating shall be available, such rating) and (ii) whether the Fund has
provided to the Remarketing Agent, prior to the Remarketing establishing the
Applicable Dividend Rate for the succeeding Dividend Period for such series,
notification that net capital gain or other income subject to regular Federal
income tax will be included in such dividend (a "Tax Notification"), as follows:
Applicable Applicable
Percentage Percentage
of Reference of Reference
Rate- Rate-
Moody's S&P No Notification Notification
------- --- --------------- ------------
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
There is no minimum Applicable Dividend Rate in respect of any Dividend Period
for either series of RP.
The Applicable Dividend Rate for any Dividend Period for either series
of RP commencing during any Non-Payment Period, and the rate used to calculate
any applicable late charge, will generally be 200% of the Reference Rate (or
275% of such rate if the Fund has provided a Tax Notification to the Remarketing
Agent with respect to that Dividend Period for such series).
ADVANCE NOTICE OF ALLOCATION OF TAXABLE INCOME; INCLUSION OF TAXABLE INCOME IN
DIVIDENDS
Dividends paid by the Fund, to the extent paid from tax exempt interest
earned on Municipal Bonds and properly designated as exempt-interest dividends,
will be exempt from Federal income taxation, subject to the possible application
of the Federal alternative minimum tax. The Fund is required to allocate net
capital gain and other income subject to regular Federal income tax
proportionately among the Common Shares, Series A RP, Series B RP, and Series C
RP in accordance with the current practice of the Internal Revenue Service (the
"IRS"). The Fund may notify the Remarketing Agent of the amount of any net
capital gains or other taxable income to be included in any dividend on shares
of RP prior to the Remarketing establishing the Dividend Rate for such dividend.
Alternatively, the Fund may include such income in a dividend on shares of RP
without giving advance notice thereof if it increases the dividend by an
additional amount to offset the Federal tax effect thereof as described herein.
The amount of taxable income
-5-
<PAGE>
allocable to shares of RP will depend upon the amount of such income realized by
the Fund and other factors, but generally is not expected to be significant. If
for any reason it is determined after the payment of any dividend that a portion
of that dividend was subject to Federal income tax, the Fund will not be
required to pay any additional amount to compensate for any tax payable on the
dividend (other than Additional Dividends payable under the circumstances
described in this Prospectus). See "Taxation" and "Remarketing--Remarketing
Schedule; Advance Notice of Allocation of Taxable Income; Inclusion of Taxable
Income in Dividend."
If the Fund characterizes retroactively all or a portion of a dividend
already paid on shares of RP as consisting of net capital gain or other income
subject to regular Federal income tax solely because (i) the Fund has redeemed
all or a portion of the outstanding shares of RP or has liquidated and (ii) the
Fund, in its judgment, believes it is required, in order to comply with the
published position of the IRS described above, to allocate such taxable income
to the RP, the Fund will pay Additional Dividends (calculated assuming a rate of
tax equal to the Gross-up Tax Rate) to holders of shares of RP whose dividends
were so recharacterized. Such Additional Dividends will not include an amount to
compensate for the fact that the Additional Dividends or the amount so
recharacterized may be subject to state and local taxes. Additional Dividends
will be payable only in the foregoing circumstances. See "Description of
RP--Dividends--Additional Dividends."
The Fund will not be required to provide any notice of the prospective
inclusion of, or increase any dividend on shares of RP (including through the
payment of an Additional Dividend) as a result of the inclusion of, any taxable
income in any dividend other than in the circumstances described above. No
provision will be made to compensate holders of shares of RP for any alternative
minimum tax liability in respect of distributions on RP. See "Description of
RP--Dividends" and "Taxation."
REMARKETING
The holder of a share of RP may elect to tender such share or hold such
share for the next Dividend Period for such series by providing notice to the
Remarketing Agent in connection with the Remarketing for that Dividend Period
for such series. If the holder of a share of RP fails to make such an election,
he shall continue to hold the share for the subsequent Dividend Period for such
series at the Applicable Dividend Rate for such series determined in the
Remarketing for such Dividend Period, unless the Dividend Period is a Special
Dividend Period of more than 60 days.
Prospective purchasers should carefully review the remarketing
procedures described below and more fully detailed in this Prospectus, including
the Appendices hereto, and should note that (i) an election to tender RP cannot
be revoked except as provided in the Bylaws and as more fully described in this
Prospectus, (ii) each Remarketing will be conducted through telephonic
communications, (iii) settlement for purchases and sales in a Remarketing will
be made on the Settlement Date, and (iv) each prospective purchaser and each
holder of shares of RP will be bound by the remarketing procedures, including
the Remarketing Agent's determination of the Applicable Dividend Rate pursuant
to the remarketing procedures.
REMARKETING SCHEDULE. A separate Remarketing will be held for each
series of RP. Each Remarketing for RP will take place over a two-Business Day
period consisting of the Remarketing Date (normally a _______ for Series B RP
and a ______ for Series C RP) and the Settlement Date (normally a ______ for
the Series B RP and a ______ for the Series C RP). An example of the time
sequence of the events in a normal remarketing schedule is provided in Appendix
A hereto. The first Remarketing Date for the Series B RP will be ______, 1997
and the first Remarketing Date for the Series C RP will be ___________, 1997.
REMARKETING DATE. By 9:00 a.m., New York City time, on the Remarketing
Date for a series of RP, the Remarketing Agent will, after canvassing the market
and considering prevailing market conditions, provide to holders of shares of
such series of RP subject to Tender and Dividend Reset non-binding indications
of the Applicable Dividend Rate for the next succeeding 7-day Dividend Period or
Special Dividend Period for such series, as the case may be. THE ACTUAL
APPLICABLE DIVIDEND RATE FOR SUCH DIVIDEND PERIOD FOR SUCH SERIES MAY BE GREATER
THAN OR LESS THAN THE RATE INDICATED IN SUCH NON-BINDING INDICATIONS (BUT NOT
GREATER THAN THE APPLICABLE MAXIMUM DIVIDEND RATE FOR SUCH SERIES) AND WILL NOT
BE DETERMINED UNTIL AFTER A HOLDER IS REQUIRED TO ELECT TO HOLD OR TENDER ITS
SHARES OF RP OR A NEW PURCHASER IS REQUIRED TO AGREE TO PURCHASE SUCH SHARES OF
RP. By 12:00 noon, New York City time, on such Remarketing Date, each holder of
shares of RP subject to Tender and Dividend Reset must notify the Remarketing
Agent of its desire on a share-
-6-
<PAGE>
by-share basis, either to tender such share at a price of $25,000 per share or
to continue to hold such share for the next Dividend Period (whether a 7-Day
Dividend Period or a Special Dividend Period). Any holder or prospective
purchaser may informally indicate to the Remarketing Agent its Applicable
Dividend Rate preferences. However, any such notice given to the Remarketing
Agent to tender or hold shares for a particular Dividend Period is irrevocable
and may not be conditioned upon the level at which the Applicable Dividend Rate
is set. Accordingly, the Applicable Dividend Rate with respect to a Dividend
Period may be greater or less than such rate preferences. Any such notice may
not be revoked by the holder; provided that the Remarketing Agent may, in its
sole discretion, (i) at the request of a holder that has tendered one or more
shares of RP to the Remarketing Agent, waive such holder's tender and thereby
enable such holder to continue to hold such share or shares for the next
Dividend Period for such series, as agreed to by the holder and the Remarketing
Agent at such time, so long as such tendering holder has indicated that it would
accept the new Applicable Dividend Rate for such Dividend Period, and (ii) at
the request of a holder that has elected to hold one or more of its shares of
such series of RP, waive such holder's election with respect thereto, either
such waiver to be contingent upon the Remarketing Agent's being able to remarket
all shares of such series tendered to it in such Remarketing. Subject to the
last sentence of this paragraph, holders of shares of RP that fail on a
Remarketing Date for such shares to elect to tender or hold such shares will be
deemed to have elected to continue to hold such shares for the next Dividend
Period if each of the current Dividend Period and the next Dividend Period for
such series is a 7-day Dividend Period or a Special Dividend Period of a series
of 60 days or less. If, on a Remarketing Date for shares of a series of RP, the
current Dividend Period for such series is a Special Dividend Period of more
than 60 days, or the succeeding Dividend Period for such series has been
designated by the Trustees as a Special Dividend Period of more than 60 days,
then holders of such shares of such series that fail to elect to tender or hold
such shares will be deemed to have elected to tender such shares.
Between 12:00 noon and 3:00 p.m., New York City time, on each
Remarketing Date for RP, except during a Non-Payment Period, the Remarketing
Agent will determine the Applicable Dividend Rate for the next Dividend Period
for such series, which will be the lowest rate per annum (but not greater than
the applicable Maximum Dividend Rate) available, which the Remarketing Agent
believes will enable the Remarketing Agent to remarket on behalf of the holders
thereof all shares of such series of RP tendered to it on such Remarketing Date
at a price of $25,000 per share. Such determination will be made in the sole
discretion of the Remarketing Agent and will be conclusive and binding on the
Fund and on the holders of shares of such series of RP.
If a Remarketing for shares of a series of RP does not take place
because there is no Remarketing Agent or the Remarketing Agent is not required
to conduct a Remarketing pursuant to the terms of the Remarketing Agreement,
then, except during a Non-Payment Period, the Applicable Dividend Rate for the
subsequent Dividend Period for such series of RP will be the applicable Maximum
Dividend Rate, and such Dividend Period will be a 7-day Dividend Period. See
"Remarketing." If the Remarketing Agent is unable to remarket on the Remarketing
Date all shares of a series of RP tendered (or deemed tendered) to it at a price
of $25,000 per share, the next Dividend Period for all shares of such series of
RP will be a 7-day Dividend Period and the Applicable Dividend Rate therefor
shall be the Maximum Dividend Rate for such 7-day Dividend Period. See
"Remarketing--Remarketing Procedures--Allocation of Shares; Failure to Remarket
at $25,000 Per Share."
There can be no assurance that the Remarketing Agent will be able to
remarket all shares of a series of RP tendered in a Remarketing. If any shares
of a series of RP tendered in a Remarketing are not remarketed, a holder thereof
may be required to hold some or all of its shares of such series at least until
the end of the next Dividend Period therefor or to sell its shares outside a
Remarketing. In such case, the remarketing procedures may require an allocation
of shares of such series of RP on a pro rata basis, to the extent practicable,
or by lot, as determined by the Remarketing Agent in its sole discretion, which
may result in a holder's selling a number of shares of such series of RP that is
less than the number of such shares specified in such holder's tender order. See
"Remarketing--Remarketing Procedures--Allocation of Shares; Failure to Remarket
at $25,000 Per Share," "Remarketing--Restrictions on Transfer" and
"Remarketing--The Remarketing Agent."
SETTLEMENT DATE. On a Settlement Date for shares of a series of RP,
which will be the first Business Day following the related Remarketing Date and
which will be the first day of the new Dividend Period for such series, each
person purchasing shares of RP as a result of a Remarketing must pay, or cause
its Agent Member to pay on its behalf, the purchase price against delivery of
such shares by the holder thereof or its Agent Member.
After the initial sale of shares of RP through this offering,
settlement for purchases and sales of shares of RP in a Remarketing will
generally be made with respect to each share of RP through the Securities
Depository on the
-7-
<PAGE>
related Settlement Date therefor in accordance with its normal procedures, which
provide for payment in same-day funds.
Shares of RP tendered in a Remarketing will be purchased solely out of
the proceeds received from purchasers of shares of such series of RP in such
Remarketing. Neither the Fund, nor the Paying Agent or the Remarketing Agent
will be obligated to provide funds to make payment upon any holder's tender in a
Remarketing unless, in the case of the Paying Agent or the Remarketing Agent,
the shares are purchased for its own account. Tendered shares of RP will also be
subject to purchase in a Remarketing by the Remarketing Agent for its own
account or as nominee for others, although the Remarketing Agent is not
obligated to purchase any shares.
REMARKETING AGENT. The Remarketing Agent for both series of RP
initially will be Merrill Lynch. Performance by the Remarketing Agent will be
subject to certain conditions. The Remarketing Agent may not terminate the
Remarketing Agreement except in accordance with the procedures set forth in such
agreement. See "Remarketing--The Remarketing Agent."
RESTRICTIONS ON TRANSFER
Unless during a Non-Payment Period the Fund waives this requirement,
shares of each series of RP will be held only by book entry through the
Securities Depository. The Securities Depository maintains an account for each
Agent Member, which, in turn, will maintain records of its clients' beneficial
ownership. The Paying Agent will maintain a record of certain beneficial owners
of shares of each series of RP, for purposes of determining owners entitled to
participate in Remarketings and for certain other purposes. The Paying Agent
will only record transfers of beneficial ownership, in a Remarketing or
otherwise, of which it is notified in accordance with its procedures in effect
from time to time. Any certificate for shares of RP will bear a legend to the
effect that such certificate is issued subject to certain provisions restricting
transfers of such shares. See "Remarketing--Restrictions on Transfer."
SECONDARY MARKET
The Remarketing Agent has advised the Fund that it currently intends to
make a secondary trading market in the shares of RP outside of Remarketings but
has no obligation to do so. Neither series of RP will be registered on any stock
exchange or on any automated quotation system. If the Remarketing Agent
purchases shares of RP in the secondary market or in a Remarketing, it may be in
the position of holding for its own account or as nominee for others shares of
RP at the time it determines the Applicable Dividend Rate for such series in a
Remarketing therefor, and may tender such shares in such Remarketing. See
"Remarketing--Restrictions on Transfer--Secondary Market."
ASSET MAINTENANCE; RATING AGENCY REQUIREMENTS
Under the Bylaws of the Fund (the "Bylaws"), the Fund must maintain
1940 Act RP Asset Coverage of at least 200%. See "Investment Objective and
Policies--Asset Maintenance."
In connection with their respective ratings of both series of RP,
Moody's and S&P have each established asset coverage guidelines which are
incorporated into the Bylaws. These guidelines require the Fund among other
things to maintain investment-grade assets with a value (discounted in
accordance with each rating agency's guidelines) equal to the RP Basic
Maintenance Amount. They also impose restrictions on the securities in which the
Fund may invest, limit the Fund's use of futures, options and forward
commitments, and prohibit the use of borrowing for leverage and the Fund's
entering into short sales, securities lending and reverse repurchase agreements.
These requirements are explained in greater detail in Appendix B. If the Fund
fails to meet such asset maintenance requirements and such failure is not cured,
the Fund will be required under certain circumstances to redeem some or all of
the shares of RP. See "Description of RP--Redemption".
MANDATORY REDEMPTION
If the RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage is
not maintained or restored as specified herein, Preferred Shares will be subject
to mandatory redemption on a date specified by the Trustees, out of funds
legally available therefor. In such event, Series B RP and Series C RP would be
redeemed at the redemption price of $25,000 per share, and Series A RP would be
redeemed at the redemption price of $50,000, plus amounts equal in each case to
dividends thereon (whether or not earned or declared) accumulated but unpaid to
the date fixed for
-8-
<PAGE>
redemption. Any such redemption will be limited to the number of shares
necessary to restore the RP Basic Maintenance Amount or the 1940 Act RP Asset
Coverage, as the case may be. See "Description of RP--Redemption."
OPTIONAL REDEMPTION
Except as described under "Description of RP--Redemption," shares of RP
are redeemable, in whole or in part, at the option of the Fund, on the next
succeeding scheduled Dividend Payment Date (except during a Non-Call Period)
applicable to shares of such series of RP called for redemption, out of funds
legally available therefor, at the redemption price of $25,000 per share plus an
amount equal to dividends thereon (whether or not earned or declared)
accumulated but unpaid to the date fixed for redemption plus any premium
accruing during a Premium Call Period for such series.
LIQUIDATION PREFERENCE
The liquidation preference of the shares of RP will be $25,000 per
share plus accumulated but unpaid dividends, if any. See "Description of
RP--Dividends--Dividend Payments" and "Description of
RP--Liquidation/Bankruptcy."
VOTING RIGHTS
The Bylaws, in accordance with the 1940 Act, require that the holders
of Preferred Shares, voting as a separate class, have the right to elect at
least two Trustees at all times and to elect a majority of the Trustees at any
time two years' dividends on the Preferred Shares are unpaid. The holders of
Preferred Shares will vote as a separate series or class on certain other
matters as required under the Bylaws, the 1940 Act and Massachusetts law. See
"Description of RP--Voting Rights" and "Description of RP--Certain Provisions in
the Declaration of Trust."
RATINGS
It is a condition to their issuance that the shares of RP be issued
with ratings of "aaa" from Moody's and AAA from S&P.
-9-
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
The Fund's investment policies and practices entail certain risks.
Various factors, including changes in interest rates, ratings, condition of the
issuer, business conditions in the issuer's industry and general economic
conditions, affect the value of municipal bonds and payment of principal and
interest thereon. Securities rated below investment grade are considered to be
speculative and may involve greater risk. Because the Fund is a
"non-diversified" investment company, it is more likely to invest a higher
percentage of its assets in the securities of a single issuer or of a limited
number of issuers than a diversified investment company that invests in a
broader range of securities. This practice involves an increased risk of loss to
the Fund if the issuers were unable to make interest or principal payments or if
the market values of such securities were to decline. Concentration of the
Fund's investments in individual sectors of the Municipal Bond market involves
special considerations and risks. As a result of its policy of concentrating its
investments in sectors of the Municipal Bond market, the Fund will be more
susceptible to economic, business, political, regulatory and other developments
generally affecting issuers in such sectors. Because of active management of the
Fund's portfolio allocation, its portfolio turnover rate may be greater and the
Fund will be more dependent on Putnam's investment analysis than funds with a
policy of maintaining investments in a broader range of segments or sectors in
the Municipal Bond market. Investment practices of the Fund, including
investment in inverse floating obligations, engaging in interest rate and other
hedging transactions, sales of futures contracts and options and entering into
forward commitments and repurchase agreements, may increase risk to the Fund.
The preferred position of the Preferred Shares, including the RP, on liquidation
and the Fund's redemption obligations in the event that it fails to maintain the
RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage in part mitigate
against the risks arising from the Fund's investment policies and practices.
The Fund has not established any limit on the percentage of its
portfolio that may be invested in Municipal Bonds subject to the alternative
minimum tax provisions of Federal tax law, and dividends paid to holders of RP,
by the Fund may be taxable to shareholders under the alternative minimum tax.
The Fund may not be a suitable investment for investors who are already subject
to the Federal alternative minimum tax or who would become subject to the
Federal alternative minimum tax as a result of an investment in the Fund. No
provision will be made to compensate holders of RP for any alternative minimum
tax liability in respect of distributions on the RP. Investors should consider
the possible effect of the Federal alternative minimum tax on an investment in
RP. See "Taxation."
The 1940 Act RP Asset Coverage requirement and the rating agency asset
maintenance guidelines require that the Fund maintain certain asset levels with
respect to the Preferred Shares. See "Investment Objective and Policies--Asset
Maintenance" and Appendix B. In the event that the Fund's assets fall below
these levels, the Fund may be required to redeem some or all of the then
outstanding shares of RP. See "Description of RP--Redemption."
The credit rating of the RP could be reduced while an investor holds
the RP. A decrease in the rating of a share of the RP may affect the ability to
remarket the shares and may reflect a reduction in the Fund's ability to pay
dividends and/or the redemption price and liquidation value in respect of the RP
in accordance with the terms of the RP.
The actual Applicable Dividend Rate for any dividend period after the
Initial Dividend Period for a series of RP may be greater than or less than the
rate indicated in the non-binding indications of the Applicable Dividend Rate
furnished to holders of RP (but, except during a Non-Payment Period, not greater
than the applicable Maximum Dividend Rate) and will not be determined until
after a holder is required to elect to hold or tender its shares of RP.
There can be no assurance that the Remarketing Agent will be able to
remarket all shares of RP tendered in a Remarketing. If any shares of RP
tendered in a Remarketing are not remarketed, a holder thereof may be required
to hold some or all of its shares at least until the end of the next Dividend
Period therefor (or longer if Remarketings continue to fail) or to sell its
shares outside a Remarketing. In such case, the remarketing procedures may
require an allocation of shares of such series of RP on a pro rata basis, to the
extent practicable, or by lot, as determined by the Remarketing Agent in its
sole discretion, which may result in a holder's selling a number of shares of
such series of RP that is less than the number of shares specified in such
holder's tender order. Thus, under certain circumstances, shares of RP may be
illiquid investments. See "Remarketing--Remarketing Procedures--Allocation of
Shares; Failure to Remarket at $25,000 Per Share," "Remarketing--Restrictions on
Transfer" and "Remarketing--The Remarketing Agent." Neither the Remarketing
Agent nor the Fund is obligated to purchase shares of RP in a Remarketing or
otherwise, nor is the Fund required to redeem shares of RP in the event of
failed Remarketings.
There can be no assurance that a secondary market for RP will develop
or, if it does develop, that it will provide liquidity of investment.
-10-
<PAGE>
Under Federal tax law in effect on the date of this Prospectus, a
shareholder's interest deduction generally will not be disallowed if the average
adjusted basis of the shareholder's tax-exempt obligation (including shares of
RP) does not exceed two percent of the average adjusted basis of the
shareholder's trade or business assets (and, in the case of individuals,
portfolio investments). Currently proposed legislation would repeal this
two-percent DE MINIMIS exception, which could reduce the total after-tax yield
of the RP to investors to whom the DE MINIMIS exception would otherwise apply.
-11-
<PAGE>
FINANCIAL HIGHLIGHTS
The table below presents selected per share data, total returns, and ratios for
the life of the Fund for each share of beneficial interest. Except for financial
information for the six months ended October 31, 1996, the information in the
table has been audited and reported on by Coopers & Lybrand L.L.P., the Fund's
independent auditors, whose report appears in this prospectus. See "Report of
independent accountants."
<TABLE>
<CAPTION>
For the period
May 28, 1993
Six Months Ended Year Ended (commencement
October 31, 1996 April 30 of operations) to
(Unaudited) 1996 1995 April 30, 1994
--------------------- ---- ---- --------------
<S> <C> <C> <C> <C>
Net Asset Value of common shares, $13.50 $13.23 $13.57 $14.07(d)
beginning of period
Investment Operations:
Net investment income .49 .99 1.02 .94(a)
Net realized and unrealized
gain (loss) on investments .31 .36 (.16) (.59)
Total from investment operations .80 1.35 .86 .35
Less Distributions:
From net investment income
To preferred shareholders (.05) (.09) (.08) (.05)(f)
To common shareholders (.50) (.99) (.99) (.70)
From net realized gain on
investments:
To common shareholders - - (.09) (.05)
In excess of capital gains:
To common shareholders - - (.03) -
Total distributions (.55) (1.08) (1.19) (.80)
Preferred share offering costs - - - (.05)
Common share offering costs - - (.01)(g) -
Net asset value of common shares, $ 13.75 $ 13.50 $ 13.23 $ 13.57
end of period
Market value of common shares, $ 13.875 $ 13.625 $ 12.250 $ 12.625
end of period
Total Investment Return of
common shares at market
value (%)(b) 5.54* 19.64 5.82 (11.22)*
Net Assets, end of period
(in thousands)
$262,263 $258,119 $253,785 $259,295
Ratio of expenses to
average net assets (%) (c)(e) .57* 1.05 .95 .94*
Ratio of net investment income
to average net assets (%) (c) 3.29* 6.54 6.04 6.14*
Portfolio Turnover rate (%) 12.36* 49.97 59.13 60.52*
UNAUDITED
Net assets, net of Preferred
Shares, end of period
(in thousands) $222,240 $218,048 $213,785 $219,295
-------- -------- -------- --------
Preferred Shares outstanding, end
of period (in thousands) (f) 40,000 40,000 40,000 40,000
Asset coverage per $50,000 556% 545% 534% 548%
</TABLE>
* Not annualized.
(a)Reflects a waiver of the management fee. As a result of the waiver,
expenses of the fund for the period ended April 30, 1994 reflect a reduction
of less than $0.01 per share.
(b)Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c)Ratios reflect net assets available to common shares only; net investment
income ratio also reflects reduction for dividend payments to preferred
shareholders.
(d)Represents initial net asset value of $14.10 less offering expenses of $0.03.
(e)The ratio of expenses to average net assets for the year ended April 30, 1996
and thereafter includes amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts.
(f)Remarketed Preferred Shares, Series A, were issued on August 3, 1993.
(g)Adjustments of the original offering costs to reflect actual costs incurred.
-12-
<PAGE>
THE FUND
Putnam Municipal Opportunities Trust (the "Fund") is a closed-end,
non-diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund was organized as a
Massachusetts business trust on April 1, 1993, and commenced operations on May
28, 1993. The Fund has outstanding 16,157,092 shares of common stock which trade
on the New York Stock Exchange under the symbol "PMO." The Fund also has
outstanding 800 shares of Series A RP. As of March 31, 1997, the Fund had net
assets of $259,790,772. A copy of the Agreement and Declaration of Trust (the
"Agreement and Declaration of Trust"), which is governed by Massachusetts law,
is on file with the Secretary of State of The Commonwealth of Massachusetts.
The Fund's principal office is located at One Post Office Square, Boston,
Massachusetts 02109, and its telephone number is (617) 292-1000.
INVESTMENT MANAGER
The Fund's investment manager is Putnam Investment Management, Inc.
("Putnam"), a Massachusetts corporation with offices at One Post Office Square,
Boston, Massachusetts 02109. Putnam is a wholly owned subsidiary of Putnam
Investments, Inc., a holding company which is in turn wholly owned by Marsh &
McLennan Companies, Inc., a publicly owned holding company whose principal
businesses are international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
Putnam has been managing mutual funds since 1937. The firm serves as
the investment manager for the funds in the Putnam family, with approximately
$133.7 billion in assets in over 7 million shareholder accounts as of December
31, 1996, including approximately $18 billion generally invested in Municipal
Bonds. In addition to the Fund, the Putnam family of funds includes 17
closed-end funds, 8 of which, Putnam Investment Grade Municipal Trust, Putnam
Investment Grade Municipal Trust II, Putnam Investment Grade Municipal Trust
III, Putnam California Investment Grade Municipal Trust, Putnam New York
Investment Grade Municipal Trust, Putnam Tax-Free Health Care Fund, Putnam
Managed Municipal Trust, and Putnam High Yield Municipal Trust, invest primarily
in Municipal Bonds. An affiliate, The Putnam Advisory Company, Inc., manages
domestic and foreign institutional accounts and foreign mutual funds. Another
affiliate, Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. Putnam and its
affiliates managed approximately $173.5 billion in assets as of December 31,
1996.
Putnam performs a detailed credit analysis on all of the Municipal
Bonds in which a fund invests. Putnam currently employs 6 portfolio managers
dedicated to the Municipal Bond market, supported by 23 investment analysts and
other research personnel. Their investment analysis is supported by Putnam's
computer modeling techniques and issuer data base. The portfolio manager who is
currently primarily responsible for the day-to-day management of the Fund's
portfolio is identified under "Trustees and Officers" below. Putnam considers a
Municipal Bond's rating by a national rating service as only one factor in its
analysis of the security.
USE OF PROCEEDS
The net proceeds of this offering are estimated to be $______, after
payment of the sales load and offering expenses.
The net proceeds of the offering will be invested in accordance with
the Fund's investment objective and policies during a period estimated not to
exceed three months from completion of the offering, depending on market
conditions and the availability of appropriate securities. Pending such
investment, the proceeds will be invested in high-quality, short-term money
market instruments.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Fund as of
October 31, 1996, and as adjusted to give effect to the issuance of the RP
offered hereby.
<TABLE>
<CAPTION>
Actual As Adjusted
<S> <C> <C>
Preferred Shares, without par value, 6,000 shares authorized; $40,000,000 $121,000,000
800 shares of Series A RP issued and outstanding at $50,000
per share liquidation preference; as adjusted for issuance of 1,620 shares
of Series B RP and 1,620 shares of Series C RP issued and outstanding at
$25,000 per share liquidation preference
Common Shares, without par value, unlimited shares $226,378,559 ---------------
authorized; 16,157,092 shares issued and outstanding
Undistributed net investment income $140,090 ---------------
Net unrealized appreciation of investments $4,961,811
---------------
Accumulated net realized loss on investments (9,217,828)
----------- ---------------
Net assets $262,262,632
============ ===============
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek as high a level of current
income exempt from Federal income tax as Putnam believes is consistent with
preservation of capital.
The Fund will seek to achieve its investment objective primarily by
investing in a portfolio of Municipal Bonds issued by or for the benefit of
entities principally engaged in those sectors of the Municipal Bond market that
in the opinion of Putnam present the most attractive opportunities to attain a
high level of current income exempt from Federal income tax, consistent with the
preservation of capital. Under normal market conditions, the Fund will not
invest more than 50% of its total assets in any one sector. In managing the
Fund's portfolio, Putnam will perform detailed analyses of the sectors of the
Municipal Bond market, and, depending on the results of its analysis, may from
time to time adjust the proportion of the Fund's assets allocated among the
various sectors. Putnam's analyses will be based on a variety of factors,
including market conditions, general economic conditions, technological
developments and political considerations. The sectors in which the Fund invests
and the proportion of the Fund, if any, allocated to such sectors may change
over time. Investment in a limited number of sectors in the Municipal Bond
market and active management of portfolio allocation involve certain risks.
Under normal market conditions, the Fund will invest at least 80% of
its total assets in Municipal Bonds rated investment grade at the time of
investment or, if not rated, determined by Putnam to be of comparable quality.
Investment grade Municipal Bonds are rated BBB or higher by Standard & Poor's
Ratings Services ("S&P") or Fitch Investors Service, Inc. ("Fitch") or Baa or
higher by Moody's Investors Service, Inc. ("Moody's") (or equivalently rated by
another nationally recognized rating service) in the case of long-term
obligations, and have equivalent ratings in the case of short-term obligations.
For a description of the ratings of each of the rating agencies, see Appendix C
to this Prospectus.
The Fund may invest up to 20% of its total assets in securities that
are rated BB or B by S&P and Fitch and Ba or B by Moody's (or equivalently rated
by another nationally recognized rating service) in the case of long-term
obligations (and equivalently rated in the case of short-term obligations) or,
if non-rated, determined by Putnam to be of comparable quality, at the time of
investment. The Fund may only invest in securities rated at least B or in
unrated securities deemed by Putnam to be of comparable quality. While offering
opportunities for higher yields, such lower-rated securities are considered by
the rating agencies or by Putnam, as the case may be, below investment grade and
to involve higher risk. Such lower-rated securities are regarded by the rating
agencies or by Putnam, as the case may be, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating at the time of
purchase, although Putnam will monitor the investment to determine whether
continued
-14-
<PAGE>
investment in the security will assist in meeting the Fund's investment
objective. See "Risk Factors--Lower-rated Municipal Bonds" and Appendix C.
The Fund will not invest more than 20% of its total assets in Municipal
Bonds not rated by a nationally recognized rating service at the time of
commitment. Although the ratings of S&P, Fitch, or Moody's of the Municipal
Bonds in the Fund's portfolio are relative and subjective, and are not absolute
standards of quality, such ratings reflect the assessment of S&P, Fitch, or
Moody's, as the case may be, at the time of issuance of the rating, of the
issuer's ability to make timely payments of interest and to repay principal or
the economic viability of the special revenue source. Such ratings, however, do
not reflect an assessment of the market value of the obligation. The Fund will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although Putnam will monitor the investment to
determine whether continued investment in the security is consistent with the
Fund's investment objective. The rating services undertake no obligation to
update their ratings of securities. See Appendix C.
The Fund may invest an unlimited portion of its assets in Municipal
Bonds subject to the Federal alternative minimum tax, and as a result a
substantial portion of the Fund's distributions may be taxable to certain
shareholders. Subject to the limitations set forth in this Prospectus, the Fund
may engage in certain hedging transactions involving the use of futures
contracts, options on futures contracts, and options on indices of Municipal
Bonds and on U.S. Government securities. Such hedging transactions may give rise
to taxable gains. All or a portion of the Fund's distributions may be subject to
state and local taxation.
An investment in the Fund may not be appropriate for all investors, and
there is no assurance the Fund will achieve its investment objective.
MUNICIPAL BONDS
Municipal Bonds include obligations of States and their political
subdivisions, and a territory or a U.S. possession, or any of their agencies,
instrumentalities or other governmental units, the interest on which, in the
opinion of bond counsel, is exempt from federal income tax other than minimum
corporate income tax. These securities are issued to obtain funds for various
public purposes, such as the construction of public facilities, the payment of
general operating expenses or the refunding of outstanding debts. They may also
be issued to finance various private activities, including the lending of funds
to public or private institutions for the construction of housing, educational
or medical facilities, or to fund short-term cash requirements. They may also
include certain types of industrial development bonds, private activity bonds or
notes issued by public authorities to finance privately owned or operated
facilities.
Short-term Municipal Bonds may be issued as interim financing in
anticipation of tax collections, revenue receipts or bond sales to finance
various public purposes. Municipal Bonds may also include obligations issued by
certain other governmental entities, such as U.S. territories, if these debt
obligations generate interest income that is exempt from federal income tax.
The two principal classifications of Municipal Bonds are general
obligation and special obligation (or special revenue obligation) bonds.
General obligation bonds involve a pledge of the credit of an issuer
possessing taxing power and are payable from the issuer's general unrestricted
revenues. Their payment may depend on an appropriation by the issuer's
legislative body. The characteristics and methods of enforcement of general
obligation bonds vary according to the law applicable to the particular issuer.
Special obligation (or special revenue obligation) bonds are payable
only from the revenues derived from a particular facility or class of
facilities, or a specific revenue source, and generally are not payable from the
unrestricted revenues of the issuer. Industrial development bonds and private
activity bonds are in most cases special obligation bonds, whose credit quality
is tied to the private user of the facilities.
The fund may also invest in securities representing interests in
Municipal Bonds known as "inverse floating obligations" or "residual interest
bonds." These obligation pay interest rates that vary inversely with changes in
the interest rates of specified short-term Municipal Bonds or an index or
short-term Municipal Bonds. The interest rates on inverse floating obligations
or residual interest bonds will typically decline as short-term market interest
rates increase and increase as short-term market rates decline. These securities
have the effect of providing a degree of investment leverage. They will
generally respond to changes in market interest rates more rapidly than
fixed-rate long-
-15-
<PAGE>
term securities (typically twice as fast). As a result, the market values of
inverse floating obligations and residual interest bonds will generally be more
volatile than the market values of fixed-rate Municipal Bonds.
The Fund may also invest in participations in lease obligations or
installment purchase contract obligations and tax-exempt commercial paper.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purposes on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional securities. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
In addition, the tax treatment of such obligations in the event of
non-appropriation is unclear.
Participation certificates are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may represent participations in a lease, an installment
purchase contract, or a conditional sales contract. Some municipal leases and
participation certificates may not be readily marketable.
SELECTION OF INVESTMENTS
Putnam will buy and sell securities for the Fund's portfolio with a
view to seeking a high level of current income exempt from Federal income tax
and will select securities constituting a portfolio which Putnam believes does
not involve undue risk to income or principal considered in relation to the
particular investment policies of the Fund. As a result, the Fund will not
necessarily invest in the highest yielding Municipal Bonds permitted by its
investment policies if Putnam determines that market risks or credit risks
associated with such investments would subject the Fund's portfolio to excessive
risk. The potential for realization of capital gains resulting from possible
changes in interest rates will not be a major consideration. Putnam will be free
to take full advantage of the entire range of maturities offered by Municipal
Bonds and may adjust the average maturity of the Fund's portfolio from time to
time, depending on its assessment of the relative yields available on securities
of different maturities and its expectations of future changes in interest
rates.
PORTFOLIO TURNOVER
The length of time the Fund has held a particular security is not
generally a consideration in investment decisions. A change in the securities
held by the Fund is known as "portfolio turnover." As a result of the Fund's
investment policies, under certain market conditions its portfolio turnover rate
may be higher than that of other investment companies.
Portfolio turnover generally involves some expense, including brokerage
commissions or dealer markups and other transaction costs on the sale of
securities and reinvestment in other securities. These transactions may result
in realization of taxable capital gains. See "Financial Highlights."
RATING AGENCY GUIDELINES
The composition of the Fund's portfolio will reflect guidelines
established by Moody's and S&P in connection with the Fund's receipt of a rating
for the shares of RP on their date of original issue of at least "aaa" by
Moody's and AAA by S&P. Moody's and S&P, nationally recognized statistical
rating organizations, issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines described under
"Investment Objective and Policies--Asset Maintenance" and in Appendix B have
been developed by Moody's and S&P in connection with issuances of asset-backed
and similar securities, including debt obligations and variable rate preferred
stocks, generally on a case-by-case basis through discussions with the issuers
of these securities. The guidelines are generally designed to ensure that assets
underlying outstanding debt or preferred stock 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 Fund in
order to satisfy current requirements necessary for Moody's and S&P to issue the
above-described ratings for shares of RP, which ratings are generally relied
upon by institutional investors in purchasing such securities. The guidelines
include 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.
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<PAGE>
ASSET MAINTENANCE
1940 Act RP Asset Coverage. The Fund will be required under the Bylaws
to maintain, as of the last Business Day of each month in which any shares of RP
are outstanding, asset coverage of at least 200% with respect to outstanding
senior securities which are stock, including the shares of RP (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 paying dividends on its common shares)
("1940 Act RP Asset Coverage"). If the Fund fails to maintain 1940 Act RP Asset
Coverage and such failure is not cured as of the last Business Day of the
following month (the "1940 Act Cure Date"), the Fund will be required under
certain circumstances to redeem certain of the Preferred Shares. See
"Description of RP--Redemption."
Based on the composition of the Fund's portfolio at October 31, 1996,
1940 Act RP Asset Coverage with respect to the shares of RP, following the
issuance of all shares of RP offered hereby and after giving effect to payment
of the estimated sales load and offering costs for the shares of RP, would be
computed as follows:
Value of Fund assets less
liabilities not constituting
Senior securities
______________________ = ________ = __%
Senior securities
representing indebtedness
plus liquidation value
of the Preferred Shares
Based on the composition of the Fund's portfolio at April 30, 1997, the
1940 Act RP Asset Coverage following the issuance of all shares of RP offered
hereby would be approximately ___%.
RP BASIC MAINTENANCE AMOUNT. In connection with their respective
ratings of the RP, Moody's and S&P have each established asset coverage
guidelines which are incorporated into the Bylaws designed to ensure the payment
of the liquidation preference and the Fund's other obligations in respect of its
outstanding shares of RP. These guidelines require the Fund among other things
to maintain investment-grade assets with a value (discounted in accordance with
each rating agency's guidelines) equal to the RP Basic Maintenance Amount. These
guidelines impose restrictions on the securities in which the Fund may invest,
limit the Fund's use of futures, options and forward commitments, and prohibit
the use of borrowing for leverage and the Fund's entering into short sales,
securities lending and reverse repurchase agreements. These requirements are
explained in greater detail in Appendix B. If the Fund fails to meet such
requirements and such failure is not cured, the Fund will be required under
certain circumstances to redeem some or all of the shares of RP. See
"Description of RP--Redemption."
GENERAL. The Fund may, but is not required to, adopt any modifications
to these 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 above or a withdrawal of ratings altogether. In addition, any rating
agency providing a rating for the shares of RP may, at any time, change or
withdraw any such rating. As set forth in the Bylaws, the Trustees may, without
shareholder approval, modify certain definitions or restrictions which have been
adopted by the Fund pursuant to the rating agency guidelines, provided in
certain cases the Trustees have obtained written confirmation from Moody's and
S&P that any such change would not impair the ratings then assigned by Moody's
and S&P to the RP.
As recently described by Moody's and S&P, a preferred stock rating is
an assessment of the capacity and willingness of an issuer to pay preferred
stock obligations. The ratings on the RP are not recommendations to purchase,
hold or sell shares of RP, inasmuch as the ratings do not comment as to market
price or suitability for a particular investor. Nor do the rating agency
guidelines address the likelihood that a holder of shares of RP will be able to
sell such shares in a Remarketing. The ratings are based on current information
furnished to Moody's and S&P by the Fund and Putnam 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.
-17-
<PAGE>
OTHER INVESTMENT PRACTICES
The Fund may engage in the following incidental investment practices,
some of which may result in taxable income, and each of which may involve
certain special risks. The investment guidelines imposed by Moody's and S&P
limit, and in some cases prohibit, the Fund's use of certain of these investment
practices without the express authorization of the applicable rating agency.
FINANCIAL FUTURES AND OPTIONS. The Fund may invest in options and
certain financial futures contracts. There can be no assurance that the Fund's
hedging transactions will be effective. For so long as shares of RP are rated by
Moody's, the Fund will not purchase or sell futures contracts or write, purchase
or sell options on futures contracts or write put or call options (except
covered call or put options) on portfolio securities unless it receives written
confirmation from Moody's that engaging in such transactions would not impair
the rating then assigned to the shares of RP by Moody's, except that the Fund
may purchase or sell exchange-traded futures contracts based on the Municipal
Index or Treasury Bonds and purchase or sell exchange-traded put options on such
futures contracts and purchase, write or sell exchange-traded call options on
such futures contracts (collectively "Moody's Hedging Transactions"), subject to
the limitations described in Appendix B. For so long as shares of RP are rated
by S&P, the Fund will not purchase or sell futures contracts or write, purchase
or sell options on futures contracts or write put options (except covered put
options) or call options (except covered call options) on portfolio securities
unless it receives written confirmation from S&P that engaging in such
transactions will not impair the rating then assigned to the shares of RP by
S&P, except that the Fund may purchase or sell futures contracts based on the
Municipal Index or Treasury Bonds with remaining maturities of ten years or more
and write, purchase or sell put and call options on such contracts (collectively
"S&P Hedging Transactions") subject to the limitations described in Appendix B.
The Fund may purchase and sell financial futures contracts and options,
including index futures contracts on the Municipal Bond Index. This index is
intended to represent a numerical measure of market performance for long-term
tax-exempt bonds. An "index future" is a contract to buy or sell units of a
particular securities index at an agreed price on a specified future date.
Depending on the change in value of the index between the time the Fund enters
into and terminates an index futures contract, the fund realizes a gain or loss.
The Fund may also purchase and sell put and call options on index
futures or on indexes directly, in addition to or as an alternative to
purchasing and selling index futures. The Fund may also purchase and sell
futures contracts and related options on U.S. Treasury securities, including
U.S. Treasury bills, notes and bonds ("U.S. government securities") and options
directly on U.S. government securities.
In addition, the Fund may purchase put and call options on, or warrants
to purchase, Municipal Bonds either directly or through custodial arrangements
in which the Fund and other investors own an interest in one or more options on
Municipal Bonds.
The Fund will engage in these transactions for hedging purposes and, to
the extent permitted by applicable law, for nonhedging purposes, such as to
manage the effective duration of the Fund's portfolio or as a substitute for
direct investment.
The use of futures and options involves certain special risks and may
result in the realization of taxable income or capital gains. Futures and
options transactions involve costs and may result in losses.
Certain risks arise from the possibility of imperfect correlations
among movements in the prices of financial futures and options purchased or sold
by the Fund, of the underlying bond index or U.S. government securities and, in
the case of hedging transactions, of the Municipal Bonds that are the subject of
the hedge.
Other risks arise from the potential inability to close out futures or
options positions. There can be no assurance that a liquid secondary market will
exist for any futures contract or option at a particular time. Certain
provisions of the Internal Revenue Code and certain regulatory requirements may
limit the use of futures and options transactions. The successful use of these
strategies further depends on the ability of Putnam to forecast interest rates
and market movements correctly.
See Appendix D for more detailed information about these practices,
including limitations designed to reduce risks.
-18-
<PAGE>
FORWARD COMMITMENTS. The Fund may make contracts to purchase securities
for a fixed price at a future date, beyond customary settlement time ("forward
commitments"), if it holds, and maintains until the settlement date in a
segregated account, cash, cash equivalents or short-term, fixed income
securities in an amount sufficient to meet the purchase price, or if it enters
into offsetting contracts for the forward sale of other securities it owns.
Forward commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Fund's other assets. Where such purchases are made through dealers, the Fund
relies on the dealer to consummate the sale. The dealer's failure to do so may
result in the loss to the Fund of an advantageous yield or price. Although the
Fund will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to options
contracts it has entered into, the Fund may dispose of a commitment prior to
settlement if Putnam deems it appropriate to do so. The Fund may realize capital
gains or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with respect to up to 25% of its total assets (taken at current value). A
repurchase agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Fund to resell such security at a
fixed time and price (representing the Fund's cost plus interest). It is the
Fund's present intention to enter into repurchase agreements only with
commercial banks and registered broker-dealers. Repurchase agreements may also
be viewed as loans made by the Fund which are collateralized by the securities
subject to repurchase. Putnam will monitor such transactions to ensure that the
value of the underlying securities will be at least equal at all times to the
total amount of the repurchase obligations, including the interest factor. If
the seller defaults, the Fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the Fund may incur delays and costs in selling the underlying
security or may suffer a loss of principal and interest if the Fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate. The Fund's investments in repurchase agreements generally will
give rise to taxable income.
CERTAIN RESTRICTIONS. For so long as shares of RP are rated by Moody's
or S&P, the Fund will not, unless it has received any required written
confirmation from Moody's or S&P, as the case may be, that such action would not
impair the ratings then assigned to the RP by Moody's or S&P, as the case may
be, (i) borrow money except for the purpose of clearing transactions in
portfolio securities, (ii) engage in short sales of securities, (iii) lend any
portfolio securities, (iv) issue any class or series of shares of beneficial
interest ranking prior to the RP with respect to the payment of dividends or the
distribution of assets upon liquidation of the Fund, (v) merge or consolidate
into or with any other corporation or entity, (vi) engage in reverse repurchase
agreements, or (vii) designate a new Pricing Service.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which may
not be changed without the affirmative vote of a "majority of the outstanding
voting securities" of the Fund (which is defined in the 1940 Act to mean the
affirmative vote of the lesser of (1) more than 50% of the outstanding Common
Shares and of the outstanding Preferred Shares of the Fund, each voting as a
separate class, or (2) 67% or more of the Common Shares and of the Preferred
Shares, each voting as a separate class, present at a meeting if more than 50%
of the outstanding Shares of each class are represented at the meeting in person
or by proxy). The Fund may not:
1. Issue senior securities, as defined in the 1940 Act, other
than shares of beneficial interest with preference rights, except
to the extent such issuance might be involved with respect to
borrowings described under restriction 2 below or with respect to
transactions involving financial futures, options, and other
financial instruments.
2. Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure (not for
leverage) in situations which might otherwise require the
untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased.
3. Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under the
Federal securities laws.
-19-
<PAGE>
4. Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities
representing interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
5. Purchase or sell commodities or commodity contracts, except
that the fund may purchase and sell financial futures contracts
and options and may enter into foreign exchange contracts and
other financial transactions not involving physical commodities.
6. Make loans, except by purchase of debt obligations in which
the Fund may invest consistent with its investment policies, by
entering into repurchase agreements, or by lending its portfolio
securities.
7. With respect to 50% of its total assets, invest in the
securities of any issuer if, immediately after such investment,
more than 5% of the total assets of the Fund (taken at current
value) would be invested in the securities of such issuer;
provided that this limitation does not apply to obligations
issued or guaranteed as to interest or principal by the U.S.
Government or its agencies or instrumentalities.
8. With respect to 50% of its total assets, acquire more than
10% of the outstanding voting securities of any issuer.
9. Purchase securities (other than securities of the U.S.
Government, its agencies or instrumentalities or tax-exempt
securities, except tax-exempt securities backed only by the
assets and revenues of non-governmental issuers) if, as a result
of such purchase, more than 25% of the fund's total assets would
be invested in any one industry.
All percentage limitations on investments described in this Prospectus
will apply at the time of investment and shall not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of
such investment. Except for the investment restrictions listed above and the
Fund's policy under normal market conditions to invest at least 80% of its
assets in Municipal Bonds, the other investment policies described in this
Prospectus are not fundamental and may be changed by approval of the Fund's
Trustees.
TRUSTEES AND OFFICERS
The Trustees of the Fund are responsible for the general oversight of
the Fund's business. The Trustees and executive officers of the Fund and their
principal occupations during the last five years are set forth below. The
mailing address of each of the officers and Trustees is One Post Office Square,
Boston, Massachusetts 02109.
Trustees
George Putnam (70), Chairman and President. Chairman and Director of
Putnam Investment Management, Inc. and Putnam Mutual Funds Corp. Director, The
Boston Company, Inc., Boston Safe Deposit and Trust Company, Freeport McMoRan,
Inc., Freeport Copper and Gold, Inc., McMoRan Oil and Gas Inc., General Mills,
Inc., Houghton Mifflin Company, Marsh & McLennan Companies, Inc. and Rockefeller
Group, Inc.(b)
William F. Pounds (68), Vice Chairman. Professor of Management, Alfred
P. Sloan School of Management, Massachusetts Institute of Technology. Director
of EG&G, Inc., IDEXX Laboratories, Inc., Perseptive Biosystems, Inc., Management
Sciences for Health, Inc. and Sun Company, Inc.(b)
Jameson A. Baxter (53). President, Baxter Associates, Inc. (a
management and financial consultant). Director of Avondale Federal Savings Bank,
ASHTA Chemicals, Inc. and Banta Corporation. Chairman Emeritus of the Board of
Trustees, Mount Holyoke College.
Hans H. Estin (68). Vice Chairman, North American Management Corp. (a
registered investment adviser). Director of The Boston Company, Inc. and Boston
Safe Deposit and Trust Company.(b)
John A. Hill (55). Chairman and Managing Director, First Reserve
Corporation (a registered investment adviser). Director of Maverick Tube
Corporation, PetroCorp Incorporated, Snyder Oil Corporation, Weatherford
Enterra, Inc. and various First Reserve Funds.
- ---------------
(a) George Putnam, III is the son of George Putnam.
(b) Members of the Executive Committee of the Trustees. The Executive Committee
meets between regular meetings of the Trustees as may be required to review
investment matters and other affairs of the fund and may exercise all of
the powers of the Trustees.
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<PAGE>
Ronald J. Jackson (53). Former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc., Director of Safety 1st, Inc., Trustee of Salem
Hospital and the Peabody Essex Museum.
Elizabeth T. Kennan (59). President Emeritus and Professor, Mount
Holyoke College. Director of the Kentucky Home Life Insurance Companies, NYNEX
Corporation, Northeast Utilities and Talbots. Trustee of the University of Notre
Dame.
Lawrence J. Lasser (54). Vice President. President, Chief Executive
Officer and Director of Putnam Investments, Inc. and Putnam Investment
Management, Inc. Director of Marsh & McLennan Companies, Inc.
Robert E. Patterson (52). Executive Vice President and Director of
Acquisitions, Cabot Partners Limited Partnership (a registered investment
adviser).
Donald S. Perkins (69). Director of various corporations, including
AON Corp., Cummins Engine Company, Inc., Current Assets L.L.C., Illinova and
Illinois Power Company, Inland Steel Industries, Inc., LaSalle Street Fund,
Inc., Lucent Technologies, Inc., Springs Industries, Inc. (a textile
manufacturer), and Time Warner Inc.
George Putnam, III (45). President, New Generation Research, Inc.
(publisher of bankruptcy information) and New Generation Advisors, Inc. (a
registered investment adviser).(a)
A.J.C. Smith (62). Chairman and Chief Executive Officer, Marsh &
McLennan Companies, Inc. Director, Trident Corp.
W. Nicholas Thorndike (63). Director of various corporations and
charitable organizations, including Courier Corporation, Data General
Corporation, Bradley Real Estate, Inc. and Providence Journal Co.
OFFICERS
Charles E. Porter (58), Executive Vice President. Managing Director of
Putnam Investment Management, Inc. and Putnam Investments, Inc. Executive Vice
President of the Putnam Funds.
Patricia C. Flaherty (50), Senior Vice President, Senior Vice
President of Putnam Investment Management, Inc. and Putnam Investments, Inc.
John D. Hughes (62), Senior Vice President and Treasurer of the Putnam
Funds.
Gordon H. Silver (49), Vice President. Director and Senior Managing
Director of Putnam Investment Management, Inc. and Putnam Investments, Inc. Vice
President of the Putnam Funds.
Gary N. Coburn (50), Vice President. Senior Managing Director of
Putnam Investment Management, Inc. and Putnam Investments, Inc. Vice President
of certain of the Putnam Funds.
Jerome J. Jacobs (38), Vice President. Managing Director of Putnam
Investment Management, Inc. and Putnam Investments, Inc.
William J. Curtin (37), Vice President. Managing Director of Putnam
Investment Management, Inc. and Putnam Investments, Inc.
Blake E. Anderson (40), Vice President. Managing Director of Putnam
Investment Management, Inc.
William N. Shiebler (55), Vice President. Director and Senior Managing
Director of Putnam Investments, Inc. President and Director of Putnam Mutual
Funds Corp. Vice President of the Putnam Funds.
John R. Verani (57), Vice President. Senior Vice President of Putnam
Investment Management, Inc. and Putnam Investments, Inc. Vice President of the
Putnam Funds.
Paul G. Bucuvalas (46), Assistant Treasurer. Assistant Treasurer of
the Putnam Funds.
- ---------------
(a) George Putnam, III is the son of George Putnam.
(b) Members of the Executive Committee of the Trustees. The Executive Committee
meets between regular meetings of the Trustees as may be required to review
investment matters and other affairs of the fund and may exercise all of
the powers of the Trustees.
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<PAGE>
Paul M. O'Neil (43), Vice President. Vice President of Putnam
Investment Management, Inc. and Putnam Investments, Inc.
Beverly Marcus (52), Clerk and Assistant Treasurer. Clerk and
Assistant Treasurer of the Putnam Funds.
---------------
Except as stated below, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they have held different positions with such employers.
Prior to 1996, Mr. Curtin was Managing Director of Lehman Brothers. Prior to
1996, Mr. Jacobs was Principal at The Vanguard Group. Prior to 1993, Mr. Jackson
was Chairman of the Board, President and Chief Executive Officer of
Fisher-Price, Inc.
Mr. Anderson is primarily responsible for the day-to-day management of
the Fund's portfolio. Mr. Anderson has been employed by Putnam Investment
Management, Inc. for the past 9 years, in the management of tax exempt funds in
the Putnam family of funds.
The Agreement and Declaration of Trust of the Fund provides that the
Fund will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Fund, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Fund or that such indemnification would relieve any officer or Trustee of any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of his or her duties. The Fund,
at its expense, provides liability insurance for the benefit of its Trustees and
officers.
Each Trustee receives a fee for his or her services. Each Trustee also
receives fees for serving as Trustee of other Putnam funds. The Trustees
periodically review their fees to assure that such fees continue to be
appropriate in light of their responsibilities as well as in relation to fees
paid to trustees of other mutual fund complexes. The current practice of the
Trustees is to meet monthly over a two-day period, except in August. The
Compensation Committee, which consists solely of Trustees not affiliated with
Putnam and is responsible for recommending Trustee compensation, estimates that
Committee and Trustee meeting time together with the appropriate preparation
requires the equivalent of at least three business days per Trustee meeting. The
following table shows the year each Trustee was first elected a Trustee of the
Putnam funds, the fees paid to each Trustee by the fund for fiscal 1996 and the
fees paid to each Trustee by all of the Putnam funds during calendar 1996:
-22-
<PAGE>
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or Estimated annual
Aggregate retirement benefits benefits from all Total compensation
compensation accrued as part of Putnam Funds from all
Trustees/Year from the Fund(1) Fund expenses(2) upon retirement(3) Putnam Funds (4)
- ------------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $ $ $85,646 $172,291
Hans H. Estin/1972 85,646 171,291
John A. Hill/1985 (5) 85,646 170,791
Ronald J. Jackson/1996 (6) 85,646 94,807
Elizabeth T. Kennan/1992 85,646 171,291
Lawrence J. Lasser/1992 85,646 169,791
Robert E. Patterson/1984 85,646 182,291
Donald S. Perkins/1982 85,646 170,291
William F. Pounds/1971 (7) 98,146 197,291
George Putnam/1957 85,646 171,291
George Putnam, III/1984 85,646 171,291
A.J.C. Smith/1986 85,646 169,791
W. Nicholas Thorndike/1992 85,646 181,291
</TABLE>
(1) Includes an annual retainer and an attendance fee for each meeting attended.
(2)The Trustees approved a Retirement Plan for Trustees of the Putnam funds on
October 1, 1996. Prior to that date, voluntary retirement benefits were paid to
certain retired Trustees.
(3)Assumes that each Trustee retires at the normal retirement date. Estimated
benefits for each Trustee are based on Trustee fee rates in effect during
calendar 1996.
(4)As of December 31, 1996, there were 96 funds in the Putnam family.
(5)Includes compensation deferred pursuant to a Trustee Compensation Deferral
Plan. The total amounts of deferred compensation payable by the fund to Ms.
Baxter and Mr. Hill as of April 30, 1996 were $______ and $______, respectively,
including income earned on such amounts.
(6)Elected as a Trustee in May 1996.
(7)Includes additional compensation for service as Vice Chairman of the Putnam
Funds.
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<PAGE>
Under a Retirement Plan for Trustees of the Putnam Funds (the "Plan"),
each Trustee who retires with at least five years of service as a Trustee of the
Funds is entitled to receive an annual retirement equal to one half of the
average annual compensation paid to such Trustee for the last three years of
service prior to retirement. This retirement benefit is payable during a
Trustee's lifetime, beginning the year following retirement, for a number of
years equal to such Trustee's years of service. A death benefit is also
available under the Plan which assures that the Trustee and his or her
beneficiaries will receive benefit payments for the lesser of an aggregate
period of (i) ten years or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that are not
"interested persons" of the fund, as defined in the Investment Company Act of
1940) may terminate or amend the Plan at any time, but no termination or
amendment will result in a reduction in the amount of benefits (i) currently
being paid to a Trustee at the time of such termination or amendment, or (ii) to
which a current Trustee would have been entitled to receive had he or she
retired immediately prior to such termination or amendment.
PRINCIPAL HOLDERS OF SECURITIES
Except as set forth in the following table, no person or "group" (as
defined by regulation of the Securities and Exchange Commission) was known to
the Fund to be the beneficial or record owner of 5% or more of the Common Shares
of the Fund as of April 30, 1997.
Amount of
Name and Address Record Ownership Percent
---------------- ---------------- -------
As of April 30, 1997, the officers and Trustees of the Fund owned less
than 1% of the outstanding Common Shares.
Except as set forth in the following table, no person or "group" (as
defined by regulation of the Securities and Exchange Commission) was known to
the fund to be the beneficial or record owner of 5% or more of the Series A RP,
as of April 30, 1997.
Amount of
Name and Address Record Ownership Percent
---------------- ---------------- -------
As of April 30, 1997, Officers and Trustees of the Fund owned less than
1% of the outstanding Series A RP.
INVESTMENT MANAGEMENT CONTRACT
Under a Management Contract between the Fund and Putnam, subject to
such policies as the Trustees may determine, Putnam, at its own expense,
furnishes continuously an investment program for the Fund and makes investment
decisions on behalf of the Fund. Subject to the control of the Trustees, Putnam
also places all orders for the purchase and sale of the Fund's portfolio
securities.
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As compensation for the services rendered and expenses borne by Putnam
under the Management Contract, the Fund pays Putnam a quarterly fee based on the
Fund's average net asset value (determined as described below), including assets
attributable to any RP that may be outstanding, at the annual rate of 0.50% of
the first $500 million of the average net asset value of the Fund, 0.43% of the
next $500 million, 0.39% of the next $500 million, and 0.35% of any excess over
$1.5 billion of such average net asset value. If dividends payable on the
Preferred Shares during any dividend period plus expenses attributable to the
Preferred Shares for that period exceed the gross income of the Fund during that
period attributable to the investment of the proceeds of the Preferred Shares,
then the fee payable to Putnam for that period will be reduced by an amount
equal to the product of such excess and a fraction, the numerator of which shall
be the fee otherwise payable to Putnam pursuant to the Management Contract and
the denominator of which shall be the sum of the fee otherwise payable to Putnam
pursuant to the Management Contract and the administrative services fee
otherwise payable to Putnam under the Administrative Services Contract,
described below, between the Fund and Putnam; provided, however, that the amount
of such reduction for any such dividend period shall not exceed the amount
determined by multiplying (i) the aggregate liquidation preference of the
average number of shares of the Preferred Shares outstanding during the dividend
period, by (ii) the percentage of the aggregate net asset value of the Fund
which the fee payable to Putnam during such period pursuant to the Management
Contract would constitute without giving effect to such reduction. Average net
asset value is to be determined by taking the average of the weekly
determinations of the net asset value, determined at the close of the last
business day of each week, for each week which ends during the quarter.
Under the Management Contract, under which the management fee payable
to Putnam was paid at the rate described above, the Fund incurred the following
fees in the preceding three fiscal periods:
Reflecting a reduction
in the following
Fiscal Management amounts pursuant
period fee paid to a fee waiver
------ -------- ---------------
1996 $1,308,444 $0
1995 $1,270,593 $0
1994 $1,216,887 $54,452
The Management Contract may be terminated without penalty by vote of
the Trustees or the shareholders of the Fund, or by Putnam, on 30 days' written
notice. It may be amended only by a vote of the shareholders of the Fund. The
Management Contract also terminates without payment of any penalty in the event
of its assignment. The Management Contract provides that it will continue in
effect only so long as such continuance is approved at least annually by vote of
either the Trustees or the shareholders, and, in either case, by a majority of
the Trustees who are not "interested persons" of Putnam or the Fund. In each of
the foregoing cases, the vote of the shareholders is the affirmative vote of the
lesser of (i) 67% or more of the Common Shares and Preferred Shares, voting
together as a single class, if the holders of more than 50% of the Common Shares
and Preferred Shares are present or represented by proxy, or (ii) 50% or more of
the Common Shares and Preferred Shares, voting together as a single class.
The Management Contract provides that Putnam shall not be subject to
any liability to the Fund or to any shareholder of the Fund for any act or
omission in the course of or connected with rendering services to the Fund in
the absence of willful misfeasance, bad faith, gross negligence, or reckless
disregard of its duties on the part of Putnam.
ADMINISTRATIVE SERVICES CONTRACT
Under an Administrative Services Contract between the Fund and Putnam,
Putnam, at its own expense and subject to the control of Trustees, manages,
supervises, and conducts the non-investment related affairs and business of the
Fund, furnishes office space and equipment, and provides bookkeeping and
clerical services (including determination of the Fund's net asset value, but
excluding transfer agency services). As compensation for the services rendered,
facilities furnished, and expenses borne by Putnam under the Administrative
Services Contract, the Fund will pay Putnam a quarterly fee based on the Fund's
average net asset value (determined as described below) including assets
attributable to any Preferred Shares that may be outstanding, at the annual rate
of 0.20% of the first $500 million of the average net asset value of the Fund,
0.17% of the next $500 million, 0.16% of the next $500 million, and 0.15% of any
excess over $1.5 billion of such average net asset value. If dividends payable
on Preferred Shares during any dividend period plus expenses attributable to
Preferred Shares for that period exceed the gross income of the Fund during that
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period attributable to the investment of the proceeds of such Preferred Shares,
then the administrative services fee payable to Putnam for that period will be
reduced by an amount equal to the product of such excess and a fraction, the
numerator of which shall be the fee otherwise payable to Putnam pursuant to the
Administrative Services Contract and the denominator of which shall be the sum
of the fee otherwise payable to Putnam pursuant to the Administrative Services
Contract and the management fee otherwise payable to Putnam under the Management
Contract between the Fund and Putnam; provided, however, that the amount of such
reduction for any such period shall not exceed the amount determined by
multiplying (i) the aggregate liquidation preference of the average number of
shares of such Preferred Shares outstanding during that period, by (ii) the
percentage of the aggregate net asset value of the Fund which the fee payable to
Putnam during such period pursuant to the Administrative Services Contract would
constitute without giving effect to such reduction. Average net asset value is
determined by taking the average of the weekly determinations of the net asset
value, determined as of the close of the last business day of each week, for
each week that ends during the quarter. In providing services under the
Administrative Services Contract, Putnam utilizes certain administrative
services provided by Princeton Administrators, L.P. ("Princeton"), an affiliate
of Merrill Lynch, pursuant to the contract between Putnam and Princeton
described below.
Under the terms and conditions of the Administrative Services Contract,
in addition to the fee paid to Putnam, the Fund reimburses Putnam for a portion
of the compensation and related expenses of certain officers of the Fund and
their assistants who provide certain administrative services for the Fund and
the other funds in the Putnam Family, each of which bears an allocated share of
the foregoing costs. The aggregate amount of all such payments and
reimbursements will be determined annually by the Trustees. Putnam pays all
other salaries of officers of the Fund. The Fund pays all expenses not otherwise
borne by Putnam including, without limitation, legal, custody, and shareholder
servicing expenses.
Pursuant to the Administrative Services Contract, the Fund incurred
fees in the amount of $523,393 during fiscal 1996. In addition, the Fund
reimbursed Putnam in the amount of $8,421 for administrative services during
fiscal 1996, including $7,377 for compensation of certain fund officers.
The Administrative Services Contract provides that Putnam shall not be
subject to any liability to the Fund or to any shareholder of the Fund for any
act or omission in the course of or connected with rendering services to the
Fund in the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of its duties on the part of Putnam.
Putnam has entered into an agreement with Princeton for certain
administrative services which Putnam utilizes in providing services to the Fund
under the Administrative Services Contract. Services provided to Putnam by
Princeton may include, among other things, the preparation or review of certain
filings with governmental and regulatory authorities and of reports to
shareholders and securities rating agencies. Putnam from its own assets (and not
from the assets of the Fund) pays a fee to Princeton for such services in an
amount equal to 0.15% of the average weekly net assets of the Fund. The rate at
which the fee is payable by Putnam will be reduced if, among other things, the
net asset value of the Fund exceeds $500 million. Princeton has no
responsibility with respect to the Fund's investments.
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PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Fund and for the other investment advisory
clients of Putnam and its affiliates, The Putnam Advisory Company, Inc. and
Putnam Fiduciary Trust Company, are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients rather
than other clients even though it could have been bought or sold for such other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in Putnam's opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of securities for one or more clients will have an adverse
effect on other clients.
BROKERAGE AND RESEARCH SERVICES
Most purchases and sales of portfolio investments by the Fund will be
with underwriters of or dealers in tax exempt municipal securities and other tax
exempt securities, acting as principal. In such cases, the price paid by the
Fund usually will include an undisclosed dealer commission or markup.
Accordingly, the Fund will not ordinarily pay significant brokerage commissions.
In underwritten offerings, the price paid by the Fund will include a disclosed,
fixed commission or discount retained by the underwriter or dealer. Transactions
on U.S. stock exchanges and other agency transactions involve the payment by the
Fund of negotiated brokerage commissions. Such commissions vary among different
brokers. Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction.
Putnam will place orders for the purchase and sale of portfolio
securities for the Fund and will buy and sell securities for the Fund through a
substantial number of broker-dealers. In so doing, Putnam will seek to obtain
for the Fund the most favorable price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Putnam, having in mind
the Fund's best interests, will consider all factors it deems relevant,
including, by way of illustration, the price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealer involved and the quality
of service rendered by the broker-dealer in other transactions.
The following table shows brokerage commissions paid by the Fund during
the fiscal periods indicated:
Fiscal Brokerage
period commissions
------ -----------
1996 $ 847
1995 $63,946
1994 $______
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive "brokerage and research services" (as defined in the Securities
Exchange Act of 1934) from broker-dealers which execute portfolio transactions
for the clients of such advisers and from third parties with which such
broker-dealers have arrangements. Consistent with this practice, Putnam receives
brokerage and research services from many broker-dealers with which Putnam
places the Fund's portfolio transactions and from third parties with which these
broker-dealers have arrangements. These services include such matters as general
economic and security market reviews, industry and company reviews, evaluations
of securities, recommendations as to the purchase and sale of securities,
newspapers, magazines, pricing services, quotation services, news services and
personal computers utilized by Putnam's managers and analysts. Where the
services referred to above are not used exclusively by Putnam for research
purposes, Putnam, based upon its own allocations of expected use, bears that
portion of the cost of these services which directly relates to their
non-research use. Some of these services
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are of value to Putnam and its affiliates, The Putnam Advisory Company, Inc. and
Putnam Fiduciary Trust Company, in advising various of its clients (including
the Fund), although not all of these services are necessarily useful and of
value in managing the Fund. The management fee paid by the Fund is not reduced
because Putnam and its affiliate receive these services even though Putnam might
otherwise be required to purchase some of these services for cash.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
and by the Management Contract, Putnam may cause the Fund to pay a broker-dealer
which provides brokerage and research services to Putnam an amount of disclosed
commission for effecting a securities transaction on a stock exchange or other
agency basis for the Fund in excess of the commission which another
broker-dealer would have charged for effecting that transaction. Putnam's
authority to cause the Fund to pay any such greater commissions is also subject
to such policies as the Trustees may adopt from time to time.
The following table shows transactions placed by the Fund with brokers
and dealers during the most recent fiscal year to recognize research,
statistical and quotation services rendered to Putnam and its affiliates:
Dollar
value Percent of
of these total Amount of
transactions transactions commissions
------------ ------------ -----------
$1,421,709 4.59% $13,424
The Management Contract provides that commissions, fees, brokerage or
similar payments received by Putnam or an affiliate in connection with the
purchase and sale of portfolio securities of the Fund, less any direct expenses
approved by the Trustees, shall be recaptured by the Fund through a reduction of
the fee payable by the Fund under the Management Contract. Putnam seeks to
recapture for the Fund soliciting dealer fees on the tender of the Fund's
portfolio securities in tender or exchange offers. Any such fees which may be
recaptured are likely to be minor in amount.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such policies as the Trustees may determine, Putnam may
consider sales of shares of the Fund by underwriters and dealers in this
offering or in the previous offerings of the Fund's Common and Preferred Shares
(and, if permitted by law, sales of the other Putnam funds) as a factor in the
selection of broker-dealers to execute portfolio transactions for the Fund.
DETERMINATION OF NET ASSET VALUE
The Fund determines the net asset value of its Common Shares at least
once each week as of the close of business on the last day on which the New York
Stock Exchange is open. Net asset value of the Common Shares is determined by
dividing the value of all assets of the Fund (including accrued interest and
dividends), less all liabilities (including accrued expenses) and the
liquidation value of any outstanding Preferred Shares, by the total number of
Common Shares outstanding.
Municipal Bonds are stated on the basis of valuations provided by a
pricing service approved by the Trustees, which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. The Fund believes that reliable market quotations are
generally not readily available for purposes of valuing its portfolio
securities. As a result, it is likely that most of the valuations provided by
such pricing service will be based upon fair market value determined on the
basis of the factors listed above. Securities, other than tax-exempt securities,
for which market quotations are readily available are stated at market value.
Short-term investments having remaining maturities of 60 days or less are stated
at amortized cost, which approximates market value. All other securities and
assets are valued at their fair value following procedures approved by the
Trustees. If any securities held by the Fund are restricted as to resale, Putnam
determines their fair value following procedures approved by the Trustees. The
Trustees periodically review such valuations and procedures. The fair value of
such securities is generally determined as the amount which the Fund could
reasonably expect to realize from an orderly disposition of such securities over
a reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of securities, if any (including any registration expenses that
might be borne by the Fund in connection with such disposition). In addition,
specific factors are also generally considered such as the cost of the
investment, the market value of any unrestricted securities of the same class
(both at the time of
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purchase and at the time of valuation), the size of the holding, the prices of
any recent transactions or offers with respect to such securities, and any
available analysts' reports regarding the issuer.
REMARKETING
GENERAL
The Bylaws provide that the Applicable Dividend Rate for each series of
RP for each Dividend Period therefor (except the Initial Dividend Period) will
be (i) unless such Dividend Period commences during a Non-Payment Period
(described below under "Description of RP--Dividends--Non-Payment Period; Late
Charge"), equal to the lower of (a) the rate per annum that the Remarketing
Agent determines on the Remarketing Date preceding the first day of such
Dividend Period pursuant to the procedures set forth in the Bylaws and (b) the
applicable Maximum Dividend Rate or (ii) if such Dividend Period commences
during a Non-Payment Period, equal to the Non-Payment Period Rate, which is a
multiple (generally 200%) of the Reference Rate described below under
"Remarketing--Remarketing Procedures--Reference Rate." During a Non-Payment
period, each Dividend Period which commences will be a 7-day Dividend Period,
the shares of RP will not be subject to Tender and Dividend Reset, and the
holders of RP will not be able to tender their shares in a Remarketing. See
"Description of RP--Dividends--Non-Payment Period; Late Charge."
The Fund will enter into a Paying Agent Agreement with
__________________. The Paying Agent Agreement will provide, among other things,
that the Paying Agent will (i) act as transfer agent, registrar, dividend and
redemption price disbursing agent, settlement agent and agent for certain
notifications (including notices of redemption) with respect to the RP and (ii)
carry out certain other procedures. See "Description of RP--Redemption."
REMARKETING SCHEDULE; ADVANCE NOTICE OF ALLOCATION OF TAXABLE INCOME; INCLUSION
OF TAXABLE INCOME IN DIVIDEND
A separate Remarketing will be held for each series of RP. Each
Remarketing for the shares of each series of RP will take place over a
two-Business Day period consisting of the Remarketing Date (normally a ______
for Series B RP and a _______ for Series C RP) and the Settlement Date (normally
a ______ for Series B RP and a _______ for Series C RP).
If, for example, in the case of Series B RP, ______ or ______ of a
particular week is not a Business Day, the normal remarketing schedule will be
adjusted as follows: (i) if _____ is not a Business Day, _______ shall be the
Remarketing Date and ______ shall be the Settlement Date; and (ii) if ______ is
not a Business Day, ______ shall be the Remarketing Date and ______ shall be the
Settlement Date. If, for any reason, neither of the foregoing clauses can be
given effect, the Remarketing Agent shall, in its sole discretion, adjust the
remarketing schedule as appropriate to complete such Remarketing.
A description of the time sequence of the events in a normal
remarketing schedule is provided in Appendix A to this Prospectus.
The Internal Revenue Service has taken the position in a published
revenue ruling that the Fund is required for each taxable year to allocate net
capital gain and other income subject to regular Federal income tax, if any,
proportionately with respect to each of its classes of shares in accordance with
the percentage of total Fund distributions received by each such class of shares
with respect to such year. Thus, the Fund will designate dividends paid as
exempt-interest dividends in a manner that allocates such dividends among the
holders of the Common Shares, Series A RP, Series B RP, and Series C RP in
proportion to the total dividends paid to each such class during or with respect
to the taxable year, or otherwise as provided by applicable law. Whenever the
Fund intends to include any net capital gain or other income subject to regular
Federal income tax in a dividend on shares of any series of RP solely because
the Fund, in its judgment, believes it is required, in order to comply with the
published position of the Internal Revenue Service, to allocate taxable income
to such shares, the Fund may notify the Remarketing Agent of the amount to be so
included at least five Business Days prior to the Remarketing Date on which the
Applicable Dividend Rate for such dividend is to be established. Alternatively,
if the Fund has not provided the notice referred to in the preceding sentence,
yet nevertheless prior to paying the dividend intends to include such income in
a dividend on shares of any series of RP solely because the Fund, in its
judgment, believes it is required, in order to comply with the published
position of the Internal Revenue Service, to allocate such income to shares of
any series of RP, it will (i) increase the dividend by an amount such that the
return to a holder of RP with respect to such dividend (as so increased and
after giving effect to Federal income tax at the Gross-Up Tax Rate) equals the
Applicable Dividend Rate and (ii) notify the Paying Agent of the additional
amount to be included in the dividend at least five Business Days prior to the
applicable Dividend Payment Date. In the event the Fund has provided notice of
an inclusion of taxable income in an upcoming dividend on RP as referred to
above, yet, after giving such notice but prior to paying the dividend the Fund
intends to include additional taxable income in such dividend solely because, in
the judgment of the Fund, it is required to do so in order to comply with the
IRS's published ruling, the Fund will (i) increase the dividend by an amount
such that the return to a holder of RP with respect to such dividend (as so
increased and after giving effect to Federal income tax at the Gross-Up Tax
Rate) shall equal the return such holder of RP would have received, after
application of Federal income tax, if such additional amount of taxable income
were not included in such dividend (and such dividend were not increased to take
account of any additional taxable income) and (ii) notify the Paying Agent
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of the additional amount to be included in the dividend at least five Business
Days prior to the applicable Dividend Payment Date. Neither the underlying
dividend nor the additional amounts referred to in the two preceding sentences
will be increased to compensate for the fact that they may be subject to state
and local taxes. The Gross-Up Tax Rate shall be equal to the sum of (i) the
percentage of the taxable income included in the dividend that is taxable for
Federal income tax purposes as ordinary income, multiplied by the greater of (A)
the highest marginal Federal corporate income tax rate (without regard to the
phase-out of graduated rates) applicable to ordinary income or (B) the highest
marginal Federal individual income tax rate applicable to ordinary income
(including any surtax but without regard to any phase-out of personal exemptions
or any limitation on itemized deductions), and (ii) the percentage of the
taxable income included in the dividend that is taxable for Federal income tax
purposes as long-term capital gain, multiplied by the greater of (A) the highest
marginal effective Federal corporate income tax rate (without regard to the
phase-out of graduated rates) applicable to long-term capital gain or (B) the
highest marginal effective Federal individual income tax rate applicable to
long-term capital gain (including any surtax and computed by taking into account
the effective reduction of such rate by any available capital gain deduction or
exclusion, but without regard to any phase-out of personal exemptions or any
limitation on itemized deductions). If for any reason it is determined after the
payment of any dividend that a portion of that dividend was subject to Federal
income tax, the Fund will not be required to pay any additional amount to
compensate for any tax payable on the dividend (other than Additional Dividends
payable under the circumstances described in this Prospectus). The Fund will not
be required to provide any notice of the prospective inclusion of, or increase
any dividend on shares of any series of RP as a result of the inclusion of, any
taxable income in any dividend (other than in the circumstances described above
and in the circumstances under which the Fund is required to pay Additional
Dividends). No provision will be made to compensate holders of shares of RP for
any alternative minimum tax liability in respect of distributions on shares of
RP. See "Description of RP--Dividends--Additional Dividends."
THE REMARKETING AGENT
The Remarketing Agent for the RP initially will be Merrill Lynch.
The Fund will enter into a Remarketing Agreement with the Remarketing
Agent which will provide, among other things, that the Remarketing Agent will
follow certain procedures for remarketing shares of RP on behalf of holders
thereof as provided in the Bylaws for the purpose of determining the Applicable
Dividend Rate that will enable the Remarketing Agent to remarket shares of each
series of RP tendered to it at a price of $25,000 per share for a 7-day Dividend
Period or a Special Dividend Period, as the case may be. See
"Remarketing--Remarketing Procedures--Applicable Dividend Rates" below. Each
periodic operation of such procedures with respect to shares of RP is referred
to as a "Remarketing." Under certain circumstances, shares of RP tendered in a
Remarketing may be tendered or purchased by the Remarketing Agent for its own
account. See "Remarketing--Remarketing Procedures--Tender by Holders" below.
For its services in determining the Applicable Dividend Rate and
remarketing shares of RP for a 7-day Dividend Period, the Remarketing Agent will
receive from the Fund a fee for such period calculated at a rate equal to
approximately .25% per annum of the average amount of RP outstanding during the
Dividend Period. If the Dividend Period is a Special Dividend Period longer than
60 days, the Fund will instead pay to the Remarketing Agent a fee, to be
determined by mutual consent of the Fund and the Remarketing Agent, based on the
selling concession that would be applicable to an underwriting of a fixed or
variable rate preferred stock issue with a similar dividend period. The
Remarketing Agent will pay to selected broker-dealers a portion of the fees
described above, reflecting shares sold through such broker-dealers to
purchasers in Remarketings.
The Fund and Putnam have agreed to indemnify the Remarketing Agent
against certain liabilities arising out of or in connection with its duties
under the Remarketing Agreement.
Any Remarketing Agent may resign and be discharged from its duties with
respect to the RP under a Remarketing Agreement by giving at least 60 days'
prior notice in writing to the Fund, the Securities Depository, the
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Paying Agent and each other Remarketing Agent, if any, and the Fund may remove a
Remarketing Agent under a Remarketing Agreement by giving at least 60 days'
prior notice in writing to such Remarketing Agent, the Securities Depository,
the Paying Agent and any other Remarketing Agent of such removal; provided that
if (i) the resigning or removed Remarketing Agent is at the time the sole
Remarketing Agent, or (ii) each other Remarketing Agent elects to resign or is
removed within one week of delivery of such notice, then such resignation or
removal will not be effective until a successor remarketing agent which is a
nationally recognized broker-dealer shall have entered into a remarketing
agreement with the Fund in which such successor remarketing agent shall have
agreed to conduct Remarketings with respect to the RP in accordance with the
terms and conditions of the Bylaws.
A Remarketing Agent may also terminate a Remarketing Agreement or may
resign by giving notice in writing to the Fund, the Securities Depository, the
Paying Agent and each other Remarketing Agent, if any, if any of the following
events has occurred and has not been cured prior to the proposed date of such
termination or resignation (in each case for a period of 30 days after notice
thereof has been given to the Fund specifying the condition or event): (i) the
rating of the RP shall have been downgraded or withdrawn by a national rating
service, the effect of which, in the opinion of the Remarketing Agents or
Remarketing Agent, as the case may be, is to affect materially and adversely the
market price of such RP or the ability of the Remarketing Agents or Remarketing
Agent, as the case may be, to remarket such shares; (ii) all of the shares of RP
shall have been called for redemption; or (iii) without the prior written
consent of the Remarketing Agent or Remarketing Agents, as the case may be, the
Agreement and Declaration of Trust, the Bylaws or the Paying Agent Agreement
shall have been amended in any manner that, in the opinion of the Remarketing
Agent or Remarketing Agents, as the case may be, materially changes the nature
of the RP or the remarketing procedures with respect thereto.
The Remarketing Agent is not obligated to set the Applicable Dividend
Rate on shares of RP or to remarket such shares during a Non-Payment Period as
provided in the Bylaws or at any time that certain conditions specified in the
Remarketing Agreement have not been met or any of the events set forth in
clauses (i), (ii) or (iii) of the immediately preceding paragraph has occurred.
RESTRICTIONS ON TRANSFER
GENERAL. The Paying Agent will maintain a record of certain beneficial
owners of shares of RP, for purposes of determining such owners entitled to
participate in Remarketings and for certain other purposes. The Paying Agent
will only record transfers of such beneficial ownership, in a Remarketing or
otherwise, of which it is notified in accordance with its procedures in effect
from time to time.
BOOK ENTRY ONLY. DTC initially will act as Securities Depository for
the Agent Members with respect to RP. Except as discussed below, as long as DTC
is the Securities Depository, one certificate for the outstanding shares of each
series of RP will be registered in the name of Cede & Co. ("Cede") as nominee of
the Securities Depository, and Cede will be the holder of record of all shares
of each series of RP. Each such certificate will bear a legend to the effect
that such certificate is issued subject to the provisions contained in the
Bylaws. Unless the Fund shall have waived this requirement during a Non-Payment
Period, shares of RP may be held only in book entry form through the Securities
Depository (which, either directly or through a nominee, will be the registered
owner of shares of RP as described above), and the Fund will issue stop-transfer
instructions to the Paying Agent for the shares of RP to this effect. If the
Fund shall have waived the foregoing requirement during a Non-Payment Period, a
holder of shares of such series of RP may obtain a certificate or certificates
for such shares. The Fund is advised that DTC is a New York-chartered limited
purpose trust company, which performs services for its participants (including
the Agent Members), some of which (and/or their representatives) own DTC. The
Fund is advised further that DTC maintains lists of its participants and will
maintain as record holder the positions (beneficial ownership interests) held by
each Agent Member in the shares of RP, whether such Agent Member is a holder for
its own account or as a nominee for another holder. The Fund shall have no
obligation, including without limitation any obligation to provide notice or to
make any payment (in respect of any dividend or otherwise), to any person
(including without limitation any holder of any beneficial interest in shares of
RP, whether or not such interest is reflected on the share transfer books of the
Paying Agent) other than the holders of record of the shares of RP shown on the
share transfer books of the Paying Agent from time to time. The share transfer
books of the Fund as kept by the Paying Agent shall be conclusive as to who is
the holder of record of any share of RP at any time and as to the number of
shares of RP of each series held from time to time by any such holder. No
Remarketing Agent, Paying Agent, Securities Depository, or Agent Member will
have any obligation to any person having any interest in any share of RP other
than the holder of record and the beneficial owner thereof as shown from time to
time on the share transfer books kept by the Paying Agent. The Paying Agent
shall have no obligation to record any transfer of record or beneficial
ownership in any share unless and until it shall have received proper notice
-31-
<PAGE>
and evidence of such transfer and the right of the transferee in accordance with
the Paying Agent's procedures in effect from time to time.
SECONDARY MARKET. The Remarketing Agent has advised the Fund that it
currently intends to make a secondary trading market in the RP outside of
Remarketings. However, the Remarketing Agent has no obligation to make a
secondary market in the shares of RP outside of Remarketings. The RP will not be
registered on any stock exchange or on any automated quotation system. If a
Remarketing Agent purchases shares of RP in the secondary market or in a
Remarketing, it may be in the position of holding for its own account or as
nominee for others shares of RP subject to a Remarketing at the time it
determines the Applicable Dividend Rate in such Remarketing and may tender
such shares in such Remarketing.
REMARKETING PROCEDURES
TENDER BY HOLDERS. Each share of RP is subject to Tender and Dividend
Reset only on the relevant Remarketing Date for such series at the end of each
Dividend Period applicable to such share.
Except during a Non-Payment Period, by 12:00 noon, New York City time,
on the Remarketing Date for a series of RP in the Remarketing at the end of each
Dividend Period, the holder of a share of such series of RP may elect to tender
such share or hold such share for the next Dividend Period. If the holder of
such share of RP elects to hold such share, such holder shall hold such share of
RP at the Applicable Dividend Rate for a 7-day Dividend Period or a Special
Dividend Period if the succeeding Dividend Period with respect to such share has
been designated by the Fund as a Special Dividend Period, provided that, except
during a Non-Payment Period, if (i) there is no Remarketing Agent, (ii) the
Remarketing Agent is not required to conduct a Remarketing or (iii) the
Remarketing Agent is unable to remarket in the Remarketing on such Remarketing
Date all such shares of such series of RP tendered (or deemed tendered) to it at
a price of $25,000 per share, then the next Dividend Period for all shares of
such series of RP shall be a 7-day Dividend Period and the Applicable Dividend
Rate therefor shall be the applicable Maximum Dividend Rate.
Shares of a series of RP may be tendered only in a Remarketing which
commences on the Remarketing Date immediately prior to the end of the current
Dividend Period with respect thereto. By 9:00 a.m., New York City time, on such
Remarketing Date, the Remarketing Agent will, after canvassing the market and
considering prevailing market conditions at the time for such shares and similar
securities, provide to holders of such shares non-binding indications of the
Applicable Dividend Rate for the next succeeding 7-day Dividend Period or
Special Dividend Period, as the case may be. THE ACTUAL APPLICABLE DIVIDEND RATE
FOR SUCH DIVIDEND PERIOD MAY BE GREATER OR LESS THAN THE RATE INDICATED IN SUCH
NON-BINDING INDICATIONS (BUT NOT GREATER THAN THE APPLICABLE MAXIMUM DIVIDEND
RATE) AND WILL NOT BE DETERMINED UNTIL AFTER A HOLDER IS REQUIRED TO ELECT TO
HOLD OR SELL ITS SHARES OF RP AND A NEW PURCHASER IS REQUIRED TO AGREE TO
PURCHASE SUCH SHARES OF RP. See Appendix A.
By 12:00 noon, New York City time, on any Remarketing Date with respect
to such series of RP, each holder of shares of such RP must notify the
Remarketing Agent of its desire (on a share-by-share basis) either to tender
such share at a price of $25,000 per share or to continue to hold such share for
the next 7-day Dividend Period or, if applicable, the designated Special
Dividend Period. Holders of such RP who do not provide such notice shall be
deemed to have elected (i) to hold all their shares of such RP if the current
Dividend Period and succeeding Dividend Period is a 7-day Dividend Period or a
Special Dividend Period of 60 days or less, and (ii) to tender all their shares
of such RP if the current Dividend Period or succeeding Dividend Period is a
Special Dividend Period of more than 60 days. Any holder or prospective
purchaser may informally indicate to the Remarketing Agent its Applicable
Dividend Rate preferences. However, any notice given to the Remarketing Agent to
tender or hold shares for a particular Dividend Period is irrevocable and may
not be conditioned upon the level at which Applicable Dividend Rates are set.
Accordingly, the Applicable Dividend Rate with respect to a Dividend Period may
be greater or less than such rate preferences. Any notice of tender may not be
revoked, except that the Remarketing Agent may, in its sole discretion, (i) at
the request of a tendering holder that has tendered one or more shares of RP to
the Remarketing Agent, waive such holder's tender, and thereby enable such
holder to continue to hold such share or shares for a 7-day Dividend Period or a
designated Special Dividend Period, as agreed to by the holder and the
Remarketing Agent at such time, so long as such tendering holder has indicated
to the Remarketing Agent that it would accept the new Applicable Dividend Rate
for such Dividend Period, such waiver to be contingent upon the Remarketing
Agent's being able to remarket all shares tendered to it in such Remarketing,
and (ii) at the request of a holder that has elected to hold one or more of its
shares of RP, waive such holder's election with respect thereto, such waiver to
be contingent upon the Remarketing Agent's being able to remarket all shares
tendered to it in such Remarketing.
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<PAGE>
When shares of a series of RP are tendered in a Remarketing therefor,
the Remarketing Agent is required to use its best efforts to remarket such
tendered shares on behalf of the holders thereof, but there can be no assurance
that the Remarketing Agent will be able to remarket all shares of RP tendered.
See "Remarketing--Remarketing Procedures--Allocation of Shares; Failure to
Remarket at $25,000 Per Share" below. Each holder's right to tender shares of
such RP in a Remarketing therefor is limited to the extent that (i) the
Remarketing Agent conducts a Remarketing pursuant to the terms of the
Remarketing Agreement, (ii) shares tendered have not been called for redemption,
and (iii) the Remarketing Agent is able to find purchasers for such tendered RP
at an Applicable Dividend Rate for a 7-day Dividend Period or a designated
Special Dividend Period, as the case may be, not in excess of any applicable
Maximum Dividend Rate. If the Remarketing Agent is unable to find a purchaser or
purchasers for all RP tendered in a Remarketing therefor, the shares to be sold
in such Remarketing will be selected either pro rata or by lot from among all
the tendered shares. See "Remarketing--Remarketing Procedures--Allocation of
Shares; Failure to Remarket at $25,000 Per Share" below. Each purchase or sale
in a Remarketing will be made for settlement on the related Settlement Date. See
"Remarketing--Remarketing Procedures--Notification of Results; Settlement" below
and Appendix A.
There can be no assurance that the Remarketing Agent will be able to
remarket all shares of a series of RP tendered in a Remarketing therefor. If any
shares of such RP so tendered are not remarketed, a holder thereof may be
required to continue to hold some or all of its shares until at least the end of
the next Dividend Period therefor or to sell such shares outside a Remarketing.
See "Remarketing--Remarketing Procedures--Allocation of Shares; Failure to
Remarket at $25,000 Per Share" below, and "Remarketing--Restrictions on
Transfer" and "Remarketing--The Remarketing Agent" above.
Tendered shares of RP will also be subject to purchase in a Remarketing
therefor by the Remarketing Agent. If the Remarketing Agent holds shares of a
series of RP for its own account after a Remarketing, it is required to
establish an Applicable Dividend Rate in such Remarketing that is no higher than
the Applicable Dividend Rate that would have been set if the Remarketing Agent
did not hold or had not purchased such shares. The Remarketing Agent may
purchase shares of RP for its own account in a Remarketing only if the
Remarketing Agent purchases for its own account or the account of others all
tendered (or deemed tendered) shares of RP subject to Tender and Dividend Reset
but not sold to other purchasers in such Remarketing. The Remarketing Agent is
not obligated to purchase any shares of a series of RP that would otherwise
remain unsold in a Remarketing. If the Remarketing Agent holds any shares of a
series of RP immediately prior to a Remarketing therefor and if all other shares
of such RP subject to Tender and Dividend Reset and tendered for sale by other
owners have been sold in such Remarketing, then the Remarketing Agent may sell
in such Remarketing such number of its shares which are subject to Tender and
Dividend Reset as there are outstanding orders to purchase that have not been
filled by shares tendered for sale on behalf of accounts other than that of the
Remarketing Agent. See "Remarketing--Restrictions on Transfer--Secondary Market"
above. Neither the Fund, nor the Paying Agent or the Remarketing Agent will be
obligated in any case to provide funds to make payment to any holder upon such
holder's tender of its shares of RP in any Remarketing. If the Remarketing Agent
purchases shares of RP in the secondary market or in a Remarketing, it may be in
the position of holding for its own account or as nominee for others shares of
RP subject to Tender and Dividend Reset in a Remarketing at the time it
determines the Applicable Dividend Rate in such Remarketing and may tender such
shares in such Remarketing.
APPLICABLE DIVIDEND RATES. By 3:00 p.m., New York City time, on each
Remarketing Date for a series of RP, the Remarketing Agent will determine the
Applicable Dividend Rate to the nearest one-thousandth (0.001) of one percent
per annum for the next 7-day Dividend Period (or, if designated, a Special
Dividend Period, provided that, if the Remarketing Agent is unable to remarket
on such Remarketing Date all such tendered shares in a Remarketing at a price of
$25,000 per share, then the Remarketing Agent will assign no shares to any
Special Dividend Period).
The Applicable Dividend Rate for each Dividend Period for each series
of RP, except as otherwise described herein, will be the dividend rate per annum
that the Remarketing Agent determines to be the lowest rate that will enable it
to remarket on behalf of the holders thereof the shares of such series of RP
subject to Tender and Dividend Reset in such Remarketing and tendered to it on
such Remarketing Date at a price of $25,000 per share. The Applicable Dividend
Rate for shares of such series of RP will be determined as aforesaid by the
Remarketing Agent in its sole discretion and will be conclusive and binding on
the Fund and all holders of such shares of RP. In determining such Applicable
Dividend Rate, the Remarketing Agent will, after taking into account market
conditions as reflected in the prevailing dividend yields on fixed and variable
rate taxable and tax exempt debt securities and the prevailing dividend yields
of fixed and variable rate preferred stocks determined for the purpose of
providing non-binding indications of the Applicable Dividend Rates to holders
and potential purchasers of shares of such series of RP, (i) consider the number
of shares of such series of RP tendered in the applicable Remarketing and the
number of shares of such RP prospective purchasers are willing to purchase and
(ii) contact by telephone or otherwise current and prospective holders of the
such RP subject to Tender and Dividend Reset to ascertain the dividend rates at
which they would be willing to hold such
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<PAGE>
shares. If no Applicable Dividend Rate shall have been established on a
Remarketing Date for the next 7-day Dividend Period, or Special Dividend Period,
if any, for any reason (other than because there is no Remarketing Agent, the
Remarketing Agent is not required to conduct a Remarketing pursuant to the terms
of the Remarketing Agreement or the Remarketing Agent is unable to remarket on
the Remarketing Date all shares of RP tendered (or deemed tendered) to it at a
price of $25,000 per share), then the Remarketing Agent, in its sole discretion,
shall, except during a Non-Payment Period, after taking into account market
conditions as reflected in the prevailing yields on fixed and variable rate
taxable and tax exempt debt securities and the prevailing dividend yields of
fixed and variable rate preferred stock, determine the Applicable Dividend Rate
that would be the rate per annum that would be the initial dividend rate fixed
in an offering on such Remarketing Date, assuming in each case a comparable
dividend period, issuer and security. If a Remarketing for a series of RP does
not take place because there is no Remarketing Agent, the Remarketing Agent is
not required to conduct a Remarketing or the Remarketing Agent is unable to
remarket in the Remarketing all such shares of such series of RP tendered (or
deemed tendered) to it at a price of $25,000 per share, then, except during a
Non-Payment Period, the Applicable Dividend Rate for the subsequent Dividend
Period for such shares of such series will be the applicable Maximum Dividend
Rate for a 7-day Dividend Period and such subsequent Dividend Period shall be a
7-day Dividend Period.
Except during a Non-Payment Period, the Applicable Dividend Rate for
any Dividend Period for shares of RP will not be more than the Maximum Dividend
Rate applicable to such shares.
The Maximum Dividend Rate for shares of each series of RP will be the
"Applicable Percentage" (as described below) of the Reference Rate. The
Remarketing Agent will round each Maximum Dividend Rate to the nearest
one-thousandth (0.001) of one percent per annum, with any such number ending in
five ten-thousandths (0.0005) of one percent being rounded upwards to the
nearest one-thousandth (0.001) of one percent. The Remarketing Agent will not
round the applicable Reference Rate as part of its calculation of any Maximum
Dividend Rate.
"Reference Rate" means (i) with respect to a Dividend Period having 28
or fewer days, the higher of the applicable "AA" Composite Commercial Paper Rate
and the Taxable Equivalent of the Short-Term Municipal Bond Rate, (ii) with
respect to any Short Term Dividend Period having more than 28 but fewer than 183
days, the applicable "AA" Composite Commercial Paper Rate, (iii) with respect to
any Short Term Dividend Period having 183 or more but fewer than 365 days, the
U.S. Treasury Bill Rate, and (iv) with respect to any Long Term Dividend Period,
the applicable U.S. Treasury Note Rate.
"'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally-recognized rating agency,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by the Commercial Paper Dealers to the Remarketing
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Fund to provide such rate or rates not
being supplied by the Commercial Paper Dealer. If the number of Dividend Period
days (in each case determined without regard to any adjustment in the length of
a Dividend Period or the remarketing schedule in respect of non-Business Days)
shall be (i) 7 or more days but fewer than 49 days, such rate shall be the
Interest Equivalent of the 30-day rate on such commercial paper; (ii) 49 or more
days but fewer than 70 days, such rate shall be the Interest Equivalent of the
60-day rate on such commercial paper; (iii) 70 or more days but fewer than 85
days, such rate shall be the arithmetic average of the Interest Equivalent of
the 60-day and 90-day rates on such commercial paper; (iv) 85 or more days but
fewer than 99 days, such rate shall be the Interest Equivalent of the 90-day
rate on such commercial paper; (v) 99 or more days but fewer than 120 days, such
rate shall be the arithmetic average of the Interest Equivalent of the 90-day
and 120-day rates on such commercial paper; (vi) 120 or more days but fewer than
141 days, such rate shall be the Interest Equivalent of the 120-day rate on such
commercial paper; (vii) 141 or more days but fewer than 162 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 120-day and
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an Interest
Equivalent basis equal to the Kenny S&P 30-day High Grade Index or any
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<PAGE>
comparable index based upon 30-day yield evaluations at par of bonds the
interest on which is excludable for regular Federal income tax purposes under
the Code of "high grade" component issuers selected by Kenny Information Systems
Inc. or any successor thereto from time to time selected by the Fund 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" (as defined
in the Code) (the "Kenny Index"), made available for the Business Day
immediately preceding such date but in any event not later than 8:30 a.m., New
York City time, on such date by Kenny Information Systems Inc. or any successor
thereto, divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a
decimal); provided, however, that if the Kenny Index is not made so available by
8:30 a.m., New York City time, on such date by Kenny Information Systems Inc. or
any successor, the Taxable Equivalent of the Short-Term Municipal Bond Rate
shall mean the quotient of (A) the per annum rate expressed on an Interest
Equivalent basis equal to the most recent Kenny Index so made available divided
by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal).
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise on the Business Day immediately
preceding such date by the Federal Reserve Bank of New York in its Composite
3:30 p.m. Quotations for U.S. Government Securities report for such Business
Day, or (ii) if such yield as so calculated is not available, the Alternate
Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on any date
means the Interest Equivalent of the yield as calculated by reference to the
arithmetic average of the bid price quotations of the actively traded Treasury
Bill with a maturity most nearly comparable to the length of the related
Dividend Period, as determined by bid price quotations as of any time on the
Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the
Remarketing Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Remarketing Agent.
The Maximum Dividend Rate for shares of each series of RP will depend
on the credit rating or ratings assigned to such series. The Applicable
Percentage for the shares of each series of RP on each Remarketing Date will be
determined based on (i) the lower of the credit rating or ratings assigned on
such date to such series of RP by Moody's and S&P (or if Moody's or S&P or both
shall not make such rating available, the equivalent of either or both of such
ratings by a Substitute Rating Agency or two Substitute Rating Agencies or, in
the event that only one such rating shall be available, such rating) and (ii)
whether the Fund has provided to the Remarketing Agent, prior to the Remarketing
establishing the Applicable Dividend Rate for any dividend, notification that
net capital gain or other income subject to regular Federal income tax will be
included in such dividend, as follows:
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<PAGE>
<TABLE>
<CAPTION>
Applicable Applicable
Percentage Percentage
Ratings of Reference of Reference
- ----------------------------------------- Rate-No Rate-
Moody's S&P Tax Notification Tax Notification
------- --- ---------------- ----------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
There is no minimum Applicable Dividend Rate in respect of any Dividend
Period.
ALLOCATION OF SHARES; FAILURE TO REMARKET AT $25,000 PER SHARE. If, in
a Remarketing of RP, the Remarketing Agent is unable to remarket by 3:00 p.m.,
New York City time, on the Remarketing Date all shares of such series of RP
tendered to it in such Remarketing (which are subject to Tender and Dividend
Reset in such Remarketing) at a price of $25,000 per share, (i) each holder that
tendered shares for sale will sell a number of shares of such RP on a pro rata
basis, to the extent practicable, or by lot, as determined by the Remarketing
Agent in its sole discretion, based on the number of orders to purchase such RP
in such Remarketing, and (ii) the next Dividend Period for such RP will be a
7-day Dividend Period and the Applicable Dividend Rate for such Dividend Period
will be the Maximum Dividend Rate for a 7-day Dividend Period.
If the allocation procedures described above would result in the sale
of a fraction of a share of RP, the Remarketing Agent will, in its sole
discretion, round up or down the number of shares of RP sold by each holder on
the applicable Remarketing Date so that each share sold by each holder shall be
a whole share of RP, and the total number of shares sold equals the total number
of shares purchased on such Remarketing Date.
NOTIFICATION OF RESULTS; SETTLEMENT. By telephone at approximately 3:30
p.m., New York City time, on each Remarketing Date with respect to shares of a
series of RP, the Remarketing Agent will advise each holder of tendered shares
of such RP and each purchaser thereof (or the Agent Member thereof who in turn
will advise such holder or purchaser) (i) of the number of shares such holder or
purchaser is to sell or purchase and (ii) to give instructions to its Agent
Member to deliver such shares against payment therefor or to pay the purchase
price against delivery as appropriate. The Remarketing Agent will also advise
each holder or purchaser that is to continue to hold, or to purchase, shares
with a Dividend Period beginning on the Business Day following such Remarketing
Date of the Applicable Dividend Rate.
The transactions described above will be executed on the Settlement
Date through the Securities Depository in accordance with the Securities
Depository's procedures, and the accounts of the respective Agent Members of the
Securities Depository will be debited and credited and shares delivered by book
entry as necessary to effect the purchases and sales of each series of RP, in
each case as determined in the related Remarketing. Purchasers of shares of RP
will make payment through their Agent Members in same-day funds to the
Securities Depository against delivery by book entry of RP through their Agent
Members. The Securities Depository will make payment in accordance with its
procedures, which currently provide for payment in same-day funds. If the
certificates for shares of RP are not held by the Securities Depository or its
nominee, payment with respect to such shares will be made in same-day funds to
the Paying Agent against delivery of such certificates.
If any holder selling shares of RP in a Remarketing fails to deliver
such shares, the Agent Member of such selling holder and of any other person
that was to have purchased shares of RP in such Remarketing may deliver to any
such other person a number of whole shares of RP 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 RP to be so delivered will be determined by such Agent
Member. Delivery of such lesser number of shares of RP will constitute good
delivery.
As long as the Securities Depository or Cede or any other nominee
therefor holds the certificate or certificates representing the shares of RP, no
share certificates will need to be delivered by any selling holder to reflect
any transfer of shares of RP effected in a Remarketing.
The Remarketing Agent may, in its sole discretion, modify the
settlement procedures set forth above with respect to any Remarketing of RP so
long as any such modification does not adversely affect any holders of such
shares.
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<PAGE>
DESCRIPTION OF RP
The following is a brief description of the terms of the RP. This
description does not purport to be complete and is subject to and qualified in
its entirety by reference to the Fund's Bylaws. A copy of the Bylaws has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Glossary immediately preceding the Appendices
hereto, or in Appendix B.
GENERAL
The Agreement and Declaration of Trust currently authorizes the
issuance of an unlimited number of shares of beneficial interest in the Fund in
such classes and series as may be provided for in the Bylaws. The Agreement and
Declaration of Trust provides for the issuance of an unlimited number of Common
Shares, and currently the Bylaws provide for the issuance of up to 6,000 shares
of Preferred Shares. All RP 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 RP, when issued and sold through this offering, will,
except as described below under "Description of RP--Certain Provisions in the
Agreement and Declaration of Trust," be fully paid and nonassessable, will not
be convertible into Common Shares or other capital shares of the Fund and will
have no preemptive rights. The shares of RP will not be subject to any sinking
fund but will be redeemable under the circumstances described below under
"Description of RP--Redemption."
DIVIDENDS
GENERAL. The Bylaws provide generally that holders of shares of each
series of RP will be entitled to receive, when, as and if declared by the Fund,
out of funds legally available therefor, cumulative cash dividends, at the rate
per annum set forth on the cover page hereof for the respective Initial Dividend
Period of such series of RP, and thereafter at the Applicable Dividend Rate for
the applicable Dividend Period of such series of RP, payable on the respective
dates set forth below and, except as described below, set by the Remarketing
Agent in accordance with the remarketing procedures described under
"Remarketing." See "Remarketing--Remarketing Procedures--Applicable Dividend
Rates" and Appendix A.
INITIAL DIVIDEND PAYMENT DATES AND DIVIDEND PERIOD. The Initial
Dividend Period for both series of RP will commence on the Date of Original
Issue and end on ______, 1997 for Series B RP and ______, 1997 for Series C RP.
Dividends for the Initial Dividend Period for RP will be paid when, as and if
declared, on ______, 1997 for Series B RP and ______, 1997 for Series C RP
(each, the "Initial Dividend Payment Date"). Dividends for each Dividend Period
for each series of RP thereafter will be payable when, as and if declared, on
each Dividend Payment Date for such series, subject to certain exceptions.
SUBSEQUENT DIVIDEND PERIODS FOR THE RP. After the Initial Dividend
Period for each series of RP, a Dividend Period therefor will commence on each
(but not the final) Dividend Payment Date for such series; provided, however,
that any Dividend Payment Date, other than the last Dividend Payment Date during
such Dividend Period, occurring after commencement of and during a Special
Dividend Period of more than 35 days will not give rise to a new Dividend
Period. Each subsequent Dividend Period for a series of RP will comprise,
beginning with and including the date on which it commences, 7 consecutive days
or, in the event the Fund has designated such Dividend Period as a Special
Dividend Period, such number of consecutive days as specified by the Fund;
provided that such number of days to be specified shall be a multiple of seven
and not more than 364 in the case of a Short Term Dividend Period and shall
consist of at least one full year (but not more than five years) in the case of
a Long Term Dividend Period. Notwithstanding the foregoing, any adjustment of
the remarketing schedule or of the length of a Dividend Period as provided
herein shall cause an adjustment of the relevant Settlement Date, if necessary,
so that such Settlement Date will be the first day of the next Dividend Period.
Except during a Non-Payment Period, by 12:00 noon, New York City time,
on the Remarketing Date at the end of the Initial Dividend Period applicable to
a share of each series of RP, and by 12:00 noon on the Remarketing Date at the
end of each subsequent Dividend Period applicable to such share of each series
of RP, the holder of such share may elect to tender such share or to hold such
share for the next Dividend Period (i.e., a 7-day Dividend Period or a Special
Dividend Period, as the case may be). If the holder of such share of RP elects
to hold such share for the next Dividend Period or fails to elect to tender or
hold such share on such Remarketing Date, such holder will continue to
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hold such share at the Applicable Dividend Rate determined in such Remarketing
for the next Dividend Period; provided that, (i) if there is no Remarketing
Agent, the Remarketing Agent is not required to conduct a Remarketing or the
Remarketing Agent is unable to remarket in the Remarketing on such Remarketing
Date all shares of RP of such series tendered to it at a price of $25,000 per
share, then the next Dividend Period for such share and for all other shares of
such series of RP will be a 7-day Dividend Period and the Applicable Dividend
Rate therefor will be the Maximum Dividend Rate for a 7-day Dividend Period, and
(ii) if such current Dividend Period is a Special Dividend Period of more than
60 days or the succeeding Dividend Period has been designated by the Fund as a
Special Dividend Period of more than 60 days, then a holder who fails to elect
to tender or hold a share of RP will be deemed to have elected to tender the
share. If a share of RP is tendered (or deemed tendered) but not sold in a
Remarketing, the holder of such share will hold such share for a 7-day Dividend
Period at the Maximum Dividend Rate therefor.
SPECIAL DIVIDEND PERIODS FOR THE RP. With respect to each Dividend
Period for a series of RP, the Fund may, at its sole option and to the extent
permitted by law, by telephonic or written notice (a "Request for Special
Dividend Period") to the Remarketing Agent, request that the next succeeding
Dividend Period for such series of RP will be a number of days (other than 7),
evenly divisible by seven, and not fewer than fourteen nor more than 364 in the
case of a Short Term Dividend Period or a period of not less than one whole year
and not greater than five years in the case of a Long Term Dividend Period,
specified in such notice, provided that the Fund may not give a Request for a
Special Dividend Period of greater than 7 days (and any such request shall be
null and void) unless the Fund has given written notice thereof to Moody's and
S&P and unless, with respect to such series of RP, full cumulative dividends,
any amounts due with respect to redemptions, and any Additional Dividends
payable prior to such date have been paid in full and, for any Remarketing
occurring after the initial Remarketing, all shares of such series tendered were
remarketed in the last occurring Remarketing. Such Request for Special Dividend
Period, in the case of a Short Term Dividend Period, shall be given on or prior
to the second Business Day but not more than seven Business Days prior to the
relevant Remarketing Date for such series of RP and, in the case of a Long Term
Dividend Period, shall be given on or prior to the 14th day but not more than 28
days prior to the relevant Remarketing Date for RP. Upon receiving such a
Request for Special Dividend Period, the Remarketing Agent shall determine (i)
whether given the factors set forth below it is advisable that the Fund issue a
Notice of Special Dividend Period for such series of RP as contemplated by such
Request for Special Dividend Period, (ii) the Optional Redemption Price of such
series of RP during such Special Dividend Period and, (iii) the Specific
Redemption Provisions and shall give the Fund written notice (a "Response") of
its determination by no later than the third Business Day prior to such
Remarketing Date. In making such determination, the Remarketing Agent will
consider (i) existing short-term and long-term market rates and indices of such
short-term and long-term rates, (ii) existing market supply and demand for
short-term and long-term securities, (iii) existing yield curves for short-term
and long-term securities comparable to the such series of RP, (iv) industry and
financial conditions which may affect the RP, (v) the investment objective of
the Fund, and (vi) the Dividend Periods and dividend rates at which current and
potential beneficial holders of such series of RP would remain or become
beneficial holders. If the Remarketing Agent shall fail to give the Fund a
Response by such third Business Day or if the Response states that given the
factors set forth above it is not advisable that the Fund give a Notice of
Special Dividend Period for such series of RP, the Fund may not give a Notice of
Special Dividend Period in respect of such Request for Special Dividend Period.
In the event the Response indicates that it is advisable that the Fund give a
Notice of Special Dividend Period for such series of RP, the Fund may by no
later than the second Business Day prior to such Remarketing Date give a notice
(a "Notice of Special Dividend Period") to the Remarketing Agent and to the
Securities Depository, which notice will specify (i) the duration of the Special
Dividend Period, (ii) the Optional Redemption Price as specified in the related
Response, and (iii) the Specific Redemption Provisions, if any, as specified in
the related Response. The Fund shall not give a Notice of Special Dividend
Period, or, if such Notice of Special Dividend Period shall have already been
given, shall give telephonic or written notice of its revocation (a "Notice of
Revocation") to the Remarketing Agent (in the case of clauses (x) and (y)) and
the Securities Depository (in the case of clauses (x), (y) and (z)) on or prior
to the Business Day prior to the relevant Remarketing Date if (x) either the
1940 Act RP Asset Coverage is not satisfied or the Fund shall fail to maintain
S&P Eligible Assets and Moody's Eligible Assets each with an aggregate
Discounted Value at least equal to the RP Basic Maintenance Amount, in each case
on each of the two Valuation Dates immediately preceding the Business Day prior
to the relevant Remarketing Date on an actual basis and on a pro forma basis
giving effect to the proposed Special Dividend Period (using as a pro forma
dividend rate with respect to such Special Dividend Period the dividend rate
which the Remarketing Agent shall advise the Fund is an approximately equal rate
for securities similar to such series of RP with an equal dividend period),
provided that (unless Moody's advises the Fund to the contrary), in calculating
the aggregate Discounted Value of Moody's Eligible Assets for this purpose, the
Moody's Exposure Period shall be deemed to be one week longer than the Moody's
Exposure Period that would otherwise apply as of the date of the Notice, (y)
sufficient funds for the payment of dividends payable on the immediately
succeeding Dividend Payment Date for such series of RP have not been irrevocably
deposited with the Paying Agent by the close of business on the third Business
Day preceding the Remarketing Date or (z) the Remarketing Agent advises the Fund
that after consideration of the factors listed above it has concluded that it is
advisable to give a Notice of Revocation. If the Fund is prohibited from giving
a Notice of Special Dividend Period as
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a result of the factors enumerated in clause (x), (y), or (z) of the preceding
sentence or if the Fund gives a Notice of Revocation with respect to a Notice of
Special Dividend Period for RP, the next succeeding Dividend Period for such
series of RP will be a 7-day Dividend Period.
In the event all shares of RP for which the Fund has given a Notice of
Special Dividend Period tendered are not remarketed or a Remarketing is not held
for any reason, the Fund may not again give a Notice of Special Dividend Period
for such series of RP (and any such attempted notice shall be null and void)
until all shares of such series of RP tendered in any subsequent Remarketing
with respect to a 7-day Dividend Period have been remarketed.
DIVIDEND PAYMENT DATES. Dividends on each share of each series of RP
will accumulate from its Date of Original Issue and will be payable, when, as
and if declared by the Trustees, on the applicable Dividend Payment Dates. The
Dividend Payment Dates will be: (i) with respect to the Initial Dividend Period
for such series of RP, the Initial Dividend Payment Date, (ii) with respect to
any 7-day Dividend Period and any Short Term Dividend Period of 35 or fewer
days, the day next succeeding the last day thereof; and (iii) with respect to
any Short Term Dividend Period of more than 35 days and with respect to any Long
Term Dividend Period, the first Business Day of each calendar month during such
Short Term Dividend Period or Long Term Dividend Period and the day next
succeeding the last day of such period (each such date referred to in clause
(i), (ii) or (iii) being herein referred to as a "Normal Dividend Payment
Date"), except that if such Normal Dividend Payment Date is not a Business Day,
then (i) the Dividend Payment Date shall be the first Business Day next
succeeding such Normal Dividend Payment Date if such Normal Dividend Payment
Date is a Monday, Tuesday, Wednesday or Thursday, or (ii) the Dividend Payment
Date shall be the first Business Day next preceding such Normal Dividend Payment
Date if such Normal Dividend Payment Date is a Friday, and in each case the
length of the current Dividend Period will be adjusted accordingly. If, however,
in the case of clause (ii) in the preceding sentence the Securities Depository
shall make available to its participants and members in funds immediately
available in New York City on Dividend Payment Dates the amount due as dividends
on such Dividend Payment Dates (and the Securities Depository shall have so
advised the Fund), and if the Normal Dividend Payment Date is not a Business
Day, then the Dividend Payment Date shall be the next succeeding Business Day
and the length of the current Dividend Period will be adjusted accordingly.
Although any particular Dividend Payment Date may not occur on the originally
scheduled date because of the exceptions discussed above, the next succeeding
Dividend Payment Date, subject to such exceptions, will occur on the next
following originally scheduled date. If for any reason a Dividend Payment Date
cannot be fixed as described above, then the Fund shall fix the Dividend Payment
Date and the length of the current Dividend Period will be adjusted accordingly,
if necessary. The Initial Dividend Period, 7-day Dividend Periods and Special
Dividend Periods are hereinafter sometimes referred to as "Dividend Periods."
Each dividend payment date determined as provided above is hereinafter referred
to as a "Dividend Payment Date."
DIVIDEND PAYMENTS. So long as there is a Securities Depository with
respect to the RP, each dividend on shares of RP will be paid to the Securities
Depository or its nominee as the record holder of all such shares, and such
payment shall for all purposes discharge the Fund's obligations in respect of
such payment. The Securities Depository is responsible for crediting the
accounts of the Agent Members of the beneficial owners of shares of RP in
accordance with the Securities Depository's procedures. Each Agent Member will
be responsible for holding or disbursing such payments to the holders of the RP
for which it is acting in accordance with the instructions of such holders. If,
and as long as, neither the Securities Depository nor its nominee is the record
holder of a share of RP, dividends thereon will be paid in same-day funds
directly to the record holder thereof in accordance with the instructions of
such holder.
Dividends on any share in arrears with respect to any past Dividend
Payment Date may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to the holders thereof as of a date not exceeding
five Business Days preceding the date of payment thereof as may be fixed by the
Trustees. Any dividend payment made on shares of RP will be first credited
against the dividends accumulated but unpaid (whether or not earned or declared)
with respect to the earliest Dividend Payment Date on which dividends were not
paid. Holders of shares of RP will not be entitled to any dividends, whether
payable in cash, property or shares, in excess of full cumulative dividends
thereon. Except for the late charge described under "Description of
RP--Dividends--Non-Payment Period; Late Charge" below and Additional Dividends
described under "Description of RP--Dividends--Additional Dividends" below,
holders of shares of RP will not be entitled to any additional amount in respect
of any dividend payment on any shares of RP which may be in arrears.
The amount of cash dividends per share of any series of RP payable (if
declared) on the Initial Dividend Payment Date, the Dividend Payment Date for
each 7-day Dividend Period and the Dividend Payment Date or Dates for each
Short-Term Dividend Period shall be computed by the Fund by multiplying the
Applicable Dividend Rate for such Dividend Period by a fraction, the numerator
of which will be the number of days in such Dividend Period such shares were
outstanding from and including the Date of Original Issue or the preceding
Dividend Payment Date, as the
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case may be, to and including the day preceding such Dividend Payment Date and
the denominator of which will be 365, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent. During any
Long Term Dividend Period, the amount of cash dividends per share payable on any
Dividend Payment Date shall be computed by dividing the Applicable Dividend Rate
for such Dividend Period by twelve, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent; provided,
however, that, if the number of days from and including the Date of Original
Issue or the preceding Dividend Payment Date, as the case may be, to and
including the day preceding such Dividend Payment Date is less than 30 and such
days do not constitute a full calendar month, then the amount of dividends per
share payable on such Dividend Payment Date shall be computed by multiplying the
Applicable Dividend Rate for such Dividend Period by a fraction, the numerator
of which will be such number of days and the denominator of which will be 360,
multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent.
In the event that the Remarketing Agent, the Paying Agent, the
Securities Depository, any Agent Member, and any beneficial owner fails for any
reason to perform any of its obligations in respect of a remarketing or
otherwise, no holder of record of, or of any beneficial interest in, any shares
of RP shall have any right in respect thereof against the Fund or any Trustee or
officer of the Fund, and the sole obligation of the Fund in respect of the
determination of the amount and the payment of any dividend shall be to pay to
the Paying Agent, for the benefit of the holders of record of the RP, dividends
when due at the Applicable Dividend Rate notified to it from time to time.
NON-PAYMENT PERIOD; LATE CHARGE. A Non-Payment Period will commence on
and include the day on which the Fund fails to (i) declare, prior to 12:00 noon,
New York City time, on any Dividend Payment Date for a share of RP, for payment
on or (to the extent permitted below) within three Business Days after such
Dividend Payment Date to the person who held such share as of 12:00 noon, New
York City time, on the Business Day preceding such Dividend Payment Date, the
full amount of any dividend on such share of RP payable on such Dividend Payment
Date or (ii) deposit, irrevocably in trust, in same-day funds, with the Paying
Agent by 12:00 noon, New York City time, (A) on or (to the extent permitted
below) within three Business Days after any Dividend Payment Date for a share of
RP the full amount of any dividend on such share (whether or not earned or
declared) payable on such Dividend Payment Date or (B) on or (to the extent
permitted below) within three Business Days after any redemption date for a
share of RP called for redemption, the redemption price of $25,000 per share
plus the full amount of any dividends thereon (whether or not earned or
declared) accumulated but unpaid to such redemption date plus, in the case of an
optional redemption, the premium, if any, payable as the result of the
designation of a Premium Call Period. Such Non-Payment Period will end on and
include the Business Day on which, by 12:00 noon, New York City time, all unpaid
dividends and unpaid redemption prices shall have been so deposited or shall
have otherwise been made available to the applicable holders in same-day funds;
provided that a Non-Payment Period will not end during the first seven days
thereof unless the Fund shall have given at least three days' written notice to
the Paying Agent, the Remarketing Agent and the Securities Depository and
thereafter will not end unless the Fund shall have given at least fourteen days'
written notice to the Paying Agent, the Remarketing Agent, the Securities
Depository and all holders of shares. The Applicable Dividend Rate for each
Dividend Period for shares of a series of RP commencing during a Non-Payment
Period will be equal to the Non-Payment Period Rate and any share of such RP for
which a Special Dividend Period would otherwise have commenced on the first day
of or during a Non-Payment Period will have a 7-day Dividend Period. The
"Non-Payment Period Rate" initially will be 200% of the applicable Reference
Rate (or 275% of such rate if the Fund has provided notification to the
Remarketing Agent prior to the Remarketing Date establishing the Applicable
Dividend Rate for any dividend that net capital gain or other taxable income
will be included in such dividend on shares of that series of RP). The initial
Non-Payment Period Rate may be changed from time to time by the Fund without
shareholder approval, but only in the event the Fund receives written
confirmation from Moody's and S&P that any such change would not impair the
ratings then assigned by Moody's and S&P to shares of RP. Any dividend on RP due
on any Dividend Payment Date for such shares (if, prior to 12:00 noon, New York
City time, on such Dividend Payment Date, the Fund has declared such dividend
payable on or within three Business Days after such Dividend Payment Date to the
persons who held such shares as of 12:00 noon, New York City time, on the
Business Day preceding such Dividend Payment Date) or redemption price with
respect to such shares not paid to such persons when due may (if such
non-payment occurs because the Fund is prevented from doing so by the Bylaws or
applicable law) be paid pro rata to such persons in the same form of funds by
12:00 noon, New York City time, on any of the first three Business Days after
such Dividend Payment Date or due date, as the case may be, and will incur a
late charge to be paid therewith to such persons and calculated for such period
of non-payment at the Non-Payment Period Rate applied to the amount of such
non-payment based on the actual number of days comprising such period divided by
365. Such late charge will be taxable as interest. If the Fund fails to pay a
dividend on a Dividend Payment Date or to redeem any shares of RP on the date
set for such redemption (otherwise than because it is prevented from doing so by
the Bylaws or by applicable law), the preceding sentence shall not apply and the
Applicable Dividend Rate for the Dividend Period commencing during such
Non-Payment Period resulting from such failure shall be the Non-Payment Period
Rate. During a Non-Call Period, shares
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of RP subject to such Non-Call Period will not be subject to redemption at the
option of the Fund, but may be subject to mandatory redemption as provided
below. See "Description of RP--Redemption" below.
RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS. Under the 1940 Act, the
Fund may not declare dividends or make other distributions on the Common Shares
or purchase any such shares if, at the time of the declaration, distribution or
purchase, as applicable (and after giving effect thereto), asset coverage (as
defined in the 1940 Act) with respect to the outstanding Preferred Shares would
be less than 200% (or such other percentage as may in the future be required by
law). Based on the composition of the Fund's portfolio at April 30, 1997, asset
coverage with respect to Preferred Shares would have been approximately __%
after issuance of the shares of RP offered hereby.
In addition, for so long as any shares of RP are outstanding, the Fund
will not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to the shares of RP as to dividends and upon
liquidation) in respect of Common Shares or any other shares of the Fund ranking
junior to or on a parity with the shares of RP as to dividends or upon
liquidation, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares or parity shares
(except by conversion into or exchange for shares of the Fund ranking junior to
the RP as to dividends and upon liquidation), unless (1) full cumulative
dividends on Preferred Shares through their most recent Dividend Payment Date
shall have been paid or shall have been declared and sufficient funds for the
payment thereof deposited with the Paying Agent, (2) the Fund has redeemed the
full number of shares of Preferred Shares required to be redeemed by any
provision for mandatory redemption contained in the Bylaws, (3) immediately
after such transaction the aggregate Discounted Value of Moody's Eligible Assets
and S&P Eligible Assets would be at least equal to the RP Basic Maintenance
Amount and (4) the Fund meets the requirements imposed by the 1940 Act. See
"Investment Objective and Policies--Asset Maintenance," "Description of
RP--Redemption" and Appendix B.
Under the Code the Fund must, among other things, distribute each year
at least 90% of the sum of its investment company taxable income and net
tax-exempt income 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 Fund's
ability to maintain such qualification. See "Taxation."
Upon any failure by the Fund to pay dividends on the RP for two years
or more, the holders of the shares of RP will acquire certain additional voting
rights. See "Description of RP--Voting Rights" below. Such rights shall be the
exclusive remedy of the holders of shares of RP upon any failure to pay
dividends on shares of the Fund.
ADDITIONAL DIVIDENDS. In the event of a redemption of all or a portion
of the outstanding shares of a series of RP or the liquidation of the Fund, the
Fund may, after the close of its fiscal year, be required, in order to comply
with the published position of the Internal Revenue Service described earlier in
this Prospectus concerning the allocation of various types of income between a
fund's classes and series of shares, to characterize all or a portion of a
dividend paid to holders of RP during such fiscal year as net capital gain or
other income subject to regular Federal income tax, without having either given
advance notice of the inclusion of such income in such dividend prior to the
setting of the Applicable Dividend Rate for such dividend or included an
additional amount in the dividend to offset the tax effect of the inclusion
therein of such taxable income. Accordingly, if the Fund characterizes
retroactively all or a portion of a dividend already paid on shares of a series
of RP as consisting of net capital gain or other income subject to regular
Federal income tax solely because (i) the Fund has redeemed all or a portion of
the outstanding shares of such series of RP or has liquidated and (ii) the Fund,
in its judgment, believes it is required, in order to comply with the published
position of the Internal Revenue Service described above, to allocate such
taxable income to the series of RP (the amount so characterized referred to
herein as a "Retroactive Taxable Allocation"), the Fund will, within 90 days
after the end of such fiscal year, provide notice of the Retroactive Taxable
Allocation made with respect to the dividend to the Paying Agent and to each
holder who received such dividend (initially Cede as nominee of the Securities
Depository) at such holder's address as the same appears or last appeared on the
share books of the Fund. The Fund will, within 30 days after such notice is
given to the Paying Agent, pay to the Paying Agent (who will then distribute to
such holders), out of funds legally available therefor, an amount equal to the
aggregate of the Additional Dividends (as defined below) payable to holders of
shares of that series of RP in respect of such dividend. See "Taxation."
An "Additional Dividend" in respect of any dividend means payment to a
present or former holder of a share of a series of RP of an amount which, giving
effect to the Retroactive Taxable Allocation made with respect to such dividend,
would cause such holder's after-tax return (taking into account both the
dividend and the Additional Dividend and assuming such holder is taxable at the
Gross-Up Tax Rate) to be equal to the after-tax return which the holder would
have realized if such retroactive allocation of taxable income had not been
made. Such Additional Dividend shall be
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calculated (i) without consideration being given to the time value of money,
(ii) assuming that no holder of shares of such series of RP is subject to the
Federal alternative minimum tax with respect to dividends received from the
Fund, and (iii) assuming that the holder of the share of such series of RP in
respect of which a Retroactive Taxable Allocation was made is taxable at the
Gross-Up Tax Rate. An Additional Dividend will not include any amount to
compensate for the fact that either the Additional Dividend or the Retroactive
Taxable Allocation may be subject to state and local taxes. (For a description
of the Gross-Up Tax Rate, see "Remarketing--Remarketing Schedule; Advance Notice
of Allocation of Taxable Income; Inclusion of Taxable Income in Dividend.")
Except as provided in this "Description of RP--Dividends--Additional Dividends,"
the Fund will not distribute any additional amounts with respect to dividends
previously paid to holders of shares of RP. See "Taxation." Special Dividends.
The Fund may declare "special dividends" on shares of any series of RP in order
to comply with any distribution requirements or the Code, provided that the
declaration of a special dividend shall not cause the Fund to fail to maintain
the RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage. See
"Taxation."
REDEMPTION
OPTIONAL REDEMPTION. The Fund may at its option after giving the
requisite Notice of Redemption, redeem shares of a series of RP, in whole or in
part, on the next succeeding scheduled Dividend Payment Date applicable to those
shares of RP called for redemption, out of funds legally available therefor, at
a redemption price (the "Optional Redemption Price") of $25,000 per share plus
an amount equal to dividends thereon accumulated but unpaid to the date fixed
for redemption (whether or not earned or declared) plus the premium, if any,
resulting from the designation of a Premium Call Period; provided that no share
of RP may be redeemed at the option of the Fund during (A) the Initial Dividend
Period with respect to such share or (B) a Non-Call Period to which such share
is subject; provided further that optional redemptions pursuant to this
paragraph shall not cause the Fund to fail to maintain the RP Basic Maintenance
Amount or the 1940 Act RP Asset Coverage. In addition, holders of RP may be
entitled to receive Additional Dividends in the event of the redemption of such
RP to the extent provided above under "Description of RP--Dividends--Additional
Dividends."
MANDATORY REDEMPTION. The Fund will be required to redeem, at a
redemption price (the "Mandatory Redemption Price") equal to $25,000 per share
plus an amount equal to accumulated but unpaid dividends (whether or not earned
or declared) to the date fixed by the Trustees for redemption, certain of the
shares of RP to the extent permitted under the 1940 Act and Massachusetts law,
if the Fund fails to maintain the RP Basic Maintenance Amount or the 1940 Act RP
Asset Coverage and such failure is not cured on or before the RP Basic
Maintenance Cure Date or the 1940 Act Cure Date (herein referred to as a "Cure
Date"), as the case may be. In addition, holders of RP may be entitled to
receive Additional Dividends in the event of the redemption of such RP to the
extent provided above under "Description of RP--Dividends--Additional
Dividends." The number of shares of RP to be redeemed will be equal to the
lesser of (a) the minimum number of shares of RP the redemption of which, if
deemed to have occurred immediately prior to the opening of business on such
Cure Date, would, together with all other shares of beneficial interest of the
Fund having preference rights subject to redemption or retirement, result in the
satisfaction of the RP Basic Maintenance Amount or the 1940 Act RP Asset
Coverage, as the case may be, on such Cure Date (provided that, if there is no
such minimum number of shares the redemption of which would have such result,
all shares of RP then outstanding will be redeemed), and (b) the maximum number
of shares of RP, together with all other shares of beneficial interest of the
Fund having preference rights subject to redemption and retirement, that can be
redeemed out of funds expected to be legally available therefor.
The Fund is required to effect such a Mandatory Redemption not later
than 35 days after such Cure Date, except that if the Fund does not have funds
legally available for the redemption of all of the required number of shares of
RP which are subject to Mandatory Redemption or the Fund otherwise is unable to
effect such redemption on or prior to 35 days after such Cure Date, the Fund
will redeem those shares of RP which it was unable to redeem on the earliest
practicable date on which it is able to effect such redemption.
Any share of RP will be subject to Mandatory Redemption regardless of
whether such share is subject to a Non-Call Period, provided that shares of RP
subject to a Non-Call Period will only be subject to redemption to the extent
that the other shares of RP (not subject to a Non-Call Period) are not available
to satisfy the number of shares required to be redeemed. In such event, such
shares subject to a Non-Call Period will be selected for redemption in an
ascending order of outstanding Non-Call Period (with shares with the lowest
number of days remaining in the Non-Call Period to be called first) and by lot
in the event of shares having equal outstanding Non-Call Periods.
ALLOCATION. If fewer than all the outstanding shares of any series of
RP are to be redeemed, the number of such shares of RP to be so redeemed will be
a whole number of shares and will be determined by the Trustees (subject to
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the provisions described above under "Description of RP--Redemption--Mandatory
Redemption"), provided that (i) no such share of RP will be subject to optional
redemption on any Dividend Payment Date during a Non-Call Period to which it is
subject and (ii) shares of RP subject to a Non-Call Period will be subject to
Mandatory Redemption only on the basis described above under "Description of
RP--Redemption--Mandatory Redemption". Unless certificates representing shares
of RP are held by persons other than the Securities Depository or its nominee,
the Securities Depository, upon receipt of such Notice of Redemption, will
determine by lot (or otherwise in accordance with procedures in effect at that
time) the number of shares of RP to be redeemed from the account of each Agent
Member (which may include an Agent Member, including the Remarketing Agent,
holding shares for its own account) and notify the Paying Agent of such
determination. The Paying Agent, upon receipt of such notice, will in turn
determine by lot the number of shares to be redeemed from the accounts of the
holders of the shares whose Agent Members have been selected by the Securities
Depository. In doing so, the Paying Agent may determine that shares will be
redeemed from the accounts of some holders, which may include the Remarketing
Agent, without shares being redeemed from the accounts of other holders.
Notwithstanding the foregoing, if any certificates for shares of RP are not held
by the Securities Depository or its nominee, the shares of RP to be redeemed
will be selected by the Paying Agent by lot.
NOTICE OF REDEMPTION. Any Notice of Redemption with respect to shares
of a series of RP will be given by the Fund via telephone to the Paying Agent,
the Securities Depository (and any other registered holder of such shares) and
the Remarketing Agent not later than 1:00 p.m., New York City time (and later
confirmed in writing), on a day not less than 20 nor more than 30 days prior to
the earliest date upon which any such redemption may occur and, in the case of a
Mandatory Redemption, not less than 20 nor more than 30 days prior to the
redemption date established by the Trustees and specified in such notice. In the
case of a partial redemption, the Paying Agent will use its reasonable efforts
to provide telephonic notice to each beneficial holder (as shown on the records
of such ownership maintained by it) of shares of such series of RP called for
redemption not later than the close of business on the Business Day on which the
Paying Agent determines the shares to be redeemed (as described above) (or,
during a Non-Payment Period with respect to such shares, not later than the
close of business on the Business Day immediately following the day on which the
Paying Agent receives Notice of Redemption from the Fund). Such telephonic
notice will be confirmed promptly in writing to each such beneficial holder of
shares of RP called for redemption, the Remarketing Agent and the Securities
Depository not later than the close of business on the Business Day immediately
following the day on which the Paying Agent determines the shares to be
redeemed. In the case of a redemption in whole, the Paying Agent will use its
reasonable efforts to provide telephonic notice to each holder of shares of RP
called for redemption not later than the close of business on the Business Day
immediately following the day on which the Paying Agent receives a Notice of
Redemption from the Fund. Such telephonic notice will be confirmed promptly in
writing to each holder of shares of RP called for redemption, the Remarketing
Agent and the Securities Depository not later than the close of business on the
second Business Day following the day on which the Paying Agent receives notice
of redemption.
Every Notice of Redemption and other redemption notice with respect to
the shares of a series of RP will state: (a) the redemption date, (b) the number
of shares of RP to be redeemed, (c) the redemption price, (d) that dividends on
the shares of RP to be redeemed will cease to accumulate as of such redemption
date and (e) the provision of the Agreement and Declaration of Trust or the
Bylaws pursuant to which such shares are being redeemed. No defect in the Notice
of Redemption or other redemption notice or in the transmittal or the mailing
thereof will affect the validity of the redemption proceedings, except as
required by applicable law. The Paying Agent will use its reasonable efforts to
cause the publication of a redemption notice in an Authorized Newspaper within
two Business Days of the date of the Notice of Redemption, but failure so to
publish such notification will not affect the validity or effectiveness of any
such redemption proceedings.
OTHER REDEMPTION PROCEDURES. To the extent that any redemption for
which Notice of Redemption has been given 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 RP will 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 with the Paying Agent funds with respect to any
shares for which such Notice of Redemption has been given.
Upon the deposit of funds sufficient to redeem shares of RP with the
Paying Agent and the giving of Notice of Redemption, 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 Optional Redemption Price or
Mandatory Redemption Price, as the case may be, but without any interest or
other additional amount (except for Additional Dividends described above under
"Description of RP--Dividends--Additional Dividends"), and such shares will no
longer be deemed outstanding for any purpose. The Fund will be entitled to
receive from the Paying Agent, promptly after the date fixed for redemption, any
cash deposited with the Paying Agent in excess of (i) the aggregate redemption
price of the shares of RP called for redemption on such
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<PAGE>
date and (ii) all other amounts to which holders of RP called for redemption may
be entitled. The Fund will be entitled to receive, from time to time after the
date fixed for redemption, any interest on the funds so deposited. Any funds
that are unclaimed at the end of 90 days from such redemption date will, to the
extent permitted by law, be repaid to the Fund, after which time the holders of
RP so called for redemption will look only to the Fund for payment of the
redemption price and all other amounts to which they may be entitled. If any
such unclaimed funds are repaid to the Fund, the Fund shall invest such
unclaimed funds in Deposit Securities with a maturity of no more than one
Business Day.
Except as described above with respect to redemptions, nothing
contained in the Bylaws limits any legal right of the Fund or any affiliate of
the Fund to purchase or otherwise acquire any shares of RP at any price.
The Fund has the right in certain circumstances to arrange for others
to purchase from the holders thereof shares of RP which are to be redeemed as
described above.
The Remarketing Agent may, in its sole discretion, modify the
procedures concerning notification of redemption described above with respect to
shares of RP so long as any such modification does not adversely affect the
holders of the shares of RP or materially alter the obligation of the Paying
Agent without obtaining its consent and so long as the Fund receives written
confirmation from S&P that any such modifications would not impair the ratings
then assigned by S&P to the shares of RP.
LIQUIDATION/BANKRUPTCY
Upon a liquidation, dissolution or winding up of the affairs of the
Fund, whether voluntary or involuntary, the holders of Preferred Shares
including RP then outstanding will be entitled, whether from capital or surplus,
before any assets of the Fund will be distributed among or paid over to the
holders of the Common Shares or any other class or series of shares of the Fund
ranking junior to the Preferred Shares as to liquidation payments, to be paid an
amount equal to the liquidation preference with respect to such shares. The
liquidation preference for the shares of RP is $25,000 per share plus an amount
equal to all dividends thereon (whether or not earned or declared) accumulated
but unpaid to but excluding the date of final distribution in same-day funds.
After any such payment, the holders of shares of RP will not be entitled to any
further participation in any distribution of assets of the Fund, except to the
extent that they may be entitled to Additional Dividends to the extent provided
above in "Description of RP--Dividends--Additional Dividends." If, upon any such
liquidation, dissolution or winding up of the Fund, the assets of the Fund shall
be insufficient to make such full payment to the holders of Preferred Shares
including RP and to the holders of any shares of beneficial interest of the Fund
having preference rights ranking as to liquidation, dissolution or winding up on
a parity with the Preferred Shares, then such assets will be distributed among
the holders of Preferred Shares and such parity holders ratably in accordance
with the respective amounts which would by payable on such shares of RP and any
other such Preferred Shares if all amounts thereof were paid in full.
Neither the consolidation nor the merger of the Fund with or into any
entity or entities nor a reorganization of the Fund alone nor the sale, lease or
transfer by the Fund of all or substantially all of its assets shall be deemed
to be a dissolution or liquidation of the Fund.
The Fund has no intention to file a voluntary petition in bankruptcy
so long as the value of its assets is, and is reasonably foreseen as being,
greater than its liabilities.
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<PAGE>
VOTING RIGHTS
Except as indicated below and as set forth below under "Description of
RP--Certain Provisions in the Agreement and Declaration of Trust" or except as
expressly required by applicable law or expressly set forth in the Agreement and
Declaration of Trust or Bylaws, each holder of Preferred Shares and each holder
of Common Shares shall be entitled to one vote for each share held on each
matter submitted to a vote of shareholders of the Trust, and the holders of
outstanding Preferred Shares and Common Shares shall vote together as a single
class.
Holders of Preferred Shares including RP (along with the holders of
any other preferred shares of the Fund), voting as a class, will be entitled to
elect two of the Fund's Trustees and the remaining Trustees will be elected by
holders of the Common Shares and the Preferred Shares (along with the holders of
any other preferred shares of the Fund) voting together as a single class. If at
any time dividends on the Fund's Preferred Shares shall be unpaid in an amount
equal to two full years' dividends thereon or if at any time holders of any
preferred shares of the Fund other than the Preferred Shares are entitled to
elect a majority of the Trustees of the Fund, then the number of Trustees shall
automatically be increased by the smallest number that, when added to the two
Trustees elected exclusively by the holders of Preferred Shares as described
above, would constitute a majority of the Trustees as so increased 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 Preferred Shares (along with the holders of any other preferred
shares of the Fund), 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 Fund as so increased. The terms
of office of the persons who are Trustees at the time of that election will
continue. If the Fund thereafter shall pay, or declare and set apart for
payment, in full all dividends payable on all outstanding Preferred Shares for
all past Dividend Periods, the voting rights stated in the preceding sentence
shall cease (subject always to revesting in the event of the further occurrence
of the circumstances described above), and the terms of office of all the
additional Trustees elected by the holders of Preferred Shares (but not of the
Trustees with respect to whose election the holders of Common Shares were
entitled to vote or the two Trustees the holders of Preferred Shares have the
right to elect in any event) will terminate automatically.
The affirmative vote of the holders of a majority of the outstanding
shares of each series of Preferred Shares, voting separately as series, would be
required to amend, alter or repeal any of the preferences, rights or powers of
such series of Preferred Shares so as to affect materially and adversely such
preferences, rights or powers of such series of RP, or increase or decrease the
number of shares of RP authorized to be issued. Unless a higher percentage is
provided for as described below under "Description of RP--Certain Provisions in
the Agreement and Declaration of Trust," the affirmative vote of the holders of
a majority of the outstanding Preferred Shares, voting as a class, will be
required to approve any plan of reorganization adversely affecting such shares
or any action requiring a vote of security holders under Section 13(a) of the
1940 Act including, among other things, changes in the investment restrictions
described under "Investment Restrictions."
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of RP shall have been redeemed or
shall no longer be deemed to be outstanding.
CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST
The Agreement and Declaration of Trust and Bylaws include provisions
that could have the effect of limiting the ability of other entities or persons
to acquire control of the Fund, or to cause it to engage in certain transactions
or to modify its structure. The affirmative vote of at least two-thirds of the
outstanding Common Shares and Preferred Shares, each voting separately as a
class, is required to authorize any of the following actions: (1) merger or
consolidation of the Fund, (2) sale of all or substantially all of the assets of
the Fund, (3) liquidation or dissolution of the Fund, (4) conversion of the Fund
to an open-end investment company, or (5) amendment of the Agreement and
Declaration of Trust to reduce the two-thirds vote required to authorize the
actions in (1) through (5), unless with respect to any of the foregoing such
action has been authorized by the affirmative vote of two-thirds of the total
number of Trustees then in office, in which case the affirmative vote of a
majority of the outstanding shares of each class is required.
The Trustees have determined that the two-thirds voting requirements
described above, which are greater than the minimum requirements under the 1940
Act, are in the best interests of the Fund and its shareholders generally.
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<PAGE>
Under Massachusetts law, shareholders of the Fund could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Fund and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The likelihood of such circumstances is remote.
HOLDERS OF RECORD; HOLDERS OF BENEFICIAL INTEREST
The Fund shall have no obligation, including without limitation any
obligation to provide notice or to make any payment (in respect of any dividend
or otherwise), to any person (including without limitation any holder of any
beneficial interest in shares of RP, whether or not such interest is reflected
on the share transfer books of the Paying Agent) other than the holders of
record of the shares of RP shown on the share records of the Paying Agent from
time to time. The record books of the Fund as kept by the Paying Agent shall be
conclusive as to who is the holder of record of any share of RP at any time and
as to the number of shares of RP held from time to time by any such holder. No
Remarketing Agent, Paying Agent, Securities Depository, or Agent Member will
have any obligation to any person having any interest in any share of RP other
than the holder of record and the beneficial owner thereof as shown from time to
time on the share transfer books kept by the Paying Agent. The Paying Agent
shall have no obligation to record any transfer of record or beneficial
ownership in any share unless and until it shall have received proper notice and
evidence of such transfer and the right of the transferee in accordance with the
Paying Agent's procedures in effect from time to time.
DESCRIPTION OF SHARES
PREFERRED SHARES
The Fund has 6,000 authorized preferred shares. There are 800
outstanding shares of Series A RP, which have terms substantially similar to
those of the RP, except that their Dividend Period is generally a 28-day
Dividend Period and their liquidation preference is $50,000 per share.
Redemptions and issuance of series of the preferred shares may be made
periodically in response to changing market conditions.
COMMON SHARES
The Trustees of the Fund have authority to issue an unlimited number of
Common Shares. The Common Shares outstanding are fully paid and nonassessable by
the Fund, except as set forth under "Description of RP--Certain Provisions in
the Agreement and Declaration of Trust." The Fund's Common Shares have no
preemptive, conversion, exchange or redemption rights. Each Common Share has one
vote, with fractional shares voting proportionately. Common Shares are freely
transferable.
The Fund has no present intention of offering additional Common Shares
in addition to the shares already issued. Any offerings of its Common Shares, if
made, will require approval of the Fund's Trustees. Any additional offering will
not be sold at a price per Common Share below the then current net asset value
per share (exclusive of underwriting discounts and commissions) except in
connection with an offering to existing Common shareholders or with the consent
of a majority of the Fund's outstanding Common Shares.
-----------------------------------
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<PAGE>
The following table shows the amount of (i) shares authorized, (ii) shares held
by the Fund for its own account and (iii) shares outstanding for each class of
authorized securities of the Fund as of the date of this Prospectus.
<TABLE>
<CAPTION>
Amount
Outstanding
Amount Held (Exclusive of
By Fund For Amount Held
Amount Its Own By Fund For
Title of Class Authorized Account Its Own Account)
- ------------------------------------------- ---------- ----------- ----------------
<S> <C> <C> <C>
Common Shares . . . . . . . . . . . . . . . Unlimited -0- 16,157,092
Remarketed Preferred Shares,
__________ . . . . . . . . . . . . . . 6,000 -0- ______
</TABLE>
TAXATION
The following Federal tax discussion is based on the advice of Ropes &
Gray, counsel to the Fund, and reflects provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), existing Treasury regulations, rulings
published by the Internal Revenue Service, and other applicable authority, as of
the date of this Prospectus. These authorities are subject to change by
legislative or administrative action. The following discussion is only a summary
of some of the important tax considerations generally applicable to investments
in the Fund. There may be other tax considerations applicable to particular
investors. In addition, income earned through an investment in the Fund may be
subject to state and local taxes. Prospective shareholders are therefore urged
to consult their tax advisers with respect to the tax consequences to them of an
investment in the Fund.
FEDERAL TAXATION OF THE FUND
The Fund intends to qualify each year for taxation as a regulated
investment company under Subchapter M of the Code. If the Fund so qualifies, the
Fund will not be subject to Federal income tax on income distributed in a timely
manner to Fund shareholders ("shareholders") in the form of dividends or capital
gain distributions.
Qualification for taxation as a regulated investment company under the
Code requires, among other things, that the Fund distribute to its shareholders
with respect to each year at least 90% of the sum of its net tax exempt interest
income, its taxable net investment income (including, generally, taxable
interest, dividends and certain other income, less certain expenses), and the
excess, if any, of net short-term capital gains over net long-term capital
losses (the "Distribution Requirement"). If the Fund does not qualify for
taxation as a regulated investment company for any taxable year, the Fund's
income will be taxed at the Fund level, and all distributions from earnings and
profits, including distributions of net exempt-interest income and net long-term
capital gains, will be taxable to shareholders as ordinary income. In addition,
in order to requalify for taxation as a regulated investment company, the Fund
may be required to recognize unrealized gains, pay substantial taxes and
interest, and make certain distributions.
To satisfy the Distribution Requirement described above, amounts paid
as dividends by the Fund to its shareholders, including shareholders of the two
series of RP, must qualify for the dividends-paid deduction. In certain
circumstances, the Internal Revenue Service could take the position that
dividends paid on the different series of RP constitute preferential dividends
under section 562(c) of the Code, and thus do not qualify for the dividends-paid
deduction. The Fund has received an opinion from Ropes & Gray that dividends
paid on its different series of RP will qualify for the dividends-paid
deduction. Such opinion represents only counsel's best legal judgment and is not
binding on the Internal Revenue Service.
If at any time when shares of RP are outstanding the Fund does not meet
applicable asset coverage requirements, the Fund will be required to suspend
distributions to holders of Common Shares until the requisite asset coverage is
restored. Any such suspension may cause the Fund to pay a 4% Federal excise tax
(imposed on regulated investment companies that fail to distribute for a given
calendar year substantially all of their taxable net investment income for such
year and substantially all of their capital gain net income for the one-year
period ending October 31 of such year) and may prevent the Fund from satisfying
the Distribution Requirement. The Fund may redeem shares of RP or, subject to
certain limitations, pay "special dividends" to the holders of the shares of RP
in an effort to avoid the excise tax and to comply with the Distribution
Requirement. See "Description of RP".
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<PAGE>
The Fund's investments and hedging activities are subject to certain
special Federal tax rules. One such rule provides that, in order to qualify for
taxation as a regulated investment company, less than 30% of the Fund's gross
income must be derived from the sale or other disposition of certain assets
(including Municipal Bonds, financial futures contracts, and options) held for
less than three months. Accordingly, the Fund will be restricted in selling
assets held, or considered under Code rules to have been held, for less than
three months, and in engaging in certain hedging transactions (including hedging
transactions in futures and options) that in certain circumstances could cause
certain Fund assets to be treated as having been held for less than three
months. Code rules governing the Fund's hedging transactions may also alter the
character of distributions to holders of shares of RP. Income earned as a result
of the Fund's hedging transactions will not be eligible to be treated as
"exempt-interest dividends" when distributed to shareholders. The Fund's
investment in securities issued at a discount will (and investments in
securities purchased at a discount may) require the Fund to accrue and
distribute income not yet received. Therefore, in order to generate sufficient
cash to make the requisite distributions, the Fund may be required to sell
securities in its portfolio that it otherwise would have continued to hold.
FEDERAL TAXATION OF SHAREHOLDERS
Dividends and Other Distributions. Assuming that the Fund qualifies for
taxation as a regulated investment company under Subchapter M of the Code and
that, at the close of each quarter of the Fund's taxable year, at least 50% of
the value of the Fund's total assets consists of obligations the interest on
which is exempt from Federal income tax under Code section 103(a), the Fund will
qualify to pay "exempt-interest dividends" to its shareholders to the extent of
its tax exempt interest income (less applicable expenses). Distributions of net
tax exempt interest income the Fund properly designates as exempt-interest
dividends are treated by shareholders as interest excludable from their gross
income for Federal income tax purposes but may be taxable for Federal
alternative minimum tax purposes (discussed below) and for state and local tax
purposes.
In order for any distributions to holders of shares of RP to be
eligible to be treated as exempt-interest dividends, the shares of RP must be
treated as equity for Federal income tax purposes. Based in part on certain
representations made by the Fund to Ropes & Gray relating to the lack of any
present intention to redeem or purchase shares of RP at any time in the future,
it is the opinion of Ropes & Gray that the shares of RP will constitute equity
for Federal income tax purposes. This opinion relies in part on a published
ruling of the Internal Revenue Service stating that certain auction rate
preferred stock similar in many material respects to the RP represents equity.
The opinion of Ropes & Gray represents only its best legal judgment and is not
binding on the Internal Revenue Service or the courts. If the Internal Revenue
Service were successfully to assert that variable rate preferred stock such as
the RP should be treated as debt for Federal income tax purposes, dividends on
shares of RP would be treated as taxable interest for Federal income tax
purposes. In such event, dividends on shares of RP would not be increased by the
Fund and holders of shares of RP would not be entitled to any additional
distributions from the Fund (including any Additional Dividends) to offset the
effect of paying Federal income tax on Fund distributions so recharacterized as
interest. Ropes & Gray has advised the Fund that, should the Internal Revenue
Service pursue in court the position that the shares of RP should be treated as
debt for Federal income tax purposes, the Internal Revenue Service would be
unlikely to prevail.
Under the Code, the interest on certain "private activity bonds" issued
after August 7, 1986 is treated as a preference item and is (after reduction by
applicable expenses) included in the Federal alternative minimum taxable income
of both individuals and corporations. The Fund will furnish to shareholders
annually a report indicating the percentage of Fund income treated as a
preference item for alternative minimum tax purposes. In addition, for
corporations, alternative minimum taxable income is increased by a percentage of
the amount by which an alternative measure of income that includes interest on
all tax exempt securities exceeds the amount otherwise determined to be
alternative minimum taxable income. Accordingly, the portion of the Fund's
dividends that would otherwise be tax exempt to shareholders may cause certain
shareholders to be subject to the Federal alternative minimum tax or may
increase the tax liability of a shareholder who is subject to such tax.
Investors should thus consider the possible effect of an investment in the Fund
on their Federal alternative minimum tax liability.
Legislation has been introduced that would reinstate a deductible tax
(the "Environmental Tax") imposed through tax years beginning before 1996, at a
rate of 0.12% on a corporation's alternative minimum taxable income (computed
without regard to the alternative minimum tax net operating loss deduction) in
excess of $2,000,000. If the Environmental Tax is reinstated, exempt-interest
dividends paid by the Fund that are included in a corporate shareholder's
alternative minimum taxable income may subject such shareholder to the
Environmental Tax.
Exempt-interest dividends attributable to interest received on certain
private activity bonds and certain industrial development bonds will not be tax-
exempt to any shareholders who are, within the meaning of Section 147(a)
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<PAGE>
of the Code, "substantial users" of the facilities financed by such obligations
or bonds or who are "related persons" of such substantial users.
The receipt of exempt-interest dividends may affect the portion, if
any, of an individual shareholder's Social Security and Railroad Retirement
benefits that will be includable in gross income subject to Federal income tax.
Up to [85 percent] of Social Security and Railroad Retirement benefits may be
included in gross income in cases where the recipient's combined income,
consisting of adjusted gross income (with certain adjustments), tax exempt
interest income and one-half of any Social Security and Railroad Retirement
benefits, exceeds a base amount ($25,000 for a single individual and $32,000 for
individuals filing a joint return). Individual shareholders receiving Social
Security or Railroad Retirement benefits should consult their tax advisers.
All or a portion of interest on indebtedness incurred or continued by a
shareholder to purchase or carry Fund shares will not be deductible by the
shareholder. The portion of interest that is not deductible is equal to the
total interest paid or accrued on the indebtedness multiplied by the percentage
of the Fund's total distributions (not including distributions of the excess of
net long-term capital gains over net short-term capital losses) paid to the
shareholder that are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered to have been
used for the purpose of purchasing or carrying particular assets, the purchase
of shares of RP may be considered to have been made with borrowed funds even
though such funds are not directly traceable to the purchase of shares.
Under Federal tax law in effect at the date of this Prospectus, a
shareholder's interest deduction generally will not be disallowed if the average
adjusted basis of the shareholder's tax-exempt obligations (including shares of
RP) does not exceed two percent of the average adjusted basis of the
shareholder's trade or business assets (and, in the case of individuals,
portfolio investments). Currently proposed legislation would repeal this
two-percent DE MINIMIS exception, which could reduce the total after-tax yield
of the RP to investors to whom the DE MINIMIS exception would otherwise apply.
Distributions of net investment income that do not qualify as
exempt-interest dividends, distributions of certain other ordinary income, and
the excess, if any, of net short-term capital gains over net long-term capital
losses, will be taxable to shareholders as ordinary income, and will not qualify
for the corporate dividends-received deduction. Distributions of the excess, if
any, of net long-term capital gains over net short-term capital losses will be
taxable to shareholders as long-term capital gains, without regard to how long a
shareholder has held shares of the Fund, and will not qualify for the corporate
dividends-received deduction.
Due to certain of the Fund's hedging and other investment activities,
the net investment income calculated for accounting purposes and distributed to
shareholders may in certain circumstances exceed or be less than the Fund's net
tax exempt and taxable income. If the Fund distributes amounts in excess of the
Fund's "earnings and profits" (which provides the measure of the Fund's
dividend-paying capacity for tax purposes), such distributions to shareholders
will be treated as a return of capital to the extent of a shareholder's basis in
his or her shares or RP, and thereafter as gain from the sale or exchange of a
capital asset. A return of capital is not taxable to a shareholder and has the
effect of reducing a shareholder's basis in the relevant shares, which basis
reduction would cause shareholders of RP to realize gain if their shares of RP
were sold for an amount equal to the liquidation price. Conversely, because Fund
expenses attributable to earning tax exempt income do not reduce the Fund's
current earnings and profits, a portion of any distribution in excess of the
Fund's net tax exempt and taxable income may be considered paid out of the
Fund's earnings and profits and may therefore be treated as a taxable dividend
(even though that portion economically represents a return of the Fund's
capital).
The Internal Revenue Service has taken the position in a published
revenue ruling indicating that the Fund is required to designate distributions
paid with respect to its Common Shares and each series of Preferred Shares as
consisting of a portion of each type of income distributed by the Fund. The
portion of each type of income deemed received by the holders of each class of
shares will be equal to the portion of total Fund distributions received by such
class. Thus, the Fund will designate dividends paid as exempt-interest dividends
in a manner that allocates such dividends among the holders of the Common
Shares, the Series A RP, Series B RP and the Series C RP, in proportion to the
total dividends paid to each such class during or with respect to the taxable
year, or otherwise as required by applicable law. Long-term capital gain
distributions and other income subject to regular Federal income tax will
similarly be allocated among the four classes. In the opinion of Ropes & Gray,
under current law, the manner in which the Fund intends to allocate items of its
tax exempt interest income, net capital gain, and other income subject to
regular Federal income tax, if any, among its four classes of shares will be
respected for Federal income tax purposes. No dividend that the Fund pays will
be increased to compensate for the fact that it may be subject to state and
local taxes.
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<PAGE>
If for any reason it is determined after the payment of any dividend that a
portion of that dividend was subject to Federal income tax, the Fund will not be
required to pay any additional amount to compensate for any tax payable on the
dividend (other than Additional Dividends (see Description of RP -- Dividends --
Additional Dividends) payable under the circumstances described in this
Prospectus). The federal income tax consequences of Additional Dividends under
existing law are uncertain. For example, it is unclear how Additional Dividends
will be treated under the rules in Subchapter M applicable to dividends paid
following the close of a taxable year in respect of a prior year's income. The
Fund intends to treat such Additional Dividends as paid during such prior
taxable year for purposes of the rules governing the Fund's treatment of such
dividends, and to treat a holder as receiving a dividend distribution in the
amount of any Additional Dividend only as and when such Additional Dividend is
paid. The Fund will generally designate Additional Dividends as exempt-interest
dividends to the extent it determines such designation is consistent with the
allocation principles set forth above. However, the IRS may assert that all or
part of an Additional Dividend is a taxable dividend either in the taxable year
in which the dividend or dividends to which the Additional Dividend relates, was
paid, or in the taxable year in which the Additional Dividend is paid. The Fund
will not be required to pay any additional amount if it is determined that its
treatment of Additional Dividends was improper. Additional Dividends will not
include any amount to compensate for the fact that the Additional Dividends or
the Retroactive Taxable Allocations (see Description of RP -- Dividends --
Additional Dividends) may themselves be subject to state and local taxes. No
provision will be made to compensate holders of shares of a series of RP for any
alternative minumum tax liability in respect of distributions on shares of such
series of RP.
Existing authorities, including the revenue ruling discussed in the
above paragraph, do not specifically address whether dividends (including
possibly Additional Dividends) that are paid following the close of a taxable
year, but that are treated for tax purposes as derived from the income of such
prior taxable year, are treated as dividends "paid" during such prior taxable
year for purposes of determining each class's proportionate share of a
particular type of income. The Fund currently intends to treat such dividends as
having been "paid" in the prior taxable year for purposes of determining each
class's proportionate share of a particular type of income with respect to such
prior taxable year. Existing authorities also do not specifically address the
allocation of taxable income among the dividends paid to holders of a class of
shares during or with respect to a taxable year. It is possible that the
Internal Revenue Service could disagree with the Fund's position concerning the
treatment of dividends paid after the close of a taxable year or with the Fund's
method of allocation, in which case the Internal Revenue Service could attempt
to recharacterize a portion of the dividends paid to the holders of RP and
designated by the Fund as exempt-interest dividends as consisting instead of
capital gains or other taxable income. If the Internal Revenue Service were to
prevail with respect to any such attempted recharacterization, holders of RP
could be subject to tax on amounts so recharacterized and the Fund could be
subject to Federal income and excise tax. In such event, no additional amounts
(including Additional Dividends) would be paid by the Fund with respect to
dividends so recharacterized to compensate for any additional tax owed by
holders of RP. Ropes & Gray has advised the Fund that, should the Internal
Revenue Service attempt to so recharacterize amounts allocated by the Fund to
shares of RP, the Internal Revenue Service would be unlikely to prevail.
However, such advice represents only Ropes & Gray's best legal judgment and is
not binding on the Internal Revenue Service or the courts.
Any dividend paid by the Fund during January of a given year generally
is deemed to have been received by shareholders on December 31 of the preceding
year, provided that the dividend actually was declared by the Fund in October,
November or December of such preceding year and payable to shareholders of
record on a date in such a month.
The Fund will notify shareholders each year of the amount and tax
status of dividends and other distributions, including the amount of any
distribution of net long-term capital gains.
The Code provides that every shareholder required to file a tax return
must include for information purposes on such return the amount of
exempt-interest dividends received from all sources (including the Fund) during
the taxable year.
SALE OR REDEMPTION OF SHARES. In certain circumstances, the sale or
exchange of shares of RP may give rise to gain or loss. In general, any gain or
loss realized upon a taxable disposition of shares of RP by a shareholder will
be treated as long-term capital gain or loss if the shares have been held for
more than twelve months, and otherwise as short-term capital gain or loss.
However, if a shareholder buys shares of RP and sells them at a loss within six
months, any loss will be disallowed for Federal income tax purposes to the
extent of any exempt-interest dividends received on such shares. In addition,
any loss (not already disallowed as provided in the preceding sentence) realized
upon a taxable disposition of shares of RP held for six months or less will be
treated as long-term, rather than short-term, capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
those shares. All or
-50-
<PAGE>
a portion of any loss realized upon a taxable disposition of shares of RP will
be disallowed if other shares of RP are purchased within 30 days before or after
the disposition. In such a case, the basis of the newly purchased shares of RP
will be adjusted to reflect the disallowed loss.
Gain or loss, if any, resulting from a redemption of RP will generally
be treated as gain or loss from the sale or exchange of a capital asset under
Code section 302, but in certain circumstances the amount distributed in
redemption may be treated instead as a distribution of cash which is taxable to
the extent of Fund earnings and profits as an ordinary dividend.
From time to time the Fund may make a tender or repurchase offer for
its Common Shares. It is expected that the terms of any such offer will require
a tendering shareholder to tender all Common Shares, and dispose of all shares
of RP, held or considered under Code rules to be held by such shareholder.
Shareholders who tender all Common Shares and dispose of all shares of RP held,
or considered held, by them will be treated as having sold such shares and
generally will realize a capital gain or loss. If, however, a shareholder
tenders fewer than all of its Common Shares, or retains a substantial portion of
its RP, such shareholder may be treated as having received a taxable dividend
upon the tender of its Common Shares. In such a case, there is a remote risk
that non-tendering shareholders (including holders of RP) will be treated as
having received taxable distributions from the Fund. Likewise, if the Fund
redeems some but not all of the RP held by a holder of RP and such holder of RP
is treated as having received a taxable dividend upon such redemption, there is
a remote risk that holders of Common Shares and non-redeeming holders of RP will
be treated as having received taxable distributions from the Fund.
If, in connection with the selection of a Long-Term Dividend Period,
the Fund provides that a Premium Call Period will follow a Non-Call Period, and
the premium to be paid upon redemption during the Premium Call Period exceeds a
reasonable penalty for early redemption, it is possible that the holders of RP
will be required to accrue such premium as a dividend (to the extent of Fund
earnings and profits) over the term of the Non-Call Period under regulations to
be issued by the Treasury Department.
Backup Withholding. The Fund generally is required to withhold and
remit to the U.S. Treasury 31% of the taxable dividends and other distributions
paid to non-corporate shareholders who fail to furnish the Fund with a correct
taxpayer identification number, who have underreported dividends or interest
income, or who fail to certify to the Fund they are not subject to such
withholding. An individual's taxpayer identification number is his or her social
security number.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"
or "Merrill Lynch"), Merrill Lynch World Headquarters, World Financial Center,
North Tower, New York, New York 10281-1201 has agreed, subject to the terms and
conditions of the Purchase Agreement with the Fund and Putnam, to purchase from
the Fund all of the shares of RP of each series offered hereby. The Underwriter
is committed to purchase all such shares if any are purchased.
The Underwriter has advised the Fund that it proposes initially to
offer the shares of RP to the public at the public offering price set forth on
the cover page of the Prospectus and to certain dealers at such price less a
concession not in excess of ______ per share. The Underwriter may allow, and
such dealers may reallow, a discount not in excess of ______ per share on sales
to certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed. The sales load of ______ per
share is equal to ______ of the initial public offering price. Investors must
pay for any shares of RP purchased in the initial public offering on or
before _______, 1997.
The Fund and Putnam have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933.
The Fund anticipates that Merrill Lynch may from time to time act as a
broker or dealer in connection with portfolio transactions after it has ceased
to be the Underwriter and, subject to certain restrictions, may act as a broker
while it is the Underwriter. See "Portfolio Transactions."
Merrill Lynch is also the Remarketing Agent and a Commercial Paper
Dealer. See "Remarketing--The Remarketing Agent" and "Remarketing--Remarketing
Procedures--Applicable Dividend Rates."
-51-
<PAGE>
Princeton Administrators L.P., an affiliate of Merrill Lynch, has
entered into an agreement with Putnam to provide various services to Putnam. See
"Administrative Services Contract."
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The Fund's custodian is Putnam Fiduciary Trust Company, an affiliate of
Putnam (the "Custodian"). The transfer agent, dividend disbursing agent, and
registrar for the Common Shares is Putnam Investor Services, a division of
Putnam Fiduciary Trust Company. The principal business address of the Custodian
and Putnam Investor Services is One Post Office Square, Boston, Massachusetts
02109. During the 1996 fiscal year, the Fund incurred $201,909 in fees and
out-of-pocket expenses for investor servicing and custody services provided by
Putnam Fiduciary Trust Company. The transfer agent, dividend disbursing agent
and registrar for the shares of RP will be ______________________________.
LEGAL MATTERS
Certain legal matters in connection with the shares of RP offered
hereby will be passed upon for the Fund by Ropes & Gray, Boston, Massachusetts
and for the Underwriter by Brown & Wood LLP, New York, New York.
EXPERTS
The audited financial statements of the Fund included in this
Prospectus has been so included in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of said firm as experts
in accounting and auditing.
INITIAL SETTLEMENT
Payment by each initial purchaser of shares of RP through an Agent
Member will be made by such Agent Member in same-day funds on the Date of
Original Issue of such shares to the Underwriter. On the Date of Original Issue,
the Underwriter will accept delivery of the shares of RP offered hereby and will
thereafter deposit such shares in the Underwriter's account at DTC. Immediately
thereafter on such Date of Original Issue, the Securities Depository will
deliver (by book entry) the shares of RP purchased by each purchaser through an
Agent Member from the Underwriter's account to the account of such purchaser's
Agent Member against payment for such shares of RP to the account of the
Underwriter of an amount equal to the purchase price from the account of such
Agent Member.
ADDITIONAL INFORMATION
Further information concerning these securities may be found in the
Registration Statement, of which this Prospectus constitutes a part, on file
with the Securities and Exchange Commission.
-52-
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
October 31, 1996 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (97.3%)*
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C> <C>
Alabama (2.1%)
============================================================================================================
$5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp. ), 8s, 9/1/28 BBB $5,556,250
Arizona (1.2%)
============================================================================================================
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village ), 7 7/8s, 6/1/09 BB/P 3,053,050
California (10.3%)
============================================================================================================
5,000,000 Foothill/Eastern Trans. Corridor Agcy. Rev. Bonds
(CA Toll Roads), Ser. A, 5s, 1/1/35 Baa 4,212,500
3,000,000 Metro. Wtr. Dist. IFB (Southern CA Waterwks.),
7.282s, 8/10/18 Aa 3,093,750
2,000,000 Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Management), 7 7/8s, 12/1/13 Baa 2,110,000
5,000,000 San Bernardino Cnty. COP (Med. Ctr. Fin. ),
Ser. A, MBIA, 6 1/2s, 8/1/17 Aaa 5,562,500
3,000,000 San Diego, IF COP, AMBAC, 8.12s, 9/1/07 Aaa 3,142,500
6,000,000 San Diego Cnty., COP, AMBAC, 5 5/8s, 9/1/12 Aaa 6,067,500
3,000,000 So. CA Pub. Pwr. Auth. IFB, FGIC, 6.79s, 7/1/17 Aaa 2,771,250
---------------
26,960,000
Colorado (6.5%)
============================================================================================================
Denver, City & Cnty. Arpt. Rev. Bonds,
9,440,000 Ser. A, 8 3/4s, 11/15/23 Baa 11,115,600
3,160,000 MBIA, 8 1/2s, 11/15/23 Aaa 3,673,500
2,000,000 Ser. D, 7 3/4s, 11/15/21 Baa 2,215,000
---------------
17,004,100
-53-
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Florida (1.3%)
============================================================================================================
$3,000,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South ), 7.95s, 12/1/08 A $3,307,500
Illinois (14.2%)
============================================================================================================
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
10,900,000 Ser. 84A, 8.85s, 5/1/18 Baa 12,289,750
8,930,000 Ser. C, 8.2s, 5/1/18 Baa 9,689,050
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds,
Ser. 91A, 8 1/4s, 7/1/16 A 10,687,500
1,900,000 IL Hsg. Dev. Auth. Res. Mtge. IFB, 9.907s, 2/1/20
(acquired 5/28/93, cost $2,152,225)++ Aa 2,052,000
8,330,000 IL Hsg. Dev. Auth. Metropolitan Pier & Exposition
Auth. Rev. Bonds (McCormick), Ser. A, MBIA,
zero %, 12/15/16 Aaa 2,592,712
---------------
37,311,012
Indiana (2.0%)
============================================================================================================
3,000,000 IL State Dev. Fin. Auth. Rev. Bonds
(Inland Steel Co. ), 6.85s, 12/1/12 BB 3,108,750
2,000,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp. ), 7.1s, 1/15/17 Baa 2,137,500
---------------
5,246,250
Kentucky (1.9%)
============================================================================================================
Kenton Cnty., Arpt. Board Special Fac. Rev. Bonds
(Delta Air Lines, Inc. )
3,400,000 Ser. A, 7 1/2s, 2/1/20 Baa 3,655,000
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa 1,387,750
---------------
5,042,750
Louisiana (3.4%)
============================================================================================================
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. ), 7 1/2s, 7/1/13 BB 5,857,500
2,850,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa 3,110,063
---------------
8,967,563
-54-
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Massachusetts (4.9%)
============================================================================================================
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
$3,135,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba $3,189,863
3,000,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 3,116,250
MA State Indl. Fin. Agcy. Resource Recvy.
3,000,000 Rev. Bonds (Southeastern MA ), Ser. A,
9s, 7/1/15 BB/P 3,393,750
1,000,000 (1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 1,030,000
2,500,000 MA State Wtr. Resources Auth. Rev. Bonds, Ser. B,
MBIA, 4 3/4s, 12/1/21 Aaa 2,140,625
---------------
12,870,488
Michigan (1.7%)
============================================================================================================
1,700,000 Dickinson Cnty., Hosp. Rev. Bonds
(Memorial Hosp. Syst.), 8 1/8s, 11/1/24 BBB 1,863,625
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 Aaa 2,690,625
---------------
4,554,250
Mississippi (1.0%)
============================================================================================================
2,500,000 Claiborne Cnty., Poll. Control Rev. Bonds
(Middle South Energy, Inc.), Ser. B, 8 1/4s, 6/1/14 BB/P 2,709,375
Missouri (0.5%)
============================================================================================================
1,300,000 Kansas City, Indl. Dev. Auth. VRDN
(Resh Hlth. Svcs. Syst.), MBIA, 3.7s, 10/15/15 VMIGI 1,300,000
Nebraska (1.1%)
============================================================================================================
2,500,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 11.51s, 9/10/30 Aaa 2,787,500
Nevada (2.3%)
============================================================================================================
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa 2,942,500
3,000,000 Ser. A, 6 1/2s, 12/1/33 Baa 3,003,750
---------------
5,946,250
-55-
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
New Jersey (9.8%)
============================================================================================================
$9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB $9,731,250
Hlth. Care Fac. Fin. Auth. Rev. Bonds
1,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 1,608,750
2,590,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB/P 2,725,975
10,000,000 Salem Cnty. Indl. Poll. Control Fin. Auth. IFB, MBIA,
8.954s, 10/1/29 (acquired 10/28/94,
cost $9,750,000)++ Aaa 11,712,500
---------------
25,778,475
New York (2.8%)
============================================================================================================
4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc.), 8s, 7/1/20 Baa 4,916,250
2,500,000 NY State Dorm. Auth. Rev. Bonds
(U. Syst. Construction), Ser. A, 5 5/8s, 7/1/16 Baa 2,431,250
---------------
7,347,500
North Carolina (0.8%)
============================================================================================================
2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. B, 6s, 1/1/22 Baa 1,970,000
Ohio (1.2%)
============================================================================================================
2,813,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.909s, 3/24/31 Aaa 3,009,910
Pennsylvania (7.3%)
============================================================================================================
5,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Pittsburgh Mercy Hlth. Syst.), AMBAC,
5 5/8s, 8/15/26 Aaa 4,912,500
7,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth. Hosp.
Rev. Bonds (UTD Hosp.), Ser. B, 8 3/8s, 11/1/11 Aaa 7,883,750
1,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Colver), Ser. D, 7.15s, 12/1/18 BBB 1,053,750
5,000,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 9.834s, 9/3/26 Aaa 5,325,000
---------------
19,175,000
South Carolina (1.8%)
============================================================================================================
4,500,000 Spartanburg Cnty., Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 4,848,750
Tennessee (0.3%)
============================================================================================================
900,000 Metro. Nashville Arpt. Auth. Fac. VRDN
(American Airlines), Ser. A, 3.65s, 10/1/12 VMIG1 900,000
-56-
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Texas (11.7%)
============================================================================================================
$5,500,000 Alliance Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa $5,864,375
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Baptist Memorial Hosp.)
4,800,000 7.9s, 5/1/18 Aaa 5,622,000
2,000,000 7.9s, 5/1/11 Aaa 2,342,500
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co.), Ser. A, 7 7/8s, 3/1/21 Baa 4,961,250
2,420,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst.), 8 7/8s, 6/1/21 Ba 2,528,900
3,535,000 Port Corpus Christi, Indl. Dev. Corp. Rev. Bonds
(Valero Refining & Marketing Co.), Ser. A,
10 1/4s, 6/1/17 Baa 3,753,569
5,000,000 Titus Cnty., Fresh Wtr. Supply Dist. No. 1 Poll.
Rev. Bonds (Southwestern Elec. Pwr. Co.),
Ser. A, 8.2s, 8/1/11 Aa 5,737,500
30,810,094
Virginia (1.4%)
============================================================================================================
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB (Fairfax Hosp.
Syst.), Ser. C, 9.595s, 8/29/23 Aaa 3,682,500
Washington (5.8%)
============================================================================================================
7,150,000 Pierce Cnty., Econ. Dev. Corp. Rev. Bonds (Solid
Waste-Occidental Petroleum), 5.8s, 9/1/29 Baa 6,703,125
3,450,000 WA State Hlth. Care Fac. VRDN
(Sisters Providence), Ser. E, 3.6s, 10/1/05 VMIG1 3,450,000
5,000,000 WA State Pub. Pwr. Auth. Rev. Bonds
(Nuclear No. 2), Ser. A, MBIA, 5.7s, 7/1/12 Aaa 5,012,500
---------------
15,165,625
---------------
Total Investments (cost $250,342,381)*** $255,304,192
============================================================================================================
</TABLE>
* Percentages indicated are based on net assets of $262,262,632. Net assets
available to common shareholders are $222,240,341.
**The Moody's or Standard & Poor's ratings indicated are believed to be the most
recent ratings available at October 31, 1996 for the securities listed. Ratings
are generally ascribed to securities at the time of issuance. While the agencies
may from time to time revise such ratings, they undertake no obligation to do
so, and the ratings do not necessarily represent what the agencies would ascribe
to these securities at October 31, 1996. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
-57-
<PAGE>
The table below shows the percentage of the fund's investments on October 31,
1996 in securities assigned to various rating categories by Moody's and Standard
& Poor's and in unrated securities determined by Putnam Management to be of
comparable quality.
Unrated securities
Rated securities of comparable quality,
as a percentage of as a percentage of
Rating fund's net assets fund's net assets
================================================================================
AAA/Aaa 30.8% --
AA/Aa 4.1 --
A/A 5.3 1.8%
BBB/Baa 37.6 0.4
BB/Ba 8.3 5.7
B/B 1.0 --
A-1/VMIGI 2.2 --
89.3% 7.9%
*** The aggregate identified cost on a tax basis is $250,342,381,
resulting in gross unrealized appreciation and depreciation of
$8,760,753 and $3,798,942, respectively, or net unrealized
appreciation of $4,961,811.
++ Restricted, excluding 144A securities, as to public resale. The total
market value of restricted securities held at October 31, 1996 was
$13,764,500 or 5.2% of net assets.
The fund had the following industry group concentrations greater
than 10% at October 31, 1996 (as a percentage of net assets):
Transportation 27.4%
Utilities 26.0
Healthcare 11.3
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market interest
rates, and VRDN's are the current interest rates at October 31, 1996.
The accompanying notes are an integral part of these financial statements.
-58-
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities at value
(identified cost $250,342,381) (Note 1) $255,304,192
Cash 66,417
Interest receivable 5,761,252
Receivable for securities sold 3,086,417
Unamortized organization expenses (Note 1) 10,047
TOTAL ASSETS 264,228,325
LIABILITIES
Distributions payable to shareholders 1,332,920
Payable for compensation of Manager (Note 2) 470,744
Payable for investor servicing and custodian fees (Note 2) 16,004
Payable for compensation of Trustees (Note 2) 81
Payable for administrative services (Note 2) 2,589
Payable for organization expense (Note 1) 36,681
Other accrued expenses 106,674
TOTAL LIABILITIES 1,965,693
NET ASSETS $262,262,632
REPRESENTED BY
Remarketed preferred shares (800 shares issued and $40,000,000
outstanding at $50,000 per share) (Note 4)
Paid in capital-common shares (Note 1) 226,378,559
Undistributed net investment income (Note 1) 140,090
Accumulated net realized loss on investments (Note 1) (9,217,828)
Net unrealized appreciation of investments 4,961,811
TOTAL - REPRESENTING NET ASSETS APPLICABLE $262,262,632
TO CAPITAL SHARES OUTSTANDING
COMPUTATION OF NET ASSET VALUE:
Remarketed preferred shares $40,000,000
Cumulative undeclared dividends on remarketed 22,291
preferred shares
Net assets allocated to remarketed $40,022,291
preferred shares - liquidation preference
Net assets available to common shares $222,240,341
Net asset value per common share ($222,240,341 $13.75
divided by 16,157,092 shares)
</TABLE>
The accompanying notes are an integral part of these financial statements.
-59-
<PAGE>
STATEMENT OF OPERATIONS
Six months ended October 31, 1996 (Unaudited)
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME: $9,188,225
Expenses:
Compensation of Manager (Note 2) 926,251
Investor servicing and custodian fees (Note 2) 103,945
Compensation of Trustees (Note 2) 6,254
Administrative services (Note 2) 3,862
Amortization of organization expenses (Note 1) 3,211
Reports to shareholders 31,553
Auditing 27,245
Legal 8,135
Postage 89,055
Exchange listing fees 12,130
Preferred share remarketing agent fees 46,098
Other 587
TOTAL EXPENSES 1,258,326
Expense reduction (Note 2) (29,916)
NET EXPENSES 1,228,410
NET INVESTMENT INCOME 7,959,815
Net realized gain on investments (Notes 1 and 3) 356,037
Net realized gain on futures contracts (Note 1) 440,942
Net unrealized appreciation of investments and futures
contracts during the period 4,146,583
NET GAIN ON INVESTMENTS 4,943,562
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,903,377
</TABLE>
The accompanying notes are an integral part of these financial statements.
-60-
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six months ended Year ended
October 31 April 30
1996+ 1996
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income $7,959,815 $16,028,262
Net realized gain on investments 796,979 2,139,601
Net unrealized appreciation of investments 4,146,583 3,617,324
Net increase in net assets resulting from operations 12,903,377 21,785,187
Distributions to remarketed preferred shareholders:
From net investment income (762,664) (1,455,352)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
(excluding cumulative undeclared dividends on remarketed
preferred shares of $22,291 and $71,506, respectively) 12,140,713 20,329,835
Distributions to common shareholders:
From net investment income (7,997,478) (15,995,243)
TOTAL INCREASE IN NET ASSETS 4,143,235 4,334,592
Net assets
Beginning of period 258,119,397 253,784,805
END OF PERIOD (including undistributed net investment
income of $140,090 and $940,417, respectively) $262,262,632 $258,119,397
NUMBER OF FUND SHARES
Common shares outstanding at beginning and end of period 16,157,092 16,157,092
Remarketed preferred shares outstanding 800 800
at beginning and end of period
+Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
-61-
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
May 28, 1993
Six Months Ended Year Ended (commencement
October 31, 1996 April 30 of operations) to
(Unaudited) 1996 1995 April 30, 1994
--------------------- ---- ---- --------------
<S> <C> <C> <C> <C>
Net Asset Value of common shares, $13.50 $13.23 $13.57 $14.07(d)
beginning of period
Investment Operations:
Net investment income .49 .99 1.02 .94(a)
Net realized and unrealized
gain (loss) on investments .31 .36 (.16) (.59)
Total from investment operations .80 1.35 .86 .35
Less Distributions:
From net investment income
To preferred shareholders (.05) (.09) (.08) (.05)(f)
To common shareholders (.50) (.99) (.99) (.70)
From net realized gain on investments:
To common shareholders - - (.09) (.05)
In excess of capital gains:
To common shareholders - - (.03) -
Total distributions (.55) (1.08) (1.19) (.80)
Preferred share offering costs - - - (.05)
Common share offering costs - - (.01)(g) -
Net asset value of common shares, $ 13.75 $ 13.50 $ 13.23 $ 13.57
end of period
Market value of common shares, $ 13.875 $ 13.625 $ 12.250 $ 12.625
end of period
Total Investment Return of common shares
at Market Value (%)(b) 5.54* 19.64 5.82 (11.22)*
Net assets, end of period (in thousands) $262,263 $258,119 $253,785 $259,295
Ratio of expenses to
average net assets (%) (c)(e) .57* 1.05 .95 .94*
Ratio of net investment income
to average net assets (%) (c) 3.29* 6.54 6.04 6.14*
Portfolio Turnover rate (%) 12.36* 49.97 59.13 60.52*
</TABLE>
* Not annualized.
(a) Reflects a waiver of the management fee. As a result of the waiver, expenses
of the fund for the period ended April 30, 1994 reflect a reduction of less than
$0.01 per share.
(b)Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c)Ratios reflect net assets available to common shares only; net investment
income ratio also reflects reduction for dividend payments to preferred
shareholders.
(d)Represents initial net asset value of $14.10 less offering expenses of $0.03.
(e)The ratio of expenses to average net assets for the year ended April 30, 1996
and thereafter includes amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts.
(f)Remarketed Preferred Shares, Series A, were issued on August 3, 1993.
(g)Adjustments of the original offering costs to reflect actual costs incurred.
-62-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as amended, as
a non-diversified, closed-end management investment company. The fund's
investment objective is to seek a high level of current income exempt from
federal income tax, consistent with preservation of capital. The fund intends to
achieve its objective by investing in a portfolio of investment grade municipal
bonds that Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc., believes to be
consistent with preservation of capital.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities. Actual results could
differ from those estimates.
A) SECURITY VALUATION Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. The fair value of restricted securities is
determined by the Manager following procedures approved by the Trustees, and
such valuations and procedures are reviewed periodically by the Trustees.
B) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis.
C) FUTURES AND OPTIONS CONTRACTS The fund may use futures and options contracts
to hedge against changes in the values of securities the fund owns or expects to
purchase. The fund may also write options on securities it owns or in which it
may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
D) FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid imposition
of any excise tax under Section 4982 of the Internal Revenue Code of 1986.
Therefore, no provision has been made for federal taxes on income, capital gains
or unrealized appreciation on securities held nor for excise tax on income and
capital gains.
At April 30, 1996, the fund had a capital loss carryover of approximately
$9,215,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ----------
$4,634,000 4/30/2003
4,581,000 4/30/2004
E) DISTRIBUTIONS TO SHAREHOLDERS Distributions to common and preferred
shareholders are recorded by the fund on the ex-dividend date. Dividends on
remarketed preferred shares become payable when, as and if declared by the
Trustees. Each dividend period for the remarketed preferred shares is generally
a 28 day period. The applicable dividend rate for the remarketed preferred
shares on October 31, 1996 was 3.39%. The amount and character of income and
gains to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryovers) under
income tax regulations.
F) DETERMINATION OF NET ASSET VALUE Net asset value of the common shares is
determined by dividing the value of all assets of the fund (including accrued
interest and dividends), less all liabilities (including accrued expenses) and
the liquidation preference of any outstanding remarketed preferred shares, by
the total number of common shares outstanding.
G) AMORTIZATION OF BOND PREMIUM AND ACCRETION OF BOND DISCOUNT Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on zero coupon bonds, and
original issue bonds are accreted according to the effective yield method.
H) UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in connection
with its organization, its registration with the Securities and Exchange
Commission and with various states and the initial public offering of its shares
were $36,681. These expenses are being amortized on straight-line basis over a
five year period.
The fund will reimburse Putnam Management for the payment of these expenses.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services and administrative services fees is paid quarterly based on the average
net assets of the fund, including amounts attributable to any preferred shares
that may be outstanding. Such fees in the aggregate are based on the annual rate
of 0.70% of the first $500 million of the average net asset value of the fund,
0.60% of the next $500 million, 0.55% of the next $500 million, and 0.50% of any
amount over $1.5 billion of such average net asset value by the amount of
certain brokerage commissions and fees (less expenses) received by affiliates of
Putnam Management on the fund's portfolio transactions.
If dividends payable on remarketed preferred shares during any dividend payment
period plus any expenses attributable to remarketed preferred shares for the
period exceed the fund's net
-63-
<PAGE>
income attributable to the proceeds of the remarketed preferred shares during
that period, then the fee payable to Putnam Management for that period will be
reduced by an agreed upon formula. See "Administration Services Contract."
The fund reimburses Putnam Management for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust
Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended October 31, 1996, fund expenses were reduced by $29,916
under expense offset arrangements with PFTC. Investor servicing and custodian
fees reported in the Statement of operations exclude these credits. The fund
could have invested a portion of the assets utilized in connection with the
expense offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the fund receive an annual Trustees fee of $780 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested persons
of Putnam Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on or
after July 1, 1995. The deferred fees remain in the fund and are invested in
certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the Fund who have served as
Trustee for at least five years. Benefits under the plan are equal to 50% of the
Trustee's average total retainer and meeting fees for the three years preceding
retirement. Pension expense for the fund is included in Compensation of trustees
in the Statement of operations. Accrued pension liability is included in Payable
for compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended October 31, 1996, purchases and sales of investment
securities other than short-term investments aggregated $30,914,992 and
$36,851,509, respectively. There were no purchases and sales of U.S. government
obligations. In determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
Note 4
Remarketed preferred shares
The remarketed shares are redeemable at the option of the fund on any dividend
payment date at a redemption price of $50,000 per share, plus an amount equal to
any dividends accumulated on a daily basis but unpaid through the redemption
date (whether or not such dividends have been declared) and, in certain
circumstances, a call premium.
It is anticipated that approximately 100% of total distributions and dividends
paid during fiscal 1997 to holders of remarketed preferred shares will be
considered tax-exempt dividends under the Internal Revenue Code of 1986. To the
extent that the fund earns taxable income and capital gains by the conclusion of
a fiscal year, it will be required to apportion to the holders of the remarketed
preferred shares throughout that year additional dividends as necessary to
result in an after-tax equivalent to the applicable dividend rate for the
period.
Under the Investment Company Act of 1940, the fund is required to maintain asset
coverage of at least 200% with respect to the remarketed preferred shares as of
the last business day of each month in which any such shares are outstanding.
Additionally, the fund is required to meet more stringent asset coverage
requirements under terms of the remarketed preferred shares and the shares'
rating agencies. Should these requirements not be met, or should dividends
accrued on the remarketed preferred shares not be paid, the fund may be
restricted in its ability to declare dividends to common shareholders or may be
required to redeem certain of the remarketed preferred shares. At October 31,
1996, no such restrictions have been placed on the fund.
-64-
<PAGE>
Report of independent
accountants For the fiscal year ended April 30, 1996
To the Trustees and Shareholders of
Putnam Municipal Opportunities Trust
We have audited the accompanying statement of assets and liabilities of Putnam
Municipal Opportunities Trust, including the portfolio of investments owned, as
of April 30, 1996, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the fund's 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 securities owned as of
April 30, 1996, 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 Putnam
Municipal Opportunities Trust as of April 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 18, 1996
-65-
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
April 30, 1996
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O.Bonds -- General Obligation Bonds
IF COP -- Inverse Floater Certificate of Participation
IFB -- Inverse Floating Rate Bonds
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.0%)*
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Alabama (2.1%)
==================================================================================================
$5,000,000 Butler, Indl. Dev. Board Rev. Bonds (Solid Waste
Disp. James River Corp. Project), 8s, 9/1/28 BBB $5,525,000
Arizona (1.2%)
==================================================================================================
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village Project), 7 7/8s, 6/1/09 BB/P 3,031,600
California (11.3%)
==================================================================================================
5,000,000 Foothill/Eastern Trans. Corridor Agcy. Rev. Bonds
(CA Toll Rd.), Ser. A, 5s, 1/1/35 Baa 3,993,750
3,000,000 Metro. Wtr. Dist. IFB (Southern CA Waterworks.),
7.715s, 8/10/18 AA 2,932,500
2,000,000 Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Mgt.), 7 7/8s, 12/1/13 BBB 2,087,500
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin. Project),
Ser. A, MBIA, 6 1/2s, 8/1/17 # AAA 5,400,000
3,000,000 San Diego Cnty., IF COP, AMBAC, 7.27s,
9/1/07 AAA 3,030,000
6,000,000 San Diego Cnty., Rev. Bonds, AMBAC,
5 5/8s, 9/1/12 AAA 5,955,000
3,000,000 So. CA Pub. Pwr. Auth. IFB, FGIC, 4.24s, 7/1/17 AAA 2,628,750
3,000,000 Thousand Oaks, Cmnty. Fac. Dist. Special Tax
Rev. Bonds (No. 94-1), 6 7/8s, 9/1/24 BB/P 3,015,000
---------
29,042,500
Colorado (5.7%)
==================================================================================================
Denver, City & Cnty. Arpt. Rev. Bonds, Ser. A
9,440,000 8 3/4s, 11/15/23 Baa 11,151,000
3,160,000 MBIA, 8 1/2s, 11/15/23 AAA 3,669,550
---------
14,820,550
-66-
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Connecticut (2.1%)
==================================================================================================
CT State G.O. Bonds, Ser. A
$2,000,000 5.3s, 5/15/10 AA $1,952,500
3,500,000 5.2s, 5/15/09 AA 3,421,250
---------
5,373,750
Florida (3.8%)
==================================================================================================
3,000,000 Broward Cnty., Resource Recvy. Rev. Bonds
(SES Broward Cnty. LP South Project),
7.95s, 12/1/08 A 3,307,500
5,775,000 Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indiantown Cogen. Project), Ser. A,
7 7/8s, 12/15/25 Baa 6,446,344
---------
9,753,844
Illinois (14.2%)
==================================================================================================
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.)
10,900,000 Ser. 84A, 8.85s, 5/1/18 Baa 12,180,750
10,930,000 Ser. C, 8.2s, 5/1/18 Baa 11,777,075
10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds, Ser. 91A,
8 1/4s, 7/1/16 A 10,637,500
1,900,000 IL Hsg. Dev. Auth. Res. Mtge. IFB, 10.483s, 2/1/20
(acquired 5/28/93, cost $2,152,225) ++ Aa 2,066,250
---------
36,661,575
Indiana (2.0%)
==================================================================================================
3,000,000 IN State Dev. Fin. Auth. Poll. Control Rev. Bonds
(Inland Steel Co. Project No. 12), 6.85s, 12/1/12 Ba 3,033,750
2,000,000 Indianapolis, Indl. Arpt. Auth. Special Fac. Rev. Bonds
(Federal Express Corp. Project), 7.1s, 1/15/17 Baa 2,117,500
---------
5,151,250
Kentucky (1.9%)
==================================================================================================
Kenton Cnty., Arpt. Board Special Facs. Rev. Bonds
(Delta Air Lines, Inc. Project)
3,400,000 Ser. A, 7 1/2s, 2/1/20 Baa 3,595,500
1,300,000 Ser. B, 7 1/4s, 2/1/22 Baa 1,363,375
---------
4,958,875
Louisiana (3.4%)
==================================================================================================
5,500,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co. Project), 7 1/2s, 7/1/13 BB 5,692,500
2,850,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt.), 8s, 12/1/14 Baa 3,106,500
---------
8,799,000
-67-
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Massachusetts (5.3%)
==================================================================================================
$ 2,000,000 MA State VRDN, Ser. E, 3.9s, 12/1/97 (ABN Amro
Bank N.V. (LOC)) VMIGI $2,000,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
3,135,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,178,106
3,000,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 3,086,250
3,000,000 MA State Indl. Fin. Agcy. Resource Recvy. Rev.
Bonds (Southeastern MA Project), Ser. A, 9s,
7/1/15 BB/P 3,326,250
2,500,000 MA State Wtr. Res. Auth. Rev. Bonds, Ser. B, MBIA,
4 3/4s, 12/1/21 AAA 2,090,625
---------
13,681,231
Michigan (1.7%)
==================================================================================================
1,700,000 Dickinson Cnty., Hosp. Rev. Bonds (Memorial
Hosp. Syst.), 8 1/8s, 11/1/24 BBB 1,861,500
2,500,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds,
Ser. A, FSA, 7.55s, 4/1/23 AAA 2,628,125
---------
4,489,625
Mississippi (1.1%)
==================================================================================================
2,500,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle
South Energy, Inc.), Ser. B, 8 1/4s, 6/1/14 Ba 2,709,375
Nebraska (1.2%)
==================================================================================================
2,700,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. 2, GNMA Coll., 11.328s, 9/10/30 AAA 3,010,500
Nevada (3.4%)
==================================================================================================
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp.)
2,750,000 Ser. B, 7 1/2s, 9/1/32 Baa 2,897,813
6,000,000 Ser. A, 6 1/2s, 12/1/33 Baa 5,745,000
---------
8,642,813
New Jersey (9.6%)
==================================================================================================
9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogen. L.P. Project), 7 7/8s, 6/1/19 BB 9,618,750
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
1,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 1,593,750
2,590,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/14 BB/P 2,632,088
10,000,000 Salem Cnty., Indl. Poll. Control Fin. Auth. IFB,
9.015s, 10/1/29 (acquired 10/28/94,
cost $9,750,000) ++ AAA 11,037,500
----------
24,882,088
New York (2.8%)
==================================================================================================
4,600,000 NY City, Indl. Dev. Agcy. Special Fac. Rev. Bonds
(American Airlines, Inc. Project), 8s, 7/1/20 Baa 4,922,000
2,500,000 NY State Dorm. Auth. Rev. Bonds (U. Syst.
Construction), Ser. A, 5 5/8s, 7/1/16 Baa 2,353,125
---------
7,275,125
-68-
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
North Carolina (0.7%)
==================================================================================================
$ 2,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds,
Ser. B, 6s, 1/1/22 A $1,927,500
Ohio (1.2%)
==================================================================================================
2,913,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2,
GNMA Coll., 9.9s, 3/24/31 AAA 3,069,574
Pennsylvania (6.5%)
==================================================================================================
3,000,000 Beaver Cnty., Indl. Dev. Auth. Rev. Bonds (Cleveland
Elec. Project), 7 5/8s, 5/1/25 Ba 3,067,500
7,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth. Hosp.
Rev. Bonds (UTD Hosp. Project), Ser. B,
8 3/8s, 11/1/11 Ba 7,455,000
1,000,000 PA State Econ. Dev. Fin. Auth. Resource Recvy. Rev.
Bonds (Colver Project), Ser. D, 7.15s, 12/1/18 BBB 1,040,000
5,000,000 PA State Higher Edl. Assistance Agcy. Student Loan
IFB, AMBAC, 9.622s, 9/3/26 AAA 5,312,500
---------
16,875,000
South Carolina (1.9%)
==================================================================================================
4,500,000 Spartanburg Cnty., Solid Waste Disp. Rev. Bonds
(Bayerische Motoren Werke), 7.55s, 11/1/24 A/P 4,803,750
Texas (11.9%)
==================================================================================================
5,500,000 Alliance Arpt. Auth. Special. Fac. Rev. Bonds
(American Airlines, Inc. Project), 7 1/2s,
12/1/29 Baa 5,836,875
Bexar Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(St. Luke's Lutheran Hosp. Project)
4,800,000 7.9s, 5/1/18 AAA/P 5,628,000
2,000,000 7.9s, 5/1/11 AAA/P 2,345,000
4,500,000 Brazos River, Poll. Control Auth. Rev. Bonds
(TX Utils. Elec. Co. Project), Ser. A,
7 7/8s, 3/1/21 Baa 4,938,750
2,450,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst. Project),
8 7/8s, 6/1/21 Ba 2,517,375
3,535,000 Port Corpus Christi, Indl. Dev. Corp. Rev. Bonds
(Valero Refining & Marketing Co.), Ser. A,
10 1/4s, 6/1/17 Baa 3,818,223
5,000,000 Titus Cnty., Fresh Wtr. Supply Dist. No. 1 Poll.
Rev. Bonds (Southwestern Elec. Pwr. Co.),
Ser. A, 8.2s, 8/1/11 AA 5,718,750
---------
30,802,973
Virginia (1.4%)
==================================================================================================
3,000,000 Fairfax Cnty., Indl. Dev. Auth. IFB
(Fairfax Hosp. Syst.), Ser. C, 9.707s, 8/29/23 AAA 3,675,000
-69-
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Washington (1.6%)
$ 4,650,000 Pierce Cnty., Econ. Dev. Corp. Rev. Bonds
(Solid Waste-Occidental Petroleum),
5.8s, 9/1/29 Baa $4,115,250
----------
Total Investments (cost $252,414,395)*** $253,077,748
==================================================================================================
</TABLE>
*Percentages indicated are based on net assets of $258,119,397. Net assets
available to common shareholders are $218,047,891.
**The Moody's or Standard & Poor's ratings indicated are believed to be the most
recent ratings available at April 30, 1996 for the securities listed. Ratings
are generally ascribed to securities at the time of issuance. While the agencies
may from time to time revise such ratings, they undertake no obligation to do
so, and the ratings do not necessarily represent what the agencies would ascribe
to these securities at April 30, 1996. Securities rated by Putnam are indicated
by "/P" and are not publicly rated.
-70-
<PAGE>
The table below shows the percentage of the fund's investments on April 30, 1996
in securities assigned to various rating categories by Moody's or Standard &
Poor's and in unrated securities determined by Putnam Management to be of
comparable quality.
Unrated securities
Rated securities of comparable quality,
as a percentage of as a percentage of
Rating fund's net assets fund's net assets
================================================================================
AAA/Aaa 18.5% 3.1%
AA/Aa 7.7
A/A 6.1 1.9
BBB/Baa 39.7 --
BB/Ba 14.4 5.8
VMIGI 0.8 --
================================================================================
87.2% 10.8%
================================================================================
Ratings are not covered by the Report of independent accountants.
*** The aggregate identified cost on a tax basis is $252,414,395, resulting in
gross unrealized appreciation and depreciation of $6,208,327 and $5,544,974
respectively, or net unrealized appreciation of $663,353.
++ Restricted, excluding 144A securities, as to public resale. The total
market value of restricted securities held at April 30, 1996 was $13,103,750 or
5.1% of net assets.
# A portion of this security was pledged to cover margin requirements for
futures contracts at April 30, 1996. The market value of segregated securities
with the custodian for transactions in futures contracts is $334,800 or less
than 0.1% of net assets.
The rates shown on IFBs and IF COP, which are securities paying interest rates
that vary inversely to changes in the market interest rates, and VRDNs are the
current interest rates at April 30, 1996.
The fund had the following industry group concentrations greater than 10% on
April 30, 1996 (as a percentage of net assets):
Airlines 21.9%
Utilities 18.1
Health/Hospitals 16.4
================================================================================
Futures Contracts Outstanding at April 30, 1996
(aggregate face value $12,159,063)
<TABLE>
<CAPTION>
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
<S> <C> <C> <C> <C>
U.S. Treasury Bond
Futures (Sell) $12,007,188 $12,159,063 Jun 96 $151,875
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-71-
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996
ASSETS
Investments in securities, at value
(identified cost $ 252,414,395) (Note 1) $253,077,748
Cash 175,664
Interest receivable 5,993,685
Receivable for securities sold 708,622
Receivable for variation margin 75,625
Unamortized organization expenses (Note 1) 13,258
TOTAL ASSETS 260,044,602
LIABILITIES
Distributions payable to shareholders 1,332,925
Payable for compensation of Manager (Note 2) 447,668
Payable for investor servicing and custodian fees
(Note 2) 50,312
Payable for administrative services (Note 2) 669
Payable for organization expenses (Note 2) 36,681
Other accrued expenses 56,950
TOTAL LIABILITIES 1,925,205
NET ASSETS $258,119,397
REPRESENTED BY
Remarketed preferred shares (800 shares issued
and outstanding at $50,000 per share liquidation
preference) (Note 4) $ 40,000,000
Paid in capital-common shares (Note 1) 226,378,559
Undistributed net investment income (Note 1) 940,417
Accumulated net realized loss on investments
(Note 1) (10,014,807)
Net unrealized appreciation of investments 815,228
NET ASSETS $258,119,397
NET ASSETS AVAILABLE TO:
Remarketed preferred shares at liquidation
preference $ 40,000,000
Cumulative undeclared dividends on remarketed
preferred shares 71,506
Net assets allocated to remarketed preferred
shares $ 40,071,506
Net assets available to common shares $218,047,891
Net asset value per common share ($218,047,891
divided by 16,157,092 shares) $ 13.50
The accompanying notes are an integral part of these financial statements.
-72-
<PAGE>
STATEMENT OF OPERATIONS
Year ended April 30, 1996
TAX EXEMPT INTEREST INCOME $18,293,098
EXPENSES:
Compensation of Manager (Note 2) 1,831,837
Investor servicing and custodian fees (Note 2) 201,909
Compensation of Trustees (Note 2) 10,275
Administrative services (Note 2) 8,421
Amortization of organization expenses (Note 2) 6,369
Reports to shareholders 46,024
Auditing 55,849
Legal 10,830
Postage 40,780
Exchange listing fees 24,685
Preferred share remarketing agent fees 96,428
Other 1,809
TOTAL EXPENSES 2,335,216
EXPENSE REDUCTION (NOTE 2) (70,380)
NET EXPENSES 2,264,836
NET INVESTMENT INCOME 16,028,262
Net realized gain on investments (Notes 1 and 3) 2,003,399
Net realized gain on futures contracts
(Notes 1 and 3) 136,202
Net unrealized appreciation of investments and
futures contracts during the year 3,617,324
NET GAIN ON INVESTMENTS 5,756,925
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $21,785,187
The accompanying notes are an integral part of these financial statements.
-73-
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended April 30
----------------------
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 16,028,262 $ 16,512,895
Net realized gain (loss) on investment transactions 2,139,601 (11,564,849)
Net unrealized appreciation of investment transactions 3,617,324 9,027,102
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 21,785,187 13,975,148
Distributions to remarketed preferred shareholders:
From net investment income (1,455,352) (1,287,696)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
APPLICABLE TO COMMON SHAREHOLDERS (excluding
cumulative undeclared dividends on remarketed
preferred shares of $71,506 and $0,
respectively) 20,329,835 12,687,452
Distributions to common shareholders:
From net investment income (15,995,243) (15,998,793)
From net realized gains -- (1,481,046)
In excess of net realized gains -- (499,303)
Common share offering and closing costs charged to
paid-in capital -- (218,436)+
Total increase (decrease) in net assets 4,334,592 (5,510,126)
NET ASSETS
Beginning of year 253,784,805 259,294,931
END OF YEAR (including undistributed net
investment income of $940,417 and
$2,272,494, respectively) $ 258,119,397 $ 253,784,805
NUMBER OF FUND SHARES
Common shares outstanding at beginning
and end of year 16,157,092 16,157,092
Remarketed preferred shares outstanding
at beginning and end of year 800 800
</TABLE>
+ Adjustments of the original offering costs to reflect actual costs incurred.
The accompanying notes are an integral part of these financial statements.
-74-
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
May 28, 1993
(commencement of
Year ended Year ended operations) to
April 30 April 30 April 30
1996 1995 1994
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
(COMMON SHARES) $ 13.23 $ 13.57 $ 14.07*
INVESTMENT OPERATIONS:
Net investment income .99 1.02 .94(a)
Net realized and unrealized gain (loss)
on investments .36 (.16) (.59)
TOTAL FROM INVESTMENT OPERATIONS 1.35 .86 .35
LESS DISTRIBUTIONS:
From net investment income:
To preferred shareholders (.09) (.08) (.05)**
To common shareholders (.99) (.99) (.70)
Capital gains:
To common shareholders -- (.09) (.05)
In excess of capital gains:
To common shareholders -- (.03) --
TOTAL DISTRIBUTIONS (1.08) (1.19) (.80)
Preferred share offering costs -- -- (.05)
Common share offering costs -- (.01)+ --
Net asset value, end of period
(common shares) $13.50 $13.23 $13.57
Market value, end of period
(common shares) $13.625 $12.250 $12.625
Total investment return, at market value
(common shares) (%) (c) 19.64 5.82 (11.22)(b)
Net assets, end of period (in thousands) $ 258,119 $ 253,785 $ 259,295
Ratio of expenses to average net assets
(%) (d)(e) 1.05 .95 .94(b)
Ratio of net investment income to
average net assets (%) (d) 6.54 6.04 6.14(b)
Portfolio turnover rate (%) 49.97 59.13 60.52(b)
</TABLE>
*Represents initial net asset value of $14.10 less offering expenses of $0.03.
**Preferred shares were issued on August 3, 1993. (See Note 4)
+Adjustments of the original offering costs to reflect actual costs incurred.
(a)Reflects a waiver of the management fee for the period May 28, 1993 to June
13, 1993. As a result of the waiver, expenses of the fund for the period ended
April 30, 1994 reflect a reduction of less than $0.01 per share. (See Note 2)
(b)Not annualized.
(c)Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d)Ratios reflect net assets available to common shares only: net investment
income ratio also reflects reduction for dividend payments to preferred
shareholders.
(e)The ratio of expenses to average net assets for the year ended April 30, 1996
and thereafter, include amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts. (See Note 2)
-75-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1996
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as amended, as
a non-diversified, closed-end management investment company. The fund's
investment objective is to seek a high level of current income exempt from
federal income tax, consistent with preservation of capital. The fund intends to
achieve its objective by investing in a portfolio of investment grade municipal
bonds that Putnam Investment Management, Inc. ("Putnam Management"), the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc., believes to be
consistent with preservation of capital. The following is a summary of
significant accounting policies consistently followed by the fund in the
preparation of its financial statements. The preparation of financial statements
is in conformity with generally accepted accounting principles and requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those estimates.
A) SECURITY VALUATION Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. The fair value of restricted securities is
determined by the Manager following procedures approved by the Trustees, and
such valuations and procedures are reviewed periodically by the Trustees.
B) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis.
C) FUTURES AND OPTIONS CONTRACTS The fund may use futures and options contracts
to hedge against changes in the values of securities the fund owns or expects to
purchase. The fund may also write options on securities it owns or in which it
may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
D) FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid imposition
of any excise tax under Section 4982 of the Internal Revenue Code of 1986.
Therefore, no provision has been made for federal taxes on income, capital gains
or unrealized appreciation on securities held and for excise tax on income and
capital gains.
At April 30, 1996, the fund had a capital loss carryover of approximately
$9,215,000 available to offset future net capital gain, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
- ------------- ----------
$4,634,000 4/30/2003
$4,581,000 4/30/2004
E) DISTRIBUTIONS TO SHAREHOLDERS Distributions to common and preferred
shareholders are recorded by the fund on the ex-dividend date. Dividends on
remarketed preferred shares become payable when, as and if declared by the
Trustees. Each dividend period for the remarketed preferred shares is generally
a 28 day period. The applicable dividend rate for the remarketed preferred
shares on April 30, 1996 was 3.625%. The amount and character of income and
gains to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
These differences include treatment of market discount. Reclassifications are
made to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended April 30, 1996, the fund reclassified $90,256 to
increase undistributed net investment income with an increase to accumulated net
realized losses of $90,256. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
F) DETERMINATION OF NET ASSET VALUE Net asset value of the common shares is
determined by dividing the value of all assets of the fund (including accrued
interest and dividends), less all liabilities (including accrued expenses and
undeclared dividends on remarketed preferred shares) and the liquidation value
of any outstanding remarketed preferred shares, by the total number of common
shares outstanding.
G) AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discounts on zero coupon bonds, original issue,
stepped-coupon bonds and payment in kind bonds are accreted according to the
effective yield method.
H) UNAMORTIZED ORGANIZATION EXPENSES. Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $36,681. These expenses are being amortized on a straight-line
basis over a five-year period.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services and administrative services is paid
-76-
<PAGE>
quarterly based on the average net assets of the fund, including amounts
attributable to any preferred shares that may be outstanding. Such fees in the
aggregate are based on the annual rate of 0.70% of the first $500 million of the
average net asset value of the fund, 0.60% of the next $500 million, 0.55% of
the next $500 million, and 0.50% of any amount over $1.5 billion of such average
net asset value subject, under current law, to reduction in any year by the
amount of certain brokerage commissions and fees (less expenses) received by
affiliates of Putnam Management on the fund's portfolio transactions.
If dividends payable on remarketed preferred shares during any dividend payment
period plus any expenses attributable to remarketed preferred shares for the
period exceed the fund's net income attributable to the proceeds of the
remarketed preferred shares during that period, then the fee payable to Putnam
Management for that period will be reduced by an agreed upon formula. See
"Administration Services Contract."
The fund reimburses Putnam Management for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust
Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended April 30, 1996, fund expenses were reduced by $70,380 under
expense offset arrangements with PFTC. Investor servicing and custodian fees
reported in the Statement of operations exclude these credits. The fund could
have invested a portion of these assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered into such
arrangements.
Trustees of the fund receive an annual Trustees fee of $790 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested persons
of Putnam Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings. The fund adopted a
Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the
receipt of all or a portion of Trustees Fees payable on or after July 1, 1995.
The deferred fees remain in the fund and are invested in the fund or in other
Putnam funds until distribution in accordance with the Plan.
Note 3
Purchases and sales of securities
During the year ended April 30, 1996, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $127,957,774 and $126,337,866, respectively. Purchases and sales of
short-term municipal obligations aggregated $64,800,000 and $68,000,000,
respectively. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Note 4
Remarketed preferred shares
On August 3, 1993, the fund issued 800 remarketed preferred shares. Proceeds to
the fund, before underwriting expenses of $600,000 and offering expenses of
$182,000, amounted to $40,000,000. Such offering expenses and the fund
underwriting expenditures were paid initially by Putnam Management, and the fund
reimbursed Putnam Management for such costs. These expenses were charged against
net assets of the fund available to common shareholders.
The Series A shares are redeemable at the option of the fund on any dividend
payment date at a redemption price of $50,000 per share, plus an amount equal to
any dividends accumulated on a daily basis but unpaid through the redemption
date (whether or not such dividends have been declared) and, in certain
circumstances, a call premium.
It is anticipated that approximately 100% of total distributions and dividends
paid during fiscal 1996 to holders of remarketed preferred shares will be
considered tax-exempt dividends under the Internal Revenue Code of 1986. To the
extent that the fund earns taxable income and capital gains by the conclusion of
a fiscal year, it will be required to apportion to the holders of the remarketed
preferred shares throughout that year additional dividends as necessary to
result in an after-tax equivalent to the applicable dividend rate for the
period.
Under the Investment Company Act of 1940, the fund is required to maintain asset
coverage of at least 200% with respect to the remarketed preferred shares as of
the last business day of each month in which any such shares are outstanding.
Additionally, the fund is required to meet more stringent asset coverage
requirements under terms of the remarketed preferred shares and the shares'
rating agencies. Should these requirements not be met, or should dividends
accrued on the remarketed preferred shares not be paid, the fund may be
restricted in its ability to declare dividends to common shareholders or may be
required to redeem certain of the remarketed preferred shares. At April 30,
1996, no such restrictions have been placed on the fund.
-77-
<PAGE>
GLOSSARY
"`AA' Composite Commercial Paper Rate" has the meaning specified on page 34 of
this Prospectus.
"Additional Dividend" has the meaning specified on page 41 of this Prospectus.
"Agent Member" means a designated member of the Securities Depository that will
maintain records for a beneficial owner of one or more shares of RP.
"Applicable Dividend Rate" means, with respect to the Initial Dividend Period,
the rate of dividend per annum established by the Trustees, by a duly authorized
committee thereof or by any of the President, the Vice Chairman, any Executive
Vice President or the Treasurer of the Fund and, for each subsequent Dividend
Period, means the rate of dividend per annum that (i) except for a Dividend
Period commencing during a Non-Payment Period, will be equal to the lower of the
rate of dividend per annum that the Remarketing Agent advises results on the
Remarketing Date preceding the first day of such Dividend Period from
implementation of the remarketing procedures set forth in the Bylaws and the
Maximum Dividend Rate or (ii) for each Dividend Period commencing during a
Non-Payment Period, will be equal to the Non-Payment Period Rate.
"Applicable Percentage" has the meaning described on page 34 of this Prospectus.
"Authorized Newspaper" means a newspaper of general circulation in the English
language generally published on Business Days in The City of New York.
"Business Day" means a day on which the New York Stock Exchange, Inc. is open
for trading, and is not a day on which banks in The City of New York are
authorized or obligated by law to close.
"Bylaws" means the Bylaws of the Fund, as amended from time to time.
"Cede" means Cede & Co., the nominee of DTC in whose name the RP initially will
be registered.
"Closing Transaction" means the termination of a futures contract or option
position by taking a position opposite thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other dealers as the Fund may from time to time appoint,
or in lieu of any thereof, their respective affiliates or successors.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the common shares of beneficial interest of the Fund.
"Date of Original Issue" means, with respect to any share of RP, the date on
which the Fund originally issues such share.
"Deposit Securities" has the meaning set forth on page B-1 of this Prospectus.
"Discount Factor" means a Moody's Discount Factor or a S&P Discount Factor, as
the case may be.
"Discounted Value" has the meaning set forth on page B-1 of this Prospectus.
"Dividend Payment Date" has the meaning set forth on page 39 of this Prospectus.
"Dividend Period" has the meaning set forth on page 37 of this Prospectus.
-78-
<PAGE>
"DTC" means The Depository Trust Company.
"Exempt-Interest Dividend" has the meaning set forth on page 48 of this
Prospectus.
"Forward Commitment" has the meaning set forth on page 19 of this Prospectus.
"Fund" means Putnam Municipal Opportunities Trust, a Massachusetts business
trust, which is the issuer of the RP.
"Gross-Up Tax Rate" has the meaning set forth on page 30 of this Prospectus.
A "holder" of RP means, unless the context otherwise requires, a person who is
listed in the records of the Paying Agent as the beneficial owner of one or more
shares of RP.
"Initial Dividend Payment Date" has the meaning set forth on page 37 of this
Prospectus.
"Initial Dividend Period" means the period commencing on and including the Date
of Original Issue thereof and ending on either August 30, 1993, in the case of
Series A RP, or on the date set forth on the front cover of this Prospectus, in
the case of Series B RP and Series C RP.
"Initial Margin" means the amount of cash or securities deposited with a broker
as a margin payment at the time of purchase or sale of a futures contract or an
option hereon.
"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.
"IRS" means the Internal Revenue Service.
"Long Term Dividend Period" has the meaning set forth on page 5 of this
Prospectus.
"Mandatory Redemption Price" has the meaning set forth on page 42 of this
Prospectus.
"Marginal Tax Rate" means the maximum marginal regular Federal individual income
tax rate applicable to ordinary income or the maximum marginal regular Federal
corporate income tax rate, whichever is greater.
"Maximum Dividend Rate" has the meaning set forth on page 34 of this Prospectus.
"Maximum Potential Additional Dividend Liability" has the meaning set forth on
page B-1 of this Prospectus.
"Moody's" means Moody's Investors Service, Inc.
"Moody's Discount Factor" has the meaning set forth on page B-2 of this
Prospectus.
"Moody's Eligible Asset" has the meaning set forth on page B-2 of this
Prospectus.
"Moody's Exposure Period" has the meaning set forth on page B-3 of this
Prospectus.
"Moody's Hedging Transaction" has the meaning set forth on page B-8 of this
Prospectus.
"Moody's Volatility Factor" has the meaning set forth on page B-3 of this
Prospectus.
"Municipal Index" means The Bond Buyer Municipal Bond Index.
"Municipal Bonds" has the meaning described on page 15 of this Prospectus.
"1940 Act" means the Investment Company Act of 1940, as amended.
"1940 Act Cure Date" has the meaning set forth on page 17 of this Prospectus.
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<PAGE>
"1940 Act RP Asset Coverage" has the meaning set forth on page 17 of this
Prospectus.
"Non-Call Period" has the meaning described under "Specific Redemption
Provisions" below.
"Non-Payment Period" has the meaning set forth on page 40 of this Prospectus.
"Non-Payment Period Rate" has the meaning set forth on page 40 of this
Prospectus.
"Notice of Redemption" has the meaning set forth on page 43 of this Prospectus.
"Notice of Revocation" has the meaning set forth on page 38 of this Prospectus.
"Notice of Special Dividend Period" has the meaning set forth on page 38 of this
Prospectus.
"Optional Redemption Price" has the meaning set forth on page 42 of this
Prospectus.
"Paying Agent" means ______, or any successor company or entity, which has
entered into a Paying Agent Agreement with the Fund to act, among other things,
as the transfer agent, registrar, dividend and redemption price disbursing
agent, settlement agent and agent for certain notifications for the Fund in
connection with the RP of each series in accordance with such agreement.
"Paying Agent Agreement" has the meaning set forth on page 29 of this
Prospectus.
"Preferred Shares" means the Series A RP, Series B RP and Series C RP,
collectively.
"Premium Call Period" has the meaning specified in "Specific Redemption
Provisions" below.
"RP" means collectively, the Remarketed Preferred Shares Series B and Remarketed
Preferred Shares Series C.
"RP Basic Maintenance Amount" has the meaning set forth on page 17 of this
Prospectus.
"Receivables for Municipal Bonds Sold," for purposes of determining Moody's
Eligible Assets and, for purposes of determining S&P Eligible Assets, has the
meaning set forth on pages B-2 and B-5, respectively, of this Prospectus.
A "record holder" of RP shall mean the Securities Depository or its nominee or
such other person or persons listed in the share transfer books of the Fund as
the registered holder of one or more shares of RP.
"Reference Rate" has the meaning set forth on page 34 of this Prospectus.
"Remarketing" means each periodic operation of the process for remarketing RP,
as described in this Prospectus.
"Remarketing Agent" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and
any additional or successor companies or entities which have entered into an
agreement with the Fund to follow the remarketing procedures for the purposes of
determining the Applicable Dividend Rate.
"Remarketing Agreement" has the meaning set forth on page 30 of this Prospectus.
"Remarketing Date" means any date on which (i) each holder of shares of RP must
provide to the Remarketing Agent irrevocable telephonic notice of intent to
tender shares in a Remarketing, and (ii) the Remarketing Agent (a) determines
the Applicable Dividend Rate for the ensuing Dividend Period, (b) notifies
holders, purchasers and tendering holders of shares of RP by telephone, telex or
otherwise of the results of the Remarketing and (c) announces the Applicable
Dividend Rate.
"Request for Special Dividend Period" has the meaning set forth on page 38 of
this Prospectus.
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<PAGE>
"Response" has the meaning set forth on page 38 of this Prospectus.
"Retroactive Taxable Allocation" has the meaning set forth on page 41 of this
Prospectus.
"S&P" means Standard & Poor's Ratings Services.
"S&P Discount Factor" has the meaning set forth on page B-4 of this Prospectus.
"S&P Eligible Asset" has the meaning set forth on page B-5 of this Prospectus.
"S&P Exposure Period" has the meaning set forth on page B-5 of this Prospectus.
"S&P Hedging Transaction" has the meaning set forth on page B-5 of this
Prospectus.
"S&P Volatility Factor" has the meaning set forth on page B-5 of this
Prospectus.
"Securities Depository" means DTC or any successor company or other entity
selected by the Fund as securities depository for RP that agrees to follow the
procedures required to be followed by such securities depository in connection
with the shares of such series of RP.
"Series A RP" means the Remarketed Preferred Shares, Series A, of the Fund.
"Series B RP" means the Remarketed Preferred Shares, Series B, of the Fund
offered hereby.
"Series C RP" means the Remarketed Preferred Shares, Series C, of the Fund
offered hereby.
"Settlement Date" means the first Business Day after a Remarketing Date
applicable to a share of RP.
"7-day Dividend Period" has the meaning set forth on page 5 of this Prospectus.
"Short Term Dividend Period" has the meaning set forth on page 5 of this
Prospectus.
"Special Dividend Period" means a Dividend Period established by the Trustees
for RP as described on page 5 of this Prospectus.
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period of 365 or more days, either, or any combination of, the designation of
(i) a period (a "Non-Call Period") determined by the Trustees, after
consultation with the Remarketing Agent, during which the shares of RP subject
to such Dividend Period shall not be subject to redemption at the option of the
Fund and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Trustees, after consultation with the
Remarketing Agent, during each year of which the shares of RP subject to such
Dividend Period shall be redeemable at the Trust's option at a price per share
equal to $50,000 (in the case of Series A RP) or $25,000 (in the case of Series
B RP or Series C RP) plus accumulated but unpaid dividends plus an applicable
premium, as determined by the Trustees after consultation with the Remarketing
Agent.
"Substitute Commercial Paper Dealers" means such substitute commercial paper
dealers as the Trust may from time to time appoint or, in lieu of any thereof,
their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations selected by the Fund to act as the
substitute rating agency or substitute rating agencies, as the case may be, to
determine the credit ratings of the RP.
-81-
<PAGE>
"Taxable Equivalent of the Short-Term Municipal Bond Rate" has the meaning set
forth on page 35 of this Prospectus.
"Tender and Dividend Reset" means the process pursuant to which RP may be
tendered in a Remarketing or held and become subject to the new Applicable
Dividend Rate determined by the Remarketing Agents in such Remarketing.
"Treasury Bonds" means United States Treasury Bonds with remaining maturities of
ten years or more.
"Trustees" means the Trustees of the Fund.
"U.S. Treasury Bill Rate" has the meaning set forth on page 35 of this
Prospectus.
"U.S. Treasury Note Rate" has the meaning set forth on page 35 of this
Prospectus.
"Valuation Date" has the meaning set forth on page B-5 of this Prospectus.
"Variation Margin" has the meaning set forth on page B-6 of this Prospectus.
-82-
<PAGE>
APPENDIX A
NORMAL SCHEDULE FOR REMARKETING RP
The normal schedule for remarketing shares of RP subject to
Tender and Dividend Reset is described below. As described in this Prospectus,
the events occurring on each day of a normal remarketing schedule are subject to
change in the event that certain days are not Business Days. All references
herein to a particular time of day shall be to New York City time.
Remarketing Date
9:00 a.m. Deadline for the Remarketing Agent to make available to
holders of shares of RP subject to Tender and Dividend
Reset non-binding indications of Applicable Dividend Rate
for the next succeeding 7-Day Dividend Period or, if
applicable, Special Dividend Period.
12:00 noon Deadline for each holder of shares of RP subject to Tender
and Dividend Reset to provide to the Remarketing Agent
irrevocable telephonic notice of intent to tender RP for
sale in the current Remarketing. Remarketing of tendered
shares of RP formally commences.
3:00 p.m. Deadline for completion of Remarketing. The Remarketing
Agent determines the Applicable Dividend Rate for the
Dividend Period.
3:30 p.m. The Remarketing Agent notifies holders, purchasers and
tendering holders of RP by telephone, telex or otherwise of
the results of the Remarketing. Applicable Dividend Rate is
announced.
Settlement Date New Dividend Period begins. In addition, shares of RP which
(next following have been tendered and sold in a Remarketing are delivered
Business Day) against payment through the Securities Depository.
A-1
<PAGE>
APPENDIX B
RATING AGENCY REQUIREMENTS
This Appendix sets out certain procedures from the Bylaws of the
Fund containing conditions determined by S&P and Moody's which the Fund must
meet in order to maintain its AAA/"aaa" rating. Generally, these requirements,
among other things, impose limitations on the securities in which the Fund may
invest (and the amount of its portfolio which may be invested in various types
of securities and securities of various issuers), limit the Fund's use of
futures, options and forward commitments and may require the Fund to redeem RP
as described generally in the Prospectus under "Description of RP--Redemption."
Any capitalized terms used in this Appendix but not defined herein are defined
elsewhere in the Prospectus.
DEFINITIONS
"Anticipation Notes" shall mean the following Municipal Bonds: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation notes,
grant anticipation notes and bond anticipation notes.
"Deposit Securities" means cash and Municipal Bonds rated at least AAA, A-1+ or
SP-1+ by S&P.
"Discounted Value" means (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) with respect to a Moody's Eligible Asset, the lower of par and the quotient
of the Market Value thereof divided by the applicable Moody's Discount Factor.
"Independent Accountant" means 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.
"Initial Margin" means the amount of cash or securities deposited with a broker
as a margin payment at the time of purchase or sale of a futures contract or an
option thereon.
"Market Value" of any asset of the Fund means the market value thereof
determined by the Pricing Service. The Market Value of any asset shall include
any interest accrued thereon. The Pricing Service shall value 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 shall be valued at fair value as determined
by the Pricing Service using methods which include consideration of: yields or
prices of Municipal Bonds of comparable quality, type of issue, coupon, maturity
and rating; indications as to value from dealers; and general market conditions.
The Pricing Service may employ electronic data processing techniques and/or a
matrix system to determine valuations. In the event the Pricing Service is
unable to value a security, the security shall be valued at the lower of two
dealer bids obtained by the Fund from dealers who are members of the National
Association of Securities Dealers, Inc. and make a market in the security, at
least one of which shall be in writing. Futures contracts and options are valued
at closing prices for such instruments established by the exchange or board of
trade on which they are traded, or if market quotations are not readily
available, are valued at fair value on a consistent basis using methods
determined in good faith by the Trustees.
"Maximum Potential Additional Dividend Liability," as of any Valuation Date,
means the aggregate amount of Additional Dividends that would be payable with
respect to the RP if the Fund were to make Retroactive Taxable Allocations, with
respect to any fiscal year, estimated based upon dividends paid and the amount
of undistributed realized net capital gain and other income subject to regular
Federal income tax earned by the Fund, as of the end of the calendar month
immediately preceding such Valuation Date and assuming such Additional Dividends
are fully taxable.
B-1
<PAGE>
"Moody's Discount Factor" means, for purposes of determining the Discounted
Value of any Municipal Bond which constitutes a Moody's Eligible Asset, the
percentage determined by reference to (a) the rating by Moody's or S&P on such
Bond and (b) the Moody's Exposure Period, in accordance with the table set forth
below:
<TABLE>
<CAPTION>
Rating Category
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1*** SP-1+****
---- --- -- ---- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than seven
weeks 154 164 173 205 235 137 149
9 weeks or less but greater than eight
weeks 158 169 179 209 242 138 150
</TABLE>
* Moody's rating.
** Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by S&P.
*** Municipal Bonds rated MIG-1, VMIG-1 or P-1 by Moody's, which do not mature
or have a demand feature at par exercisable within the Moody's Exposure Period
and which do not have a long-term rating. For the purpose of the definition of
Moody's Eligible Assets, these securities will have an assumed rating of "A" by
Moody's.
****Municipal Bonds rated SP-1+ or A-1+ S&P which do not mature or have a demand
feature at par exercisable within the Moody's Exposure Period and which do not
have a long-term rating. For the purpose of the definition of Moody's Eligible
Assets, these securities will have an assumed rating of "A" by Moody's.
Notwithstanding the foregoing, (i) no Moody's Discount Factor will be applied to
short-term Municipal Bonds, so long as such Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by Moody's but are rated
A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for Municipal Bonds Sold.
"Receivables for Municipal Bonds Sold," for purposes of calculating Moody's
Eligible Assets as of any Valuation Date, means the aggregate of the following:
(i) the book value of receivables for Municipal Bonds 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 Discounted Value of
Municipal Bonds sold (applying the relevant Moody's Discount Factor to such
Bonds) as of or prior to such Valuation Date which generated such receivables,
if such receivables are due within five Business Days of such Valuation Date but
do not comply with either of conditions (x) or (y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for Municipal Bonds Sold, a
short-term Municipal Bond rated VMIG-1, MIG-1 or P-1 by Moody's or SP-1+ or A-1+
by S&P or a Municipal Bond 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 that, for purposes of determining the
Moody's Discount Factor applicable to any such S&P-rated Municipal Bond, such
Municipal Bond (excluding any short-term Municipal Bond and any Municipal Bond
rated BBB-, BBB or BBB+) will 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 Bonds of
at least $10,000,000. In addition, Municipal Bonds in the Fund's portfolio will
be included as Moody's Eligible Assets only to the extent they meet the
following diversification requirements:
B-2
<PAGE>
Maximum State
Minimum Maximum or Territory
Issue Size Underlying Concentration
Rating ($ Millions) Obligor (%)(1) (%)(1)(3)
- ------ ------------ -------------- ---------
Aaa 10 100 100
Aa 10 20 60
A 10 10 40
Baa 10 6 20
Other (2) 10 4 12
- --------------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by S&P.
(3) Territorial bonds (other than those issued by Puerto Rico and counted
collectively) of any territory are limited to 10% of Moody's Eligible Assets.
For purposes of the maximum underlying obligor requirement described above, any
such Bond backed by a 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 Bond.
When the Fund sells a Municipal Bond and agrees to repurchase it at a future
date, such Bond will constitute a Moody's Eligible Asset and the amount the Fund
is required to pay upon repurchase of such Bond will count as a liability for
purposes of calculating the RP Basic Maintenance Amount. When the Fund purchases
a Municipal Bond and agrees to sell it at a future date to another party, cash
receivable by the Fund in connection therewith will constitute a Moody's
Eligible Asset if the long-term debt of such other party is rated at least A2 by
Moody's and such agreement has a term of 30 days or less; otherwise such Bond
will constitute a Moody's Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if it is (i) held in a margin account, (ii) subject to any
material lien, mortgage, pledge, security interest or security agreement of any
kind, (iii) held for the purchase of a security pursuant to a Forward Commitment
or (iv) irrevocably deposited by the Fund for the payment of dividends or
redemption.
"Moody's Exposure Period" means the period commencing on and including a given
Valuation Date and ending 48 days thereafter.
"Moody's Hedging Transaction" has the meaning described on page B-8 of this
Prospectus.
"Moody's Volatility Factor" means 272% as long as there has not been enacted an
increase to the Marginal Tax Rate. If an increase is enacted to the Marginal Tax
Rate but not yet implemented, the Moody's Volatility Factor shall be as follows:
% Change in Moody's Volatility
Marginal Tax Rate Factor
----------------- ------
5% 292%
5% but 10% 313%
10% but 15% 338%
15% but 20% 364%
20% but 25% 396%
25% but 30% 432%
30% but 35% 472%
35% but 40% 520%
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Fund in writing
is applicable.
"Other RP" means all Remarketed Preferred Shares of the Fund other than the RP
offered here.
B-3
<PAGE>
"Pricing Service" means Muller Investdata Corp., or any successor company or
entity, or any other entity designated from time to time by the Trustees.
Notwithstanding the foregoing, the Trustees will not designate a new Pricing
Service unless the Fund has received a written confirmation from Moody's and S&P
that such action would not impair the ratings then assigned by Moody's and S&P
to shares of RP.
"Quarterly Valuation Date" means the last Business Day of each fiscal quarter of
the Fund in each fiscal year of the Fund, commencing July 31, 1997.
"RP Basic Maintenance Amount," as of any Valuation Date, means the dollar amount
equal to (i) the sum of (A) the product of the number of shares of Series A RP
outstanding on such Valuation Date multiplied by the sum of (a) $50,000 and (b)
any applicable redemption premium per share attributable to the designation of a
Premium Call Period; (B) the product of the number of shares of Series B RP and
Series C RP outstanding on such Valuation Date multiplied by the sum of (a)
$25,000 and (b) any applicable redemption premium per share attributable to the
designation of a Premium Call Period; (C) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each series
of RP and Other RP outstanding, in each case, to (but not including) the end of
the current Dividend Period for such series of RP that follows such Valuation
Date or to (but not including) the 49th day after such Valuation Date, whichever
is sooner; (D) the aggregate amount of cash dividends that would accumulate at
the Maximum Dividend Rate applicable to a Dividend Period of 28 days (in the
case of shares of Series A RP) and 7 days (in the case of shares of Series B RP
and Series C RP) outstanding from the end of such Dividend Period through the
49th day after such Valuation Date, multiplied by the larger of the Moody's
Volatility Factor and the S&P Volatility Factor, determined from time to time by
Moody's and S&P, respectively (except that if such Valuation Date occurs during
a Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then current Non-Payment Period Rate); (E) the amount of
anticipated expenses of the Fund for the 90 days subsequent to such Valuation
Date; (F) the amount of the Fund's Maximum Potential Additional Dividend
Liability as of such Valuation Date; and (G) any current liabilities as of such
Valuation Date to the extent not reflected in any of (i)(A) through (i)(F)
(including, without limitation, any amounts due and payable by the Fund pursuant
to repurchase agreements and any payables for Municipal Bonds purchased as of
such Valuation Date) less (ii) either (A) the Discounted Value of any of the
Fund's assets, or (B) the face value of any of the Fund's assets if such assets
mature prior to or on the date of redemption of any shares of RP or payment of a
liability and are either securities issued or guaranteed by the U.S. Government
or, with respect to Moody's, have a rating assigned by Moody's of at least Aaa,
P-1, VMIG-1 or MIG-1 and, with respect to S&P, have a rating assigned by S&P of
at least AAA, SP-1+ or A-1+, in both cases irrevocably deposited by the Fund for
the payment of the amount needed to redeem shares of RP subject to redemption or
any of (i)(C) through (i)(G).
"RP Basic Maintenance Cure Date," with respect to the failure by the Fund to
satisfy the RP Basic Maintenance Amount as of a given Valuation Date, means the
sixth Business Day following such Valuation Date.
"RP Basic Maintenance Report" means a report signed by the President, Treasurer
or any Executive 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 the aggregate), and the RP Basic
Maintenance Amount.
"S&P Discount Factor" means, for purposes of determining the Discounted Value of
any Municipal Bond which constitutes an S&P Eligible Asset, the percentage
determined by reference to (a) the rating by S&P or Moody's on such Bond and (b)
the S&P Exposure Period, in accordance with the table set forth below:
S&P Rating Category
S&P Exposure Period AAA AA A BBB
----------------------------------------------------
40 Business Days 190% 195% 210% 250%
22 Business Days 170 175 190 230
10 Business Days 155 160 175 215
7 Business Days 150 155 170 210
3 Business Days 130 135 150 190
B-4
<PAGE>
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Bonds will be 115%, so long as such Municipal Bonds are rated A-1+ or
SP-1+ by S&P and mature or have a demand feature exercisable in 30 days or less,
or 125% if such Municipal Bonds are not rated by S&P but are rated VMIG-1, P-1
or MIG-1 by Moody's and such short-term Municipal Bonds referred to in this
clause (i) shall qualify as S&P Eligible Assets; provided, however, such
short-term Municipal Bonds rated by Moody's but not rated by S&P having a demand
feature exercisable in 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution
having a short-term rating of at least A-1+ from S&P; and further provided that
such short-term Municipal Bonds rated by Moody's but not rated by S&P may
comprise no more than 50% of short-term Municipal Bonds that qualify as S&P
Eligible Assets and (ii) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Bonds Sold. "Receivables for Municipal Bonds Sold,"
for purposes of calculating S&P Eligible Assets as of any Valuation Date, means
the book value of receivables for Municipal Bonds sold as of or prior to such
Valuation Date if such receivables are due within five Business Days of such
Valuation Date. For purposes of the foregoing, Anticipation Notes rated SP-1+
or, if not rated by S&P, rated VMIG-1 by Moody's, whether or not they mature or
have a demand feature exercisable in 30 days and which do not have a long-term
rating, shall be considered to be short-term Municipal Bonds and shall qualify
as S&P Eligible Assets.
"S&P Eligible Asset" means cash, Receivables for Municipal Bonds Sold or a
Municipal Bond that (i) is issued by any of the 50 states, any territory or
possession of the United States, the District of Columbia, and any political
subdivision, instrumentality, county, city, town, village, school district or
agency (such as authorities and special districts created by the states) of any
of the foregoing and certain federally sponsored agencies such as local housing
authorities; (ii) is interest bearing and pays interest at least semi-annually;
(iii) is payable with respect to principal and interest in United States
Dollars; (iv) is publicly rated BBB or higher by S&P or, except in the case of
Anticipation Notes that are grant anticipation notes or bond anticipation notes
which must be rated by S&P to be included in S&P Eligible Assets, if not rated
by S&P but rated by Moody's, is rated at least A by Moody's (provided that such
Moody's-rated Municipal Bonds will be included in S&P Eligible Assets only to
the extent the Market Value of such Municipal Bonds does not exceed 50% of the
aggregate Market Value of the 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 Bond, such Municipal Bond will be deemed to have an S&P
rating which is one full rating category lower than its Moody's rating); (v) is
not subject to a covered call or covered put option written by the Fund; (vi) is
not part of a private placement of Municipal Bonds; and (vii) is part of an
issue of Municipal Bonds with an original issue size of at least $20 million or,
if of an issue with an original issue size below $20 million (but in no event
below $10 million), is issued by an issuer with a total of at least $50 million
of securities outstanding. Notwithstanding the foregoing: (1) Municipal Bonds of
any one issuer will be considered S&P Eligible Assets only to the extent the
Market Value of such Municipal Bonds does not exceed 10% of the aggregate Market
Value of the S&P Eligible Assets, provided that 2% is added to the applicable
S&P Discount Factor for every 1% by which the Market Value of such Municipal
Bonds exceeds 5% of the aggregate Market Value of the S&P Eligible Assets; and
(2) Municipal Bonds issued by issuers in any one state or territory will be
considered S&P Eligible Assets only to the extent the Market Value of such
Municipal Bonds does not exceed 20% of the aggregate Market Value of S&P
Eligible Assets.
"S&P Exposure Period" means the maximum period of time following a Valuation
Date, including the Valuation Date and the RP Basic Maintenance Cure Date, that
the Fund has to cure any failure to maintain, as of such Valuation Date, a
Discounted Value of its portfolio at least equal to the RP Basic Maintenance
Amount.
"S&P Hedging Transactions" has the meaning described below.
"S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Fund in writing is applicable.
"Valuation Date" means, for purposes of determining whether the Fund is
maintaining the RP Basic Maintenance Amount, each Business Day commencing with
the Date of Original Issue.
B-5
<PAGE>
"Variation Margin" means, in connection with an outstanding futures contract or
option thereon owned or sold by the Fund, the amount of cash or securities paid
to or received from a broker (subsequent to the Initial Margin payment) from
time to time as the price of such futures contract or option fluctuates.
Notwithstanding the foregoing, the Trustees may, without the vote or consent of
the Holders of RP, from time to time amend, alter or repeal certain of the
foregoing definitions (or definitions of other terms contained in the Fund's
Bylaws) and any such amendment, alteration or repeal will be deemed not to
affect the preferences, rights or powers of shares of RP or the Holders thereof,
provided the Trustees receive written confirmation from both Moody's and S&P,
that any such amendment, alteration or repeal would not impair the ratings then
assigned to shares of RP by the rating agency providing such confirmation.
RP BASIC MAINTENANCE AMOUNT
BASIC REQUIREMENT. The Fund shall maintain, on each Valuation Date, and shall
verify to its satisfaction that it is maintaining on such Valuation Date, S&P
Eligible Assets having an aggregate Discounted Value equal to or greater than
the RP Basic Maintenance Amount and Moody's Eligible Assets having an aggregate
Discounted Value equal to or greater than the RP Basic Maintenance Amount. Upon
any failure to maintain the required Discounted Value, the Fund will use its
best efforts to alter the composition of its portfolio to reattain the RP Basic
Maintenance Amount on or prior to the RP Basic Maintenance Cure Date. If, on any
Valuation Date, the Fund shall have Moody's Eligible Assets with a Discounted
Value which exceeds the RP Basic Maintenance Amount by not more than 5%, the
Adviser shall not alter the composition of the Fund's portfolio unless it
determines that such action will not cause the Fund to have Moody's Eligible
Assets with a Discounted Value less than the RP Basic Maintenance Amount.
REPORTING REQUIREMENTS. The Fund will deliver an RP Basic Maintenance Report to
the Remarketing Agent, the Paying Agent, Moody's and S&P as of (i) each
Quarterly Valuation Date, (ii) the first day of a Special Dividend Period, and
(iii) any other time when specifically requested by either Moody's or S&P, in
each case at or before 5:00 p.m., New York City time, on the third Business Day
after such day.
At 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 maintain Moody's Eligible Assets or
S&P Eligible Assets, as the case may be, with an aggregate Discounted Value
which exceeds the RP Basic Maintenance Amount by 5% or more or to satisfy the RP
Basic Maintenance Amount, the Fund shall complete and deliver to the Remarketing
Agent, the Paying Agent, Moody's and S&P an RP Basic Maintenance Report as of
the date of such failure. At or before 5:00 p.m., New York City time, on the
third Business Day after a Valuation Date on which the Fund cures any failure to
satisfy the RP Basic Maintenance Amount, the Fund shall complete and deliver to
the Remarketing Agent, the Paying Agent, Moody's and S&P an RP Basic Maintenance
Report as of the date of such cure.
An RP Basic Maintenance Report or Accountant's Confirmation will be deemed to
have been delivered to the Remarketing Agents, the Paying Agent, Moody's and S&P
if the Remarketing Agent, the Paying Agent, Moody's and S&P receive a copy or
telecopy, telex or other electronic transcription thereof and on the same day
the Fund mails to the Remarketing Agent, the Paying Agent, Moody's and S&P for
delivery on the next Business Day the full RP Basic Maintenance Report. A
failure by the Fund to deliver an RP Basic Maintenance Report shall be deemed to
be delivery of an RP Basic Maintenance Report indicating that the Discounted
Value for all assets of the Fund is less than the RP Basic Maintenance Amount,
as of the relevant Valuation Date.
Within ten Business Days after the date of delivery to the Remarketing Agents,
the Paying Agent, S&P and Moody's of an RP Basic Maintenance Report relating to
a Quarterly Valuation Date, the Independent Accountant will confirm in writing
to the Remarketing Agent, the Paying Agent, S&P and Moody's (i) the mathematical
accuracy of the calculations reflected in such Report (and in any other RP Basic
Maintenance Report, randomly selected by the Independent Accountant, that was
delivered by the Fund during the quarter ending on such Quarterly Valuation
Date); (ii) that, in such Report (and in such randomly selected Report), (a) the
Fund determined in accordance with the Bylaws whether the Fund had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such randomly
selected Report), S&P Eligible Assets of an aggregate Discounted Value at least
equal to the RP Basic Maintenance Amount and Moody's Eligible Assets of an
aggregate Discounted Value at least equal to the RP Basic Maintenance Amount,
(b) the aggregate amount of Dividend Coverage Assets equals or exceeds the
Dividend Coverage Amount, and (c) it
B-6
<PAGE>
has obtained confirmation from the Pricing Service that the Market Value of
portfolio securities as determined by the Pricing Service equals the mean
between the quoted bid and asked prices or the yield equivalent (when quotations
are readily available); (iii) that the Fund has excluded from the RP Basic
Maintenance Report assets not qualifying as Eligible Assets; and (iv) with
respect to such confirmation to Moody's, that the Fund has satisfied the
requirements described below imposed by Moody's with respect to transactions in
options, futures and forward commitments as of the Quarterly Valuation Date (and
at the Valuation Date addressed in such randomly selected Report) (such
confirmation is herein called the "Accountant's Confirmation"). In preparing the
Accountant's Confirmation, the Independent Accountant shall be entitled to rely,
without further investigation, on such interpretations of law by the Fund as may
have been necessary for the Fund to perform the computations contained in the RP
Basic Maintenance Report.
Within ten Business Days after the date of delivery to the Remarketing Agent,
the Paying Agent, S&P and Moody's of an RP Basic Maintenance Report relating to
any Valuation Date on which the Fund failed to satisfy the RP Basic Maintenance
Amount, the Independent Accountant will provide to the Remarketing Agents, the
Paying Agent, S&P and Moody's an Accountant's Confirmation as to such RP Basic
Maintenance Report.
Within ten Business Days after the date of delivery to the Remarketing Agent,
the Paying Agent, S&P and Moody's of an RP Basic Maintenance Report relating to
any Valuation Date on which the Fund cured any failure to satisfy the RP Basic
Maintenance Amount, the Independent Accountant will provide to the Remarketing
Agents, the Paying Agent, S&P and Moody's an Accountant's Confirmation as to
such RP Basic Maintenance Report. If any Accountant's Confirmation delivered as
required above shows that an error was made in the RP 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 or Moody's Eligible Assets, 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 RP Basic Maintenance Report to the Remarketing Agents, the
Paying Agent, S&P and Moody's promptly following receipt by the Fund of such
Accountant's Confirmation.
At or before 5:00 p.m., New York City time, on the first Business Day after the
Date of Original Issue of the shares of RP, the Fund will complete and deliver
to Moody's and S&P an RP Basic Maintenance Report as of the close of business on
such Date of Original Issue. Within five Business Days of such Date of Original
Issue, the Independent Accountant will provide to Moody's and S&P an
Accountant's Confirmation as to such RP Basic Maintenance Report.
At or before 5:00 p.m., New York City time, on the first Business Day following
any date on which the Fund repurchases any outstanding Common Shares, the Fund
will complete and deliver to Moody's and S&P an RP Basic Maintenance Report as
of the close of business on the date of the repurchase.
FUTURES AND OPTIONS TRANSACTIONS; FORWARD CONTRACTS
S&P Guidelines. For so long as any shares of RP are rated by S&P, the Fund will
not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not impair
the rating then assigned to the shares of RP by S&P, except that the Fund may
purchase or sell futures contracts based on the Bond Buyer Municipal Bond Index
(the "Municipal Index") or United States Treasury Bonds with remaining
maturities of ten years or more ("Treasury Bonds") and write, purchase or sell
put and call options on such contracts (collectively "S&P Hedging
Transactions"), subject to the following limitations:
(A) the Fund will not engage in any S&P Hedging Transaction based on
the Municipal Index (other than transactions which terminate a futures contract
or option held by the Fund by the Fund's taking an opposite position thereto
("Closing Transactions")), which would cause the Fund at the time of such
transaction to own or have sold (1) 1,001 or more outstanding futures contracts
based on the Municipal Index, (2) outstanding futures contracts based on the
Municipal Index and on Treasury Bonds exceeding in number 25% of the quotient of
the Market Value of the Fund's total assets divided by
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$100,000 or (3) outstanding futures contracts based on the Municipal Index
exceeding in number 10% of the average number of daily traded futures contracts
based on the Municipal Index in the thirty days preceding the time of effecting
such transaction as reported by The Wall Street Journal;
(B) the Fund will not engage in any S&P Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) which would cause the Fund at
the time of such transaction to own or have sold (1) outstanding futures
contracts based on Treasury Bonds and on the Municipal Index exceeding in number
25% of the quotient of the Market Value of the Fund's total assets divided by
$100,000 or (2) outstanding futures contracts based on Treasury Bonds exceeding
in number 10% of the average number of daily traded futures contracts based on
Treasury Bonds in the thirty days preceding the time of effecting such
transaction as reported by The Wall Street Journal;
(C) the Fund will engage in Closing Transactions to close out any
outstanding futures contract which the Fund owns or has sold or any outstanding
option thereon owned by the Fund in the event (i) the Fund does not have S&P
Eligible Assets with an aggregate Discounted Value equal to or greater than the
RP Basic Maintenance Amount on two consecutive Valuation Dates and (ii) the Fund
is required to pay Variation Margin on the second such Valuation Date;
(D) the Fund will engage in a Closing Transaction to close out any
outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon unless
the Fund holds the securities deliverable under such terms; and
(E) when the Fund writes a futures contract or option thereon
(including a futures contract or option thereon which requires delivery of an
underlying security), it will either maintain an amount of cash, cash
equivalents or short-term, fixed-income securities in a segregated account with
the Fund's custodian, so that the amount so segregated plus the amount of
Initial Margin and Variation Margin held in the account of or on behalf of the
Fund's broker with respect to such futures contract or option equals the Market
Value of the futures contract or option, or, in the event the Fund writes a
futures contract or option thereon which requires delivery of an underlying
security, it shall hold such underlying security in its portfolio. For purposes
of determining whether the Fund has S&P Eligible Assets with a Discounted Value
that equals or exceeds the RP Basic Maintenance Amount, such Discounted Value
shall, unless the Fund receives written confirmation from S&P to the contrary,
be reduced by an amount equal to (i) 30% of the aggregate settlement value, as
marked to market, of any outstanding futures contracts based on the Municipal
Index which are owned by the Fund plus (ii) 25% of the aggregate settlement
value, as marked to market, of any outstanding futures contracts based on
Treasury Bonds which contracts are owned by the Fund.
MOODY'S GUIDELINES. For so long as any shares of RP are rated by Moody's, the
Fund will not buy or sell futures contracts, write, purchase or sell put or call
options on futures contracts or write put or call options (except covered call
or put options) on portfolio securities unless it receives written confirmation
from Moody's that engaging in such transactions would not impair the rating then
assigned to the shares of RP by Moody's, except that the Fund may purchase or
sell exchange-traded futures contracts based on the Municipal Index or Treasury
Bonds and purchase, write or sell exchange-traded put options on such futures
contracts and purchase, write or sell exchange-traded call options on such
futures contracts (collectively "Moody's Hedging Transactions"), subject to the
following limitations:
(A) the Fund will not engage in any Moody's Hedging Transaction based
on the Municipal Index (other than Closing Transactions) which would cause the
Fund at the time of such transaction to own or have sold (1) outstanding futures
contracts based on the Municipal Index exceeding in number 10% of the average
number of daily traded futures contracts based on the Municipal Index in the
thirty days preceding the time of effecting such transaction as reported by The
Wall Street Journal or (2) outstanding futures contracts based on the Municipal
Index having a Market Value exceeding the Market Value of Municipal Bonds
constituting Moody's Eligible Assets owned by the Fund;
(B) the Fund will not engage in any Moody's Hedging Transaction based
on Treasury Bonds (other than Closing Transactions) which would cause the Fund
at the time of such transaction to own or have sold in the aggregate (1)
outstanding futures contracts based on Treasury Bonds having an aggregate Market
Value exceeding 10% of the aggregate Market Value of all Moody's Eligible Assets
owned by the Fund and rated Aaa by Moody's, (2) outstanding futures contracts
based on Treasury Bonds having an aggregate Market Value exceeding 50% of the
aggregate Market Value of Moody's Eligible Assets owned by the Fund and rated Aa
by Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P) or
(3) outstanding futures contracts based on Treasury Bonds having an aggregate
Market Value exceeding 90% of the aggregate Market Value of Moody's Eligible
Assets owned by the Fund and rated Baa or A by Moody's (or, if not rated by
Moody's but rated
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by S&P, rated A or AA by S&P) (for purposes of the foregoing clauses (A) and
(B), the Fund shall be deemed to own the number of futures contracts that
underlie any outstanding options written by the Fund);
(C) the Fund will engage in Closing Transactions to close out any
outstanding futures contract based on the Municipal Index if the amount of open
interest in the Municipal Index as reported by The Wall Street Journal is less
than 5,000;
(D) the Fund will engage in a Closing Transaction to close out any
outstanding futures contract by no later than the fifth Business Day of the
month in which such contract expires and will engage in a Closing Transaction to
close out any outstanding option on a futures contract by no later than the
first Business Day of the month in which such option expires;
(E) the Fund will engage in Moody's Hedging Transactions only with
respect to futures contracts or options thereon having the next settlement date
for such type of futures contract or option, or the settlement date immediately
thereafter;
(F) the Fund will not engage in options and futures transactions for
leveraging or speculative purposes unless Moody's shall advise the Fund that to
do so would not adversely affect Moody's' then current rating of the shares of
RP; provided, however, that the Fund will not be deemed to have engaged in a
futures or options transaction for leveraging or speculative purposes so long as
it has done so otherwise in accordance with the foregoing; and
(G) the Fund will not enter into an option or futures transaction
unless, after giving effect thereto, the Fund would continue to have Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater than the
RP Basic Maintenance Amount. For purposes of determining whether the Fund has
Moody's Eligible Assets with an aggregate Discounted Value that equals or
exceeds the RP Basic Maintenance Amount, the Discounted Value of Moody's
Eligible Assets which the Fund is obligated to deliver or receive pursuant to an
outstanding futures contract or option shall be as follows (unless the Fund
receives written confirmation to the contrary from Moody's): (i) assets subject
to call options written by the Fund which are either exchange-traded and
"readily reversible" or which expire within 48 days after the date as of which
such valuation is made shall be valued at the lesser of (a) Discounted Value and
(b) the exercise price of the call option written by the Fund; (ii) assets
subject to call options written by the Fund not meeting the requirements of
clause (i) of this sentence shall have no value; (iii) assets subject to put
options written by the Fund shall be valued at the lesser of (a) the exercise
price and (b) the Discounted Value of such security; and (iv) futures contracts
shall be valued at the lesser of (a) settlement price and (b) the Discounted
Value of the subject security, provided that, if a contract matures within 48
days after the date as of which such valuation is made, where the Fund is the
seller the contract may be valued at the settlement price and where the Fund is
the buyer the contract may be valued at the Discounted Value of the subject
securities.
For purposes of determining whether the Fund has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the RP Basic
Maintenance Amount, the following amounts shall be added to the RP Basic
Maintenance Amount required to be maintained by the Fund (unless the Fund
receives written confirmation to the contrary from Moody's): (i) 10% of the
exercise price of a written call option; (ii) the exercise price of any written
put option; (iii) where the Fund is the seller under a futures contract, 10% of
the settlement price of the futures contract; (iv) where the Fund is the
purchaser under a futures contract, the settlement price of assets to be
purchased under such futures contract; (v) the settlement price of the
underlying futures contract if the Fund writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Fund writes call options on futures contracts and does not own the
underlying contract.
For so long as any shares of RP are rated by Moody's, the Fund will not
enter into any contract to purchase securities for a fixed price at a future
date beyond customary settlement time (other than such contracts that constitute
Moody's Hedging Transactions that are permitted above) unless it receives
written confirmation from Moody's that engaging in such transactions would not
impair the rating then assigned to the shares of RP by Moody's except that the
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Fund may enter into such contracts to purchase newly-issued securities on the
date such securities are issued ("Forward Commitments"), subject to the
following limitations:
(A) the Fund will maintain in a segregated account with its custodian
cash, cash equivalents or short- term, fixed income securities rated P-1, MIG-1
or VMIG-1 by Moody's and maturing prior to the date of the Forward Commitment
with a face value that equals or exceeds the amount of the Fund's obligations
under any Forward Commitments to which it is from time to time a party or
long-term fixed income securities with a Discounted Value that equals or exceeds
the amount of the Fund's obligations under any Forward Commitments to which it
is from time to time a party; and
(B) the Fund will not enter into a Forward Commitment unless, after
giving effect thereto, the Fund would continue to have Moody's Eligible Assets
with an aggregate Discounted Value equal to or greater than the RP Basic
Maintenance Amount.
For purposes of determining whether the Fund has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the RP Basic
Maintenance Amount, the Discounted Value of all Forward Commitments to which the
Fund is a party and of all securities deliverable to the Fund pursuant to such
Forward Commitments shall be zero.
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<PAGE>
APPENDIX C
DESCRIPTION OF MUNICIPAL BOND RATINGS
Moody's Investors Service, Inc. describes classifications of bonds as follows:
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 risk 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.
Standard & Poor's Ratings Services describes classifications of bonds as
follows:
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from the AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the higher rated categories.
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BB--Bonds rated BB are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
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.
Fitch Investors Service, Inc. describes classifications of bonds as
follows:
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high quality.
The obligor's ability to pay interest and repay principal is very strong,
although not as strong as bonds rated "AAA". Because bonds rated in the "AAA"
and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on the bonds, and therefore,
impair timely payment.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified that
could assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the life of
the issue and repay principal when due.
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<PAGE>
APPENDIX D
FUTURES AND RELATED OPTIONS
APPENDIX D
OPTIONS AND FUTURES
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS
Subject to the limitations imposed on the Fund's use of futures and options
transactions by Moody's and S&P for so long as shares of RP are rated by such
rating agencies, the Fund may write covered call options and covered put options
on optionable securities held in its portfolio when, in the opinion of Putnam,
such transactions are consistent with the Fund's investment objective and
policies. Call options written by the Fund give the purchaser the right to buy
the underlying securities from the Fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the Fund at a
stated price.
The Fund may write only covered options, which means that, so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the Fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The Fund may
write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. The amount of the premium
reflects, among other things, the relationship between the exercise price and
the current market value of the underlying security, the volatility of the
underlying security, the amount of time remaining until expiration, current
interest rates, and the effect of supply and demand in the options market and in
the market for the underlying security. By writing a call option, the Fund
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option but continues to bear
the risk of a decline in the value of the underlying security. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current market
value, resulting in a potential capital loss unless the security subsequently
appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction, in which it purchases an
offsetting option. The Fund realizes a profit or loss from a closing transaction
if the cost of the transaction (option premium plus transaction costs) is less
or more than the premium received from writing the option. If the Fund writes a
call option but does not own the underlying security, and when it writes a put
option, the Fund may be required to deposit cash or securities with its broker
as "margin," or collateral, for its obligation to buy or sell the underlying
security. As the value of the underlying security varies, the Fund may have to
deposit additional margin with the broker. Margin requirements are complex and
are fixed by individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and other
self-regulatory organizations.
PURCHASING PUT OPTIONS
Subject to the limitations imposed on the Fund's use of futures and options
transactions by Moody's and S&P for so long as shares of RP are rated by such
rating agencies, the Fund may purchase put options to protect its portfolio
holdings in an underlying security against a decline in market value. Such
protection is provided during the life of the put option since the Fund, as
holder of the option, is able to sell the underlying security at the put
exercise price regardless of any
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decline in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options in this manner, the Fund will reduce any profit it
might otherwise have realized from appreciation of the underlying security by
the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS
The Fund may purchase call options to hedge against an increase in the price of
securities that the Fund wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Fund's options strategies depends on the ability of
Putnam to forecast correctly interest rate and market movements. For example, if
the Fund were to write a call option based on Putnam's expectation that the
price of the underlying security would fall, but the price were to rise instead,
the Fund could be required to sell the security upon exercise at a price below
the current market price. Similarly, if the Fund were to write a put option
based on Putnam's expectation that the price of the underlying security would
rise, but the price were to fall instead, the Fund could be required to purchase
the security upon exercise at a price higher than the current market price.
When the Fund purchases an option, it runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing sale transaction before the
option's expiration. If the price of the underlying security does not rise (in
the case of a call) or fall (in the case of a put) to an extent sufficient to
cover the option premium and transaction costs, the Fund will lose part or all
of its investment in the option. This contrasts with an investment by the Fund
in the underlying security, since the Fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the Fund's ability to terminate
option positions at times when Putnam deems it desirable to do so. There is no
assurance that the Fund will be able to effect closing transactions at any
particular time or at an acceptable price.
If a secondary market in options were to become unavailable, the Fund could no
longer engage in closing transactions. Lack of investor interest might adversely
affect the liquidity of the market for particular options or series of options.
A market may discontinue trading of a particular option or options generally. In
addition, a market could become temporarily unavailable if unusual events --
such as volume in excess of trading or clearing capability -- were to interrupt
its normal operations.
A market may at times find it necessary to impose restrictions on particular
types of options transactions, such as opening transactions. For example, if an
underlying security ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to become
unavailable, the Fund as a holder of an option would be able to realize profits
or limit losses only by exercising the option, and the Fund, as option writer,
would remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options purchased or
sold by the Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with considerable losses if trading in the security reopens
at a substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If the
Options Clearing Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options. The Fund, as holder of such a put option, could lose
its entire investment if the prohibition remained in effect until the put
option's expiration.
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Over-the-counter ("OTC") options purchased by the Fund and assets held to cover
OTC options written by the Fund may, under certain circumstances, be considered
illiquid securities for purposes of any limitation on the Fund's ability to
invest in illiquid securities.
FUTURES CONTRACTS AND RELATED OPTIONS
GENERAL CHARACTERISTICS OF FUTURES CONTRACTS
Subject to applicable law, and the restrictions imposed on the Fund's use of
futures and options transactions by Moody's and S&P for so long as shares of RP
are rated by such rating agencies, the Fund may invest without limit in the
types of futures contracts and related options identified in the prospectus for
hedging and non-hedging purposes, such as to manage the effective duration of
the Fund's portfolio or as a substitute for direct investment. A financial
futures contract sale creates an obligation by the seller to deliver the type of
financial instrument called for in the contract in a specified delivery month
for a stated price. A financial futures contract purchase creates an obligation
by the purchaser to take delivery of the type of financial instrument called for
in the contract in a specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date are not
determined until on or near that date. The determination is made in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made. Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved for such
trading by the Commodity Futures Trading Commission (the "CFTC"), and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant contract market.
Although futures contracts (other than index futures) by their terms call for
actual delivery or acceptance of commodities or securities, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific type of financial
instrument or commodity with the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. If the Fund is unable to enter into a closing transaction, the
amount of the Fund's potential loss is unlimited. The closing out of a futures
contract purchase is effected by the purchaser's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, he realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the CFTC is
treated as short-term gain or loss, and 60% is treated as long-term gain or
loss.
Unlike when the Fund purchases or sells a security, no price is paid or received
by the Fund upon the purchase or sale of a futures contract. Upon entering into
a contract, the Fund is required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of liquid assets. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of Funds to finance the
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin," to and
from the broker (or the custodian) are made on a daily basis as the price of the
underlying security or commodity fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as "marking to
the market." For example, when the Fund has purchased a futures contract on a
security and the price of the underlying security has risen, that position will
have increased in value and the Fund will receive from the broker a variation
margin payment based on that increase in value. Conversely, when the Fund has
purchased a security futures contract and the price of the underlying security
has declined, the position would be less valuable and the Fund would be required
to make a variation margin payment to the broker.
The Fund may elect to close some or all of its futures positions at any time
prior to their expiration in order to reduce or eliminate a hedge position then
currently held by the Fund. The Fund may close its positions by taking opposite
positions which will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation
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margin are then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS
Subject to the limitations imposed on the Fund's use of futures and options
transactions by Moody's and S&P for so long as shares of RP are rated by such
rating agencies, the Fund may purchase and write call and put options on futures
contracts it may buy or sell and enter into closing transactions with respect to
such options to terminate existing positions. Options on future contracts give
the purchaser the right in return for the premium paid to assume a position in a
futures contract at the specified option exercise price at any time during the
period of the option. The Fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or purchasing
and selling the underlying futures contracts. For example, to hedge against a
possible decrease in the value of its portfolio securities, the Fund may
purchase put options or write call options on futures contracts rather than
selling futures contracts. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the purchase of
futures contracts to hedge against a possible increase in the price of
securities which the Fund expects to purchase. Such options generally operate in
the same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
Successful use of futures contracts by the Fund is subject to Putnam's ability
to predict movements in various factors affecting securities markets, including
interest rates. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to the Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss to
the Fund when the purchase or sale of a futures contract would not, such as when
there is no movement in the prices of the hedged investments. The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
The use of options and futures strategies also involves the risk of imperfect
correlation among movements in the prices of the securities underlying the
futures and options purchased and sold by the Fund, of the options and futures
contracts themselves, and, in the case of hedging transactions, of the
securities which are the subject of a hedge. The successful use of these
strategies further depends on the ability of Putnam Management to forecast
interest rates and market movements correctly.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution by exchanges of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a position held by the Fund, the Fund may seek to close
out such position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange for such contracts or
D-4
<PAGE>
options (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS
U.S. Treasury security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security called for in
the contract at a specified date and price. Options on U.S. Treasury security
futures contracts give the purchaser the right in return for the premium paid to
assume a position in a U.S. Treasury security futures contract at the specified
option exercise price at any time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the Fund is
subject to Putnam's ability to predict movements in the direction of interest
rates and other factors affecting markets for debt securities. For example, if
the Fund has sold U.S. Treasury security futures contracts in order to hedge
against the possibility of an increase in interest rates which would adversely
affect securities held in its portfolio, and the prices of the Fund's securities
increase instead as a result of a decline in interest rates, the Fund will lose
part or all of the benefit of the increased value of its securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements at a time when it
may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury security futures
contracts and related options will not correlate closely with price movements in
markets for particular securities. For example, if the Fund has hedged against a
decline in the values of tax-exempt securities held by it by selling Treasury
security futures and the values of Treasury securities subsequently increase
while the values of its tax-exempt securities decrease, the Fund would incur
losses on both the Treasury security futures contracts written by it and the
tax-exempt securities held in its portfolio.
INDEX FUTURES CONTRACTS
An index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as buying or
purchasing a contract or holding a long position in the index. Entering into a
contract to sell units of an index is commonly referred to as selling a contract
or holding a short position. A unit is the current value of the index. The Fund
may enter into stock index futures contracts, debt index futures contracts, or
other index futures contracts appropriate to its objective. The Fund may also
purchase and sell options on index futures contracts.
For example, the Municipal Index futures contract currently traded on the
Chicago Board of Trade is based on The Bond Buyer Long-Term Municipal Bond
Index. This Index is composed of 40 high-quality tax exempt municipal
securities. The Index assigns relative weightings to the tax exempt municipal
securities included in the Index, and the Index fluctuates with changes in the
market values of those bonds. The Municipal Index futures contract trades in
units equal to $1,000 times the value of the Index. Unlike U.S. Treasury
securities futures contracts which require the actual delivery of the underlying
Treasury security at a future date, no delivery of the actual bonds making up
the index will take place under an index futures contract. Instead, settlement
in cash must occur upon the termination of the contract, with the settlement
being based on the difference between the contract price and the actual level of
the Index at the expiration of the contract. For example, if the Fund enters
into a futures contract to buy 50 units of the Index at a specified future date
at a value of 90 and the value of the Index is 95 on that future date, the Fund
will gain $250,000 (50 units times a gain of 5 times $1,000). If the Fund enters
into a futures contract to sell 50 units of the Index at a specified future date
at a value of 90 and the value of the Index is 95 on that future date, the Fund
will lose $250,000 (50 units times a loss of 5 times $1,000).
There are several risks in connection with the use by the Fund of index futures.
One risk arises because of the imperfect correlation between movements in the
prices of the index futures and movements in the prices of securities which are
the subject of the hedge. Putnam will, however, attempt to reduce this risk by
buying or selling, to the extent possible, futures on indices the movements of
which will, in its judgment, have a significant correlation with movements in
the prices of the securities sought to be hedged.
D-5
<PAGE>
Successful use of index futures by the Fund is also subject to Putnam's ability
to predict movements in the direction of the market. For example, it is possible
that, where the Fund has sold futures to hedge its portfolio against a decline
in the market, the index on which the futures are written may advance and the
value of securities held in the Fund's portfolio may decline. If this occurred,
the Fund would lose money on the futures and also experience a decline in value
in its portfolio securities. It is also possible that, if the Fund has hedged
against the possibility of a decline in the market adversely affecting
securities held in its portfolio and securities prices increase instead, the
Fund will lose part or all of the benefit of the increased value of those
securities it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash,
it may have to sell securities to meet daily variation margin requirements at a
time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the portion of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures market are less
onerous than margin requirements in the securities market, and as a result the
futures market may attract more speculators than the securities market does.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by Putnam may still not result in a profitable
position over a short time period.
OPTIONS ON INDEX FUTURES.
Options on index futures are similar to options on securities except that
options on index futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account which represents the amount by which the
market price of the index futures contract, at exercise, exceeds (in the case of
a call) or is less than (in the case of a put) the exercise price of the option
on the index future. If an option is exercised on the last trading day prior to
its expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of the
index on which the future is based on the expiration date. Purchasers of options
who fail to exercise their options prior to the exercise date suffer a loss of
the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index futures, the Fund
may purchase and sell call and put options on the underlying indices themselves.
Such options would be used in a manner identical to the use of options on index
futures.
D-6
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Fund, Putnam or any of the Underwriters. This Prospectus does
not constitute an offer to sell or the solicitation of any offer to buy any
security other than the shares of RP offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy the shares of
RP by anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information provided herein is correct at any time subsequent to the date
hereof. However, if any material change occurs while this Prospectus is required
by law to be delivered, this Prospectus will be amended or supplemented
accordingly.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors and Special Considerations 10
Financial Highlights 12
The Fund 13
Investment Manager 13
Use of Proceeds 13
Capitalization 14
Investment Objective and Policies 14
Other Investment Practices 18
Investment Restrictions 19
Trustees and Officers 20
Principal Holders of Securities 24
Investment Management Contract 24
Administrative Services Contract 25
Portfolio Transactions 27
Determination of Net Asset Value 28
Remarketing 29
Description of RP 37
Description of Shares 46
Taxation 47
Underwriting 51
Custodian, Transfer Agent, Dividend
Disbursing Agent and Registrar 52
Legal Matters 52
Experts 52
Initial Settlement 52
Additional Information 52
Unaudited Financial Statements 53
Report of Independent Accountants 65
Audited Financial Statements 66
Glossary 78
Appendix A A-1
Appendix B B-1
Appendix C C-1
Appendix D D-1
$81,000,000
Putnam Municipal
Opportunities Trust
Remarketed Preferred(R) Shares
RP(R)
1620 Shares, Series B
1620 Shares, Series C
P R O S P E C T U S
Merrill Lynch & Co.
--------------
(R) Registered Trademark of Merrill Lynch & Co., Inc.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements: included in Parts A and B:
(a) Report of Independent Accountants, dated April 30, 1996.
(b) Portfolio of Investments Owned, dated April 30, 1996.
(c) Portfolio of Investments Owned, dated October 31, 1996
(unaudited).
(d) Statement of Assets and Liabilities, dated April 30, 1996.
(e) Statement of Assets and Liabilities, dated October 31, 1996
(unaudited).
(f) Statement of Operations, dated April 30, 1996.
(g) Statement of Operations, dated October 31, 1996 (unaudited).
(h) Statement of Changes in Net Assets, dated April 30, 1996.
(i) Statement of Changes in Net Assets, dated October 31, 1996
(unaudited).
(j) Financial Highlights, dated April 30, 1996.
(k) Financial Highlights dated October 31, 1996 (unaudited).
Included in Part C: None.
(2) Exhibits
(a) Agreement and Declaration of Trust, dated April 1, 1993--filed
herewith as Exhibit 2(a).
(b) (1) Form of Amended and Restated Bylaws--filed herewith as
Exhibit 2(b)(1).
(c) Inapplicable
(d) (1) Form of Certificate representing common shares of beneficial
interest--to be filed by amendment.
<PAGE>
(2) Certificate representing Remarketed Preferred Shares Series
A ("RPA")--incorporated by reference to the Registrant's
Registration Statement on Form N-2 under the Securities Act
of 1933 and the Investment Company Act of 1940 (File Nos.
33-49673 and 811-7626).
(3) Certificate representing Remarketed Preferred Shares, Series
B ("RPB")--to be filed by amendment.
(4) Certificate representing Remarketed Preferred Shares, Series
C ("RPC")--to be filed by amendment.
(5) Portions of Agreement and Declaration of Trust dated April
1, 1993, Relating to Shareholders' Rights--filed herewith as
Exhibit 2(d)(5).
(6) Form of Portions of Amended and Restated Bylaws Relating to
Shareholders' Rights--to be filed by Amendment.
(e) (1) Terms and Conditions of Dividend Reinvestment Plan--filed
herewith as Exhibit 2(e)(1).
(2) Dividend Reinvestment Plan Agency Agreement with Putnam
Fiduciary Trust Company and The First National Bank of
Boston, dated October 15, 1993--filed herewith as Exhibit
2(e)(2).
(f) Inapplicable
(g) Management Agreement with Putnam Investment Management, Inc.
dated May 7, 1993--filed herewith as Exhibit 2(g).
(h) (1) Purchase Agreement as to the offering of the Registrant's
common shares of beneficial interest with Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), A.G. Edwards & Sons, Inc., Kemper
Securities Incorporated, Shearson Lehman Brothers Inc., Dain
Bosworth Incorporated, First of Michigan Corporation,
Raymond James & Associates, Inc., The Robinson-Humphrey
Company, Inc., Roney & Co., and Tucker Anthony Incorporated,
dated May 21, 1993--filed herewith as Exhibit 2(h)(1).
(2) Purchase Agreement as to the offering of RPA with Merrill
Lynch, Shearson Lehman Brothers, Inc., Prudential
Securities Incorporated and A.G. Edwards & Sons, Inc., dated
July 28, 1993--incorporated by reference to the
Registrant's Registration Statement on Form N-2 under the
Securities Act of 1933 and the Investment Company Act of
1940 (File Nos. 33-49673 and 811-7626).
-2-
<PAGE>
(3) Purchase Agreement as to the offering of RPB and RPC with
Merrill Lynch--to be filed by amendment.
(i) Retirement Plan for Trustees of the Putnam Funds, adopted October
4, 1996--filed herewith as Exhibit 2(i).
(j) Custodian Agreement, as amended, with Putnam Fiduciary Trust
Company, dated July 13, 1992--filed herewith as Exhibit 2(j).
(k) (1) Investor Servicing Agreement with Putnam Management
Company, Inc. and Putnam Fiduciary Trust Company, dated
July 1, 1991--filed herewith as Exhibit 2(k)(1).
(2) Administrative Services Contract with Putnam Investment
Management, Inc.-- to be filed by amendment.
(3) Paying Agent Agreement as to RPA with Bankers Trust Company,
dated August 3, 1993--incorporated by reference to the
Registrant's Registration Statement on Form N-2 under the
Securities Act of 1933 and the Investment Company Act of
1940 (File Nos. 33-49673 and 811-7626).
(4) Paying Agent Agreement as to RPB and RPC--to be filed by
amendment.
(5) Remarketing Agreement as to RPA with Merrill Lynch, dated
August 3, 1993--incorporated by reference to the
Registrant's Registration Statement on Form N-2 under the
Securities Act of 1933 and the Investment Company Act of
1940 (File Nos. 33-49673 and 811-7626).
(6) Remarketing Agreement as to RPB and RPC with Merrill
Lynch--to be filed by amendment.
(l) (1) Opinion and Consent of Ropes & Gray--to be filed by
amendment.
(2) Forms of Opinions of Ropes & Gray as to tax matters--filed
herewith as Exhibit 2(l)(2).
(m) Inapplicable
(n) Consent of Independent Accountants, dated April 17, 1997--filed
herewith as Exhibit 2(n).
(o) Inapplicable
-3-
<PAGE>
(p) Initial Capital Agreement, dated May 13, 1993--filed herewith as
Exhibit 2(p).
(q) Inapplicable
(r) Financial Data Schedule--to be filed by amendment.
Item 25. Marketing Arrangements
Reference is made to the Form of Purchase Agreement for the RPB
and RPB, to be filed by amendment.
Item 26. Other Expenses of Issuance and Distribution
Securities and Exchange Commission fee ............ [$ ]
Rating Agencies' Fees ............................. [ ]
Printing .......................................... [ ]
Accounting fees and expenses....................... [ ]
Legal fees ........................................ [ ]
Blue Sky fees and expenses......................... [ ]
Miscellaneous...................................... [ ]
Total....................................... [$ ]
Item 27. Persons Controlled by or under Common Control with Registrant
None.
Item 28. Number of Record Holders of Securities
Number of Record Holders
Title of Class as of April 30, 1997
-------------- --------------------
Common [ ]
Remarketed Preferred Shares, Series A [ ]
Item 29. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust
provides as follows:
SECTION 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any
-4-
<PAGE>
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding (a) not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust or (b) to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
SECTION 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication by a court,
or by any other body before which the proceeding was brought, that such Covered
Person either (a) did not act in good faith in the reasonable belief that his or
her action was in the best interests of the Trust or (b) is liable to the Trust
or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, indemnification shall be provided if (a) approved as in the best
interests of the Trust, after notice that it involves such indemnification, by
at least a majority of the disinterested Trustees acting on the matter (provided
that a majority of the disinterested Trustees then in office act on the matter)
upon a determination, based upon a review of readily available facts (as opposed
to a full trial type inquiry) that such Covered Person acted in good faith in
the reasonable belief that his or her action was in the best interests of the
Trust and is not liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a review of readily
available facts (as opposed to a full trial type inquiry), to the effect that
such Covered Person appears to have acted in good faith in the reasonable belief
that his or her action was in the best interests of the Trust and that such
indemnification would not protect such Covered Person against any liability
to the Trust to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Any approval pursuant to this
Section shall not prevent the recovery from any Covered Person of any amount
paid to such Covered Person in accordance with this Section as indemnification
if such
-5-
<PAGE>
Covered Person is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
SECTION 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators, and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as defined in
Section 2(a)(19) of the 1940 Act, as amended (or who has been exempted from
being an "interested person" by any rule, regulation or order of the Securities
and Exchange Commission) and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees or officers, and other persons may be entitled by contract or otherwise
under law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person.
--------------------
Reference is made to the Purchase Agreement, to be filed by amendment to
this Registration Statement, which contains provisions for the indemnification
by the Underwriters and Putnam Investment Management, Inc. of the Registrant and
Trustees, officers and controlling persons of the Registrant under certain
circumstances. Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
Except as set forth below, the directors and officers of the Registrant's
investment adviser have been engaged during the past two fiscal years in no
business, vocation or employment of a substantial nature other than as directors
or officers of the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of some or all of
the Putnam funds. The address of the investment adviser, its corporate
affiliates and the Putnam Funds is One Post Office Square, Boston, Massachusetts
02109.
-6-
<PAGE>
<TABLE>
<CAPTION>
Name Non-Putnam business and other connections
- ---- -----------------------------------------
<S> <C>
Lawrence J. Lasser
President, Chief Executive Officer
and Director ...........................Director, Marsh & McLennan Companies, Inc.,
1221 Avenue of the Americas, New York, NY 10020
George Putnam
Chairman and Director ..................Director, Putnam Mutual Funds Corp.
Director, The Boston Company, Inc.,
One Boston Place, Boston, MA 02108
Director, Boston Safe Deposit and Trust Company,
One Boston Place, Boston, MA 02108
Director, Freeport-McMoRan, Inc.,
200 Park Avenue, New York, NY 10166
Director, Freeport Copper and Gold, Inc.,
200 Park Avenue, New York, NY 10166
Director, McMoRan Oil and Gas, Inc.,
200 Park Avenue, New York, NY 10166
Director, General Mills, Inc.,
9200 Wayzata Boulevard, Minneapolis, MN 55440
Director, Houghton Mifflin Company,
One Beacon Street, Boston, MA 02108
Director, Marsh & McLennan Companies, Inc.,
1221 Avenue of the Americas, New York, NY 10020
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas, New York, NY 10020
</TABLE>
Item 31. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder are Registrant's Clerk, Beverly
Marcus; Registrant's investment adviser, Putnam Investment Management, Inc.;
Registrant's transfer agent, dividend disbursing agent and registrar, Putnam
Investor Services; and Registrant's custodian, Putnam Fiduciary Trust Company.
The address of the Clerk, investment adviser, transfer and dividend disbursing
agent and custodian is One Post Office Square, Boston, Massachusetts 02109.
Item 32. Management Services
None.
Item 33. Undertakings
(1) The Registrant undertakes to suspend offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the
Registration Statement or (2) the net asset value increases to an
amount greater than its net proceeds as stated in the prospectus.
(2) Inapplicable.
-7-
<PAGE>
(3) Inapplicable.
(4) Inapplicable.
(5) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(6) Inapplicable.
(7) At such time as the Registrant determines to make a tender or
repurchase offer or to propose conversion of the Registrant to
open-end status, the Registrant will provide to shareholders a notice
thereof containing all of the information specified by Guide 2 or
Guide 4 to Form N-2, as the case may be.
-8-
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam Municipal
Opportunities Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts and notice is hereby given that this instrument is executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the Trustees, officers or shareholders individually but
are binding only upon the assets and property of the Registrant.
-9-
3195810.07
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on behalf of the undersigned, thereunto duly authorized,
in the City of Boston, and The Commonwealth of Massachusetts, on the 17th day of
April, 1997.
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By: /s/ Gordon H. Silver
-------------------------------
Name: Gordon H. Silver
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 17th day of April, 1997.
Signature Title
/s/ George Putnam
- --------------------------------- President and Chairman of the Board;
George Putnam Principal Executive Officer;
Trustee
/s/ John D. Hughes
- --------------------------------- Senior Vice President, Treasurer and
John D. Hughes Principal Financial Officer
/s/ Paul Bucuvalas
- --------------------------------- Assistant Treasurer and Principal
Paul Bucuvalas Accounting Officer
/s/ Jameson A. Baxter
- --------------------------------- Trustee
Jameson A. Baxter
/s/ Hans H. Estin
- --------------------------------- Trustee
Hans H. Estin
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/s/ John A. Hill
- --------------------------------- Trustee
John A. Hill
/s/ Ronald A. Jackson
- --------------------------------- Trustee
Ronald A. Jackson
/s/ Elizabeth T. Kennan
- --------------------------------- Trustee
Elizabeth T. Kennan
/s/ Lawrence J. Lasser
- --------------------------------- Trustee
Lawrence J. Lasser
/s/ Robert E. Patterson
- --------------------------------- Trustee
Robert E. Patterson
/s/ Donald S. Perkins
- --------------------------------- Trustee
Donald S. Perkins
/s/ George Putnam, III
- --------------------------------- Trustee
George Putnam, III
/s/ A.J.C. Smith
- --------------------------------- Trustee
A.J.C. Smith
/s/ William F. Pounds
- --------------------------------- Trustee
William F. Pounds
/s/ W. Nicholas Thorndike
- --------------------------------- Trustee
W. Nicholas Thorndike
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<PAGE>
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
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INDEX TO EXHIBITS
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<TABLE>
<CAPTION>
Exhibit Title of Exhibit
- ------- ----------------
<S> <C>
2(a) Agreement and Declaration of Trust
2(b)(1) Form of Amended and Restated Bylaws
2(d)(5) Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights
2(e)(1) Terms and Conditions of Dividend Reinvestment Plan
2(e)(2) Dividend Reinvestment Plan Agency Agreement
2(g) Management Contract
2(h)(1) Purchase Agreement as to the Offering of Common Shares
2(i) Retirement Plan for Trustees
2(j) Custodian Agreement
2(k)(1) Investor Servicing Agreement
2(l)(2) Forms of Opinions of Ropes & Gray as to Tax Matters
2(n) Consent of Independent Accountants
2(p) Initial Capital Agreement
</TABLE>
EXHIBIT 2(a)
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Boston,
Massachusetts, this 1st day of April, 1993, by the Trustee hereunder and by the
holders of shares of beneficial interest to be issued hereunder as hereinafter
provided
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts voluntary association with
transferable shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets, which they may from time to time acquire in
any manner as Trustees hereunder, IN TRUST to manage and dispose of the same
upon the following terms and conditions for the benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "Putnam Municipal
Opportunities Trust", and the Trustees shall conduct the business of the Trust
under that name or any other name as they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as amended
from time to time;
<PAGE>
(b) "Trustees" refers to the Trustees of the Trust named herein or
elected in accordance with Article IV;
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one class or series of
Shares is authorized by the Trustees, the equal proportionate
transferable units into which each class or series of Shares shall be
divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to
time;
(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter" and "Majority
Shareholder Vote" (the 67% or 50% requirement of the third sentence
of Section 2(a)(42) of the 1940 Act, whichever may be applicable)
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time
to time;
(i) The term "class" or "class of Shares" refers to the division of
Shares into two or more classes as provided in Article III, Section 1
hereof; and
(j) The term "series" or "series of Shares" refers to the division of
Shares representing any class into two or more series as provided in
Article III, Section 1 hereof.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character.
<PAGE>
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Trustees may, without Shareholder approval, authorize
one or more classes of Shares (which classes may be divided into two or more
series), Shares of each such class or series having such preferences, voting
powers and special or relative rights or privileges (including conversion
rights, if any) as the Trustees may determine and as shall be set forth in the
Bylaws. The number of Shares of each class or series authorized shall be
unlimited except as the Bylaws may otherwise provide. The Trustees may from time
to time divide or combine the Shares of any class or series into a greater or
lesser number without thereby changing the proportionate beneficial interest in
the class or series.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of
the Trust or a transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders of each class or series and as to the number of Shares of each
class or series held from time to time by each Shareholder.
Investment in the Trust
Section 3. The Trustees shall accept investments in the Trust from
such persons and on such terms and for such consideration, which may consist of
cash or tangible or intangible property or a combination thereof, as they or the
Bylaws from time to time authorize.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
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Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only
the rights provided in this Declaration of Trust or the Bylaws. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms of this Declaration of Trust and the
Bylaws and to have become a party hereto and thereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor except
as specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
ARTICLE IV
The Trustees
Election
Section 1. Subject to the voting powers of one or more classes or
series of Shares as set forth in the Bylaws, in each year beginning in 1994, at
the annual meeting of Shareholders or at any special meeting held in lieu
thereof, or at any special meeting held before 1994, the Shareholders shall fix
the number of and elect a Board of not less than three Trustees, each of whom
shall serve until the next annual meeting or special meeting in lieu thereof and
until the election and qualification of his or her successor, or until he or she
sooner dies, resigns or is removed. At any meeting called for the purpose and
subject to the voting powers of one or more classes of Shares as set forth in
the Bylaws, a Trustee may be removed by vote of the holders of two-thirds of the
outstanding Shares entitled to vote, except that a Trustee elected by the
holders of one or more classes of Shares may be removed only by vote of the
holders of two-thirds of the Shares entitled to vote for such Trustee. The
initial Trustees, each of whom shall serve until the first meeting of
Shareholders at which Trustees are elected and until his or her successor is
elected and qualified, or until he or she sooner dies, resigns or is removed,
shall be George Putnam and such other persons as the Trustee or Trustees then in
office shall, prior to any sale of Shares pursuant to a public offering, elect.
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<PAGE>
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement, removal
or incapacity of the Trustees, or any one of them, shall not operate to annul
the Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Powers
Section 3. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Trustees, and they shall have
all powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders of one or more classes or series. Subject to the
voting power of one or more classes or series of Shares as set forth in the
Bylaws, the Trustees may fill vacancies in or add to their number, and may elect
and remove such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; they
may employ one or more custodians of the assets of the Trust and may authorize
such custodians to employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of securities, retain a
transfer agent or a Shareholder servicing agent, or both, provide for the
distribution of Shares by the Trust, through one or more principal underwriters
or otherwise, set record dates for the determination of Shareholders with
respect to various matters, and in general delegate such authority as they
consider desirable to any officer of the Trust, to any committee of the Trustees
and to any agent or employee of the Trust or to any such custodian or
underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust except as
otherwise provided in Article IX, Section 5;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as
the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities or property as
the Trustees shall deem proper;
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<PAGE>
(d) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or
in the name of the Trustees or of the Trust or in the name of a
custodian, subcustodian or other depositary or a nominee or nominees
or otherwise;
(f) To the extent necessary or appropriate to give effect to the
preferences, special or relative rights and privileges of any classes
or series of Shares, to allocate assets, liabilities, income and
expenses of the Trust to a particular class or classes or series of
Shares or to apportion the same among two or more classes or series;
(g) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of
which is or was held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer,
and to pay calls or subscriptions with respect to any security held
in the Trust;
(h) To join other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power
and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees
shall deem proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of
or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(k) To borrow funds;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust property or any part thereof to secure
any of or all such obligations;
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<PAGE>
(m) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct
of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters, or
independent contractors of the Trust individually against all claims
and liabilities of every nature arising by reason of holding, being
or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to
indemnify such person against such liability;
(n) To pay pensions for faithful service, as deemed appropriate by
the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and
other retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts as a
means of providing such retirement and other benefits, for any or all
of the Trustees, officers, employees and agents of the Trust; and
(o) To purchase or otherwise acquire Shares.
The Trustees shall not in any way be bound or limited by any present
or future law or custom in regard to investments by trustees. Except as
otherwise provided herein or from time to time in the Bylaws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of the Trustees (a quorum being present), within or without
Massachusetts, including any meeting held by means of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting, or by written consent of a
majority of the Trustees then in office.
Payment of Expenses by Trust
Section 4. The Trustees are authorized to pay, or to cause to be paid
out of the assets of the Trust, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services
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<PAGE>
of the Trust's officers, employees, investment adviser or manager, principal
underwriter, auditor, counsel, custodian, transfer agent, Shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of the Trust shall at all times
be considered as vested in the Trustees.
Advisory, Management and Distribution
Section 6. Subject to a favorable Majority Shareholder Vote, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services with any corporation, trust,
association or other organization (the "Manager"), every such contract to comply
with such requirements and restrictions as may be set forth in the Bylaws; and
any such contract may contain such other terms interpretive of or in addition to
said requirements and restrictions as the Trustees may determine, including,
without limitation, authority to determine from time to time what investments
shall be purchased, held, sold or exchanged and what portion, if any, of the
assets of the Trust shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time, contract
with the Manager or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such requirements
and restrictions as may be set forth in the Bylaws; and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for
any parent or affiliate of any organization, with which an advisory
or management contract, or principal underwriter's or distributor's
contract, or transfer, Shareholder servicing or other agency contract
may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder or
has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's
or
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<PAGE>
distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
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ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting powers of one or more classes or
series of Shares as set forth in this Declaration of Trust or in the Bylaws, the
Shareholders shall have power to vote only (i) for the election of Trustees as
provided in Article IV, Section 1, (ii) for the removal of Trustees as provided
in Article IV, Section 1, (iii) with respect to any Manager as provided in
Article IV, Section 6, (iv) with respect to any termination of this Trust to the
extent and as provided in Article IX, Section 4, (v) with respect to any merger,
consolidation or sale of assets of the Trust to the extent and as provided in
Article IX, Section 5, (vi) with respect to any conversion of the Trust as
provided in Article IX, Section 6, (vii) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article IX, Section 9,
(viii) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the Shareholders, and (ix) with respect to such additional
matters relating to the Trust as may be required by this Declaration of Trust,
the Bylaws or any registration of the Trust with the Securities and Exchange
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall, except as
otherwise provided in the Bylaws, be voted in the aggregate as a single class
without regard to classes or series of Shares. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares of any class or
series are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration of Trust or the Bylaws to be
taken by Shareholders as to such class or series.
Voting Power and Meetings
Section 2. There shall be an annual meeting of the Shareholders in
each year beginning in 1994 on the date fixed in the Bylaws at the office of the
Trust in Boston, Massachusetts, or at such other place as may be designated in
the call thereof, which call
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shall be made by the Trustees. In the event that such meeting is not held in any
year on the date fixed in the Bylaws, whether the omission be by oversight or
otherwise, a subsequent special meeting may be called by the Trustees and held
in lieu of the annual meeting with the same effect as though held on such date.
Special meetings of Shareholders of any or all classes or series may also be
called by the Trustees from time to time for the purpose of taking action upon
any matter requiring the vote or authority of the Shareholders of such class or
series as herein provided or upon any other matter deemed by the Trustees to be
necessary or desirable. Written notice of any meeting of Shareholders shall be
given or caused to be given by the Trustees by mailing such notice at least
seven days before such meeting, postage prepaid, stating the time, place and
purpose of the meeting, to each Shareholder entitled to vote at such meeting at
the Shareholder's address as it appears on the records of the Trust. If the
Trustees shall fail to call or give notice of any meeting of Shareholders for a
period of 30 days after written application by Shareholders holding at least 25%
of the then outstanding Shares of all classes and series entitled to vote at
such meeting requesting a meeting to be called for a purpose requiring action by
the Shareholders as provided herein or in the Bylaws, then Shareholders holding
at least 25% of the then outstanding Shares of all classes and series entitled
to vote at such meeting may call and give notice of such meeting, and thereupon
the meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees. Notice of a meeting need not be given to any
Shareholder if a written waiver of notice, executed by him or her before or
after the meeting, is filed with the records of the meeting, or to any
Shareholder who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her.
Quorum and Required Vote
Section 3. A majority of Shares entitled to vote on a particular
matter shall be a quorum for the transaction of business on that matter at a
Shareholders' meeting, except that where the Bylaws require that holders of any
class or series shall vote as an individual class or series, then a majority of
the aggregate number of Shares of that class or series entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class
or series. Any lesser number shall be sufficient for adjournments. Any adjourned
session or sessions may be held, within a reasonable time after the date set for
the original meeting, without the necessity of further notice. Except when a
different vote is required by any provision of this Declaration of Trust or the
Bylaws, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, provided that where the Bylaws require that the
holders of any class or series shall vote as an individual class or series, a
majority of the Shares of that class or series voted on the matter (or a
plurality with respect to the election of a Trustee) shall decide that matter
insofar as that class or series is concerned.
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<PAGE>
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a
meeting if a majority of Shareholders entitled to vote on the matter (or such
different proportion thereof as shall be required by any express provision of
this Declaration of Trust or the Bylaws) consent to the action in writing and
such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Additional Provisions
Section 5. The Bylaws may include further provisions, not
inconsistent with this Declaration of Trust, regarding Shareholders' voting
powers, the conduct of meetings and related matters.
ARTICLE VI
Distributions
The Trustees may each year, or more frequently if they so determine,
distribute to the Shareholders of each class or series such amounts as the
Trustees may determine subject to the preferences, special or relative rights
and privileges of the various classes or series of Shares. Any such distribution
to the Shareholders of a particular class or series shall be made to said
Shareholders pro rata in proportion to the number of Shares of such class or
series held by each of them. Such distributions shall be made in cash or Shares
or other property or a combination thereof as determined by the Trustees.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, manager or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she would otherwise be subject
by reason of willful misfeasance, bad faith,
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gross negligence or reckless disregard of the duties involved in the conduct of
his or her office.
Every note, bond, contract, instrument, certificate or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding (a) not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or (b)
to be liable to the Trust or its Shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including counsel fees so
incurred by any such Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties), shall be paid from time
to time by the Trust in advance of the final disposition of any such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Trust if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article, provided, however, that either (a) such Covered Person shall have
provided appropriate security for such undertaking, (b) the Trust shall be
insured against losses arising from any such advance payments or (c) either a
majority of the disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as
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opposed to a full trial type inquiry), that there is reason to believe that such
Covered Person will be found entitled to indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an adjudication by a
court, or by any other body before which the proceeding was brought, that such
Covered Person either (a) did not act in good faith in the reasonable belief
that his or her action was in the best interests of the Trust or (b) is liable
to the Trust or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office, indemnification shall be provided if (a) approved as in the
best interests of the Trust, after notice that it involves such indemnification,
by at least a majority of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees then in office act on
the matter) upon a determination, based upon a review of readily available facts
(as opposed to a full trial type inquiry), that such Covered Person acted in
good faith in the reasonable belief that his or her action was in the best
interests of the Trust and is not liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, or (b) there has
been obtained an opinion in writing of independent legal counsel, based upon a
review of readily available facts (as opposed to a full trial type inquiry), to
the effect that such Covered Person appears to have acted in good faith in the
reasonable belief that his or her action was in the best interests of the Trust
and that such indemnification would not protect such Covered Person against any
liability to the Trust to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office. Any approval pursuant to
this Section shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
Indemnification Not Exclusive
Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators, and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as defined in
Section 2(a)(19) of the 1940 Act (or who has been
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<PAGE>
exempted from being an "interested person" by any rule, regulation or order of
the Securities and Exchange Commission) and against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding on the
same or similar grounds is then or has been pending. Nothing contained in this
Article shall affect any rights to indemnification to which personnel of the
Trust, other than Trustees or officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
Shareholders
Section 4. In case any Shareholder or former Shareholder shall be
held to be personally liable solely by reason of his or her being or having been
a Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified against all loss and expense arising from
such liability.
ARTICLE IX
Miscellaneous
Trustees, Shareholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or
having any claim against the Trust shall look only to the assets of the Trust
for payment under such credit, contract or claim, and neither the Shareholders
nor the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking
made or issued by the Trustees or by any officer or officers shall give notice
that this Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustee or Trustees or as
officer or officers and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, and may contain
such further recital as he or she or they may deem appropriate, but the
omission thereof shall not operate to bind any Trustee or Trustees or officer
or officers or Shareholder or Shareholders individually.
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<PAGE>
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 2. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested. A Trustee shall
be liable for his or her own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee, and for nothing else. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust,
and shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 3. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Duration and Termination of Trust
Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. Subject to the voting powers of one or more
classes or series of Shares as set forth in the Bylaws, the Trust may be
terminated at any time by vote of Shareholders holding at least two-thirds of
the Shares entitled to vote (provided, however, if such termination is
recommended by two-thirds of the total number of the Trustees then in office,
the vote of a majority of the Shares entitled to vote shall be sufficient
authorization) or by the Trustees by written notice to the Shareholders. Upon
termination of the Trust, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated, of the
Trust as may be determined by the Trustees, the Trust shall, in accordance with
such procedures as the Trustees consider appropriate, reduce the remaining
assets to distributable form in cash or shares or other property, or any
combination thereof, and distribute the proceeds to the Shareholders, ratably
according to the number of Shares held by the several Shareholders on the date
of termination, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any classes
or series of Shares.
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<PAGE>
Merger, Consolidation and Sale of Assets
Section 5. The Trust may merge or consolidate with any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of its assets, including its good will, upon
such terms and conditions and for such consideration when and as authorized at
any meeting of Shareholders called for the purpose, or may liquidate or dissolve
when and as authorized, by the affirmative vote of the holders of not less than
two-thirds of the Shares entitled to vote, provided, however, that if such
merger, consolidation, sale, lease or exchange is recommended by two-thirds of
the total number of Trustees then in office, the vote of the holders of a
majority of the Shares entitled to vote shall be sufficient authorization.
Nothing contained herein shall be construed as requiring approval of the
Shareholders for any sale of assets in the ordinary course of business of the
Trust. The provisions of this Section shall be subject to the voting powers of
one or more classes or series of Shares as set forth in the Bylaws.
Conversion
Section 6. Subject to the voting powers of one or more classes or
series of Shares as set forth in the Bylaws, the Trust may be converted at any
time from a "closed-end company" to an "open-end company" as those terms are
defined in Section 5(a)(2) and 5(a)(1) of the 1940 Act, respectively, as in
effect on the date of the execution hereof, upon the approval of such a
proposal, together with any necessary amendments to the Declaration of Trust to
permit such a conversion, by the holders of two-thirds of the Shares entitled to
vote, except that if such proposal is recommended by two-thirds of the total
number of Trustees then in office, such proposal may be adopted by a vote of the
majority of the Shares entitled to vote. Upon the adoption of such proposal and
related amendments by the Trust's Shareholders as provided above, the Trust
shall, upon complying with any requirements of the 1940 Act and state law,
become an "open-end" investment company. Such affirmative vote or consent shall
be in addition to the vote or consent of the holders of the Shares otherwise
required by law, the Bylaws or any agreement between the Trust and any national
securities exchange.
Filing and Copies, References, Headings
Section 7. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of State of The
Commonwealth of Massachusetts and with the Boston City Clerk, as well as any
other governmental office where such filing may from time to time be required.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such amendments have been made and as to any
matters in connection with the Trust hereunder, and, with the same effect as if
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<PAGE>
it were the original, may rely on a copy certified by an officer of the Trust to
be a copy of this instrument or of any such amendments. In this instrument and
in any such amendment, references to this instrument and all expressions like
"herein", "hereof" and "hereunder" shall be deemed to refer to this instrument
as amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
Applicable Law
Section 8. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Amendments
Section 9. Subject to the voting powers of one or more classes or
series of Shares, as set forth in the Bylaws, this Declaration of Trust may be
amended at any time by an instrument in writing signed by a majority of the then
Trustees (a) when authorized to do so by vote of Shareholders holding a majority
of the Shares entitled to vote, except that an amendment amending or affecting
the provisions of Section 1 of Article IV, Section 4, 5 or 6 of this Article IX
or this sentence shall require the vote of Shareholders holding two-thirds of
the Shares entitled to vote, or (b) without Shareholder approval as may be
necessary or desirable in order to authorize one or more classes or series of
Shares as provided in Section 1 of Article III. Amendments having the purpose of
changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by Shareholder vote.
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IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal in the City of Boston, Massachusetts for himself and his assigns, as of the
day and year first above written.
/s/ George Putnam
-------------------
George Putnam
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, April 1, 1993
Then personally appeared the above-named George Putnam and
acknowledged the foregoing instrument to be their free act and deed, before me,
/s/ Anne B. McCarthy
-----------------------
Notary Public
My Commission Expires: 10/25/96
Trustees and Addresses
- ----------------------
George Putnam
36 Procter Street
Manchester, MA 01944
Registered Agent
- ----------------
CT Corporation System
2 Oliver Street
Boston, MA 02109
Trust Address
- -------------
Putnam Municipal Opportunities Trust
One Post Office Square
Boston, MA 02109
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EXHIBIT 2(b)(1)
AMENDED AND RESTATED BYLAWS
OF
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 Agreement and Declaration of Trust and Principal Office.........................................1
1.1 Agreement and Declaration of Trust.......................................................1
1.2 Principal Office of the Trust............................................................1
ARTICLE 2 Meetings of Trustees............................................................................1
2.1 Regular Meetings...........................................................................1
2.2 Special Meetings...........................................................................1
2.3 Notice of Special Meetings.................................................................1
2.4 Quorum.....................................................................................1
2.5 Notice of Certain Actions by Consent.......................................................2
ARTICLE 3 Officers........................................................................................2
3.1 Enumeration; Qualification.................................................................2
3.2 Election...................................................................................2
3.3 Tenure.....................................................................................2
3.4 Powers.....................................................................................2
3.5 Chairman; President........................................................................2
3.6 Treasurer..................................................................................2
3.7 Clerk......................................................................................3
3.8 Resignations and Removals..................................................................3
ARTICLE 4 Committees......................................................................................3
4.1 Quorum; Voting.............................................................................3
ARTICLE 5 Reports.........................................................................................3
5.1 General....................................................................................3
<PAGE>
<S> <C> <C>
ARTICLE 6 Fiscal Year.....................................................................................4
6.1 General....................................................................................4
ARTICLE 7 Seal............................................................................................4
7.1 General....................................................................................4
ARTICLE 8 Execution of Papers.............................................................................4
8.1 General....................................................................................4
ARTICLE 9 Issuance of Shares and Share Certificates.......................................................4
9.1 Sale of Shares.............................................................................4
9.2 Share Certificates.........................................................................4
9.3 Loss of Certificates.......................................................................5
9.4 Issuance of New Certificate to Pledgee.....................................................5
9.5 Discontinuance of Issuance of Certificates.................................................5
ARTICLE 10 Provisions Relating to the Conduct of the Trust's Business......................................5
10.1 Certain Definitions.......................................................................5
10.2 Limitations on Dealings with Officers or Trustees.........................................6
10.3 Securities and Cash of the Trust to be held by Custodian
Subject to Certain Terms and Conditions................................................6
10.4 Reports to Shareholders...................................................................7
10.5 Valuation of Assets.......................................................................7
ARTICLE 11 Shareholders....................................................................................7
11.1 Annual Meeting............................................................................7
11.2 Record Dates..............................................................................7
11.3 Proxies...................................................................................8
ARTICLE 12 Shares of Beneficial Interest...................................................................8
12.1 Statement Creating Three Series of Remarketed Preferred Shares............................8
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<S> <C> <C>
PART I DESIGNATION.....................................................................................8
1. Definitions................................................................................11
2. Fractional Shares..........................................................................29
3. Dividends..................................................................................29
4. Redemption.................................................................................36
5. Liquidation................................................................................41
6. Voting Rights..............................................................................42
7. 1940 Act RP Asset Coverage.................................................................46
8. RP Basic Maintenance Amount................................................................46
9. [RESERVED].................................................................................49
10. Restrictions on Certain Distributions.....................................................49
11. Notice....................................................................................49
12. Futures and Options Transactions; Forward Commitments.....................................49
13. Certain Other Restrictions................................................................53
14. Legally Available Funds...................................................................54
PART II REMARKETING PROCEDURES.........................................................................55
1. Remarketing Schedule.......................................................................55
2. Procedure for Tendering....................................................................55
3. Determination of Applicable Dividend Rates.................................................57
4. Allocation of Shares; Failure to Remarket at Liquidation Preference........................58
5. Notification of Results; Settlement........................................................59
6. Purchase of Shares of RP by Remarketing Agents.............................................60
7. Applicable Dividend Rate During a Non-Payment Period.......................................60
8. Transfers..................................................................................60
9. Miscellaneous..............................................................................60
10. Securities Depository; Share Certificates.................................................61
ARTICLE 13 Amendments to the Bylaws.......................................................................61
13.1 General..................................................................................61
</TABLE>
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<PAGE>
AMENDED AND RESTATED BYLAWS
OF
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These Bylaws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of the Massachusetts business trust established by the
Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust
shall be located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3 Notice of Special Meetings. It shall be sufficient notice to a
Trustee of a special meeting to send notice by mail at least forty-eight hours
or by telegram at least twenty-four hours before the meeting addressed to the
Trustee at his or her usual or last known business or residence address or to
give notice to him or her in person or by telephone at least twenty-four hours
before the meeting. Notice of a special meeting need not be given to any Trustee
if a written waiver of notice, executed by him or her before or after the
meeting, is filed with the records of the meeting, or to any Trustee who attends
the meeting without protesting prior thereto or at its commencement the lack of
notice to him or her. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
<PAGE>
2.5 Notice of Certain Actions by Consent. If in accordance with the
provisions of the Declaration of Trust any action is taken by the Trustees by
written consent of less than all of the Trustees, then prompt notice of any such
action shall be furnished to each Trustee who did not execute such written
consent, provided that the effectiveness of such action shall not be impaired by
any delay or failure to furnish such notice.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
Chairman of the Trustees, a President, a Treasurer, a Clerk and such other
officers, if any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from time to time may
in their discretion appoint. The Chairman of the Trustees and the President
shall be a Trustee and may but need not be a shareholder; and any other officer
may but need not be a Trustee or a shareholder. Any two or more offices may be
held by the same person. A Trustee may but need not be a shareholder.
3.2 Election. The Chairman of the Trustees, the President, the
Treasurer and the Clerk shall be elected by the Trustees upon the occurrence of
any vacancy in any such office. Other officers, if any, may be elected or
appointed by the Trustees at any time. Vacancies in any such other office may be
filled at any time.
3.3 Tenure. The Chairman of the Trustees, the President, the Treasurer
and the Clerk shall hold office in each case until he or she dies, resigns, is
removed or becomes disqualified. Each other officer shall hold office and each
agent shall retain authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these Bylaws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5 Chairman; President. Unless the Trustees otherwise provide, the
Chairman of the Trustees or, if there is none or in the absence of the Chairman
of the Trustees, the President shall preside at all meetings of the shareholders
and of the Trustees. Unless the Trustees otherwise provide, the President shall
be the chief executive officer.
3.6 Treasurer. Unless the Trustees shall provide otherwise, the
Treasurer shall be the chief financial and accounting officer of the Trust, and
shall, subject to the provisions of the Declaration of Trust and to any
arrangement made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall
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<PAGE>
have such other duties and powers as may be designated from time to time by the
Trustees or by the President. The chief accounting officer of the Trust shall be
elected by the Trustees and shall have tenure as provided in Paragraph 3.3 of
these Bylaws.
3.7 Clerk. The Clerk shall record all proceedings of the shareholders
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the Clerk
from any meeting of the shareholders or Trustees, an Assistant Clerk, or if
there be none or if he or she is absent, a temporary Clerk chosen at such
meeting shall record the proceedings thereof in the aforesaid books.
3.8 Resignations and Removals. Any Trustee or officer may resign at any
time by written instrument signed by him or her and delivered to the Chairman of
the Trustees, the President or the Clerk or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. The Trustees may remove any officer elected by them with or
without cause. Except to the extent expressly provided in a written agreement
with the Trust, no Trustee or officer resigning and no officer removed shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
Committees
4.1 Quorum; Voting. A majority of the members of any Committee of the
Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Members of a Committee may participate in a
meeting of such Committee by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
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<PAGE>
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by the
Trustees, the initial fiscal year of the Trust shall end on such date as is
determined in advance or in arrears by the Treasurer, and subsequent fiscal
years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die
with the word "Massachusetts", together with the name of the Trust and the year
of its organization cut or engraved thereon but, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, Vice Chairman, a Vice President or the Treasurer and need not
bear the seal of the Trust.
ARTICLE 9
Issuance of Shares and Share Certificates
9.1 Sale of Shares. Except as otherwise determined by the Trustees, the
Trust will issue and sell for cash or securities from time to time, full and
fractional shares of its shares of beneficial interest, such shares to be issued
and sold at a price of not less than the par value per share, if any, and not
less than the net asset value per share, if any, as from time to time determined
in accordance with the Declaration of Trust and these Bylaws and, in the case of
fractional shares, at a proportionate reduction in such price. In the case of
shares sold for securities, such securities shall be valued in accordance with
the provisions for determining the value of the assets of the Trust as stated in
the Declaration of Trust and these Bylaws. The officers of the Trust are
severally authorized to take all such actions as may be necessary or desirable
to carry out this Paragraph 9.1.
9.2 Share Certificates. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
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<PAGE>
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to a certificate
stating the number of shares owned by him or her, in such form as shall be
prescribed from time to time by the Trustees. Such certificate shall be signed
by the President or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate is signed by a
transfer agent or by a registrar. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall cease to be such
officer before such certificate is issued, it may be issued by the Trust with
the same effect as if he or she were such officer at the time of its issue.
9.3 Loss of Certificates. The transfer agent of the Trust, with the
approval of any two officers of the Trust, is authorized to issue and
countersign replacement certificates for the shares of the Trust which have been
lost, stolen or destroyed upon (i) receipt of an affidavit or affidavits of loss
or non-receipt and of an indemnity agreement executed by the registered holder
or his or her legal representative and supported by an open penalty surety bond,
said agreement and said bond in all cases to be in form and content satisfactory
to and approved by the President or the Treasurer, or (ii) receipt of such other
documents as may be approved by the Trustees.
9.4 Issuance of New Certificate to Pledgee. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder and entitled to vote
thereon.
9.5 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of share certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1 Certain Definitions. When used herein the following words shall
have the following meanings: "Distributor" shall mean any one or more
corporations, firms or associations which have distributor's or principal
underwriter's contracts in effect with the Trust. "Manager" shall mean any
corporation, firm or association which may at the time have an advisory or
management contract with the Trust.
10.2 Limitations on Dealings with Officers or Trustees. The Trust will
not lend any of its assets to the Distributor or Manager or to any officer or
director of the Distributor or Manager or any officer or Trustee of the Trust,
and shall not permit any officer or Trustee of the Trust or any officer or
director of the Distributor or Manager to deal for or on behalf of the
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<PAGE>
Trust with himself or herself as principal or agent, or with any partnership,
association or corporation in which he or she has a financial interest; provided
that the foregoing provisions shall not prevent (a) officers and Trustees of the
Trust or officers and directors of the Distributor or Manager from buying,
holding or selling shares in the Trust or from being partners, officers or
directors or otherwise financially interested in the Distributor or the Manager;
(b) purchases or sales of securities or other property if such transaction is
permitted by or is exempt or exempted from the provisions of the Investment
Company Act of 1940 or any Rule or Regulation thereunder, all as amended from
time to time, and if such transaction does not involve any commission or profit
to any security dealer who is, or one or more of whose partners, shareholders,
officers or directors is, an officer or Trustee of the Trust or an officer or
director of the Distributor or Manager; (c) employment of legal counsel,
registrar, transfer agent, shareholder servicing agent, dividend disbursing
agent or custodian who is, or has a partner, shareholder, officer or director
who is, an officer or Trustee of the Trust or an officer or director of the
Distributor or Manager; and (d) sharing statistical, research, legal and
management expenses and office hire and expenses with any other investment
company in which an officer or Trustee of the Trust or an officer or director of
the Distributor or Manager is an officer or director or otherwise financially
interested.
10.3 Securities and Cash of the Trust to be held by Custodian Subject
to Certain Terms and Conditions.
(a) All securities and cash owned by the Trust shall be held by or
deposited with one or more banks or trust companies having (according to its
last published report) not less than $5,000,000 aggregate capital, surplus and
undivided profits (any such bank or trust company being hereby designated as
"Custodian"), provided such a Custodian can be found ready and willing to act;
subject to such rules, regulations and orders, if any, as the Securities and
Exchange Commission may adopt, the Trust may, or may permit any Custodian to,
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities pursuant to which all securities of any
particular class or series of any issue deposited within the system may be
transferred or pledged by bookkeeping entry, without physical delivery. The
Custodian may appoint, subject to the approval of the Trustees, one or more
subcustodians.
(b) The Trust shall enter into a written contract with each Custodian
regarding the powers, duties and compensation of such Custodian with respect to
the cash and securities of the Trust held by such Custodian. Said contract and
all amendments thereto shall be approved by the Trustees.
(c) The Trust shall upon the resignation or inability to serve of any
Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to serve, use its
best efforts to obtain a successor Custodian;
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<PAGE>
(ii) require that the cash and securities owned by the Trust
be delivered directly to the successor Custodian; and
(iii) in the event that no successor Custodian can be found,
submit to the shareholders, before permitting delivery of the cash and
securities owned by the Trust otherwise than to a successor Custodian,
the question whether the Trust shall be liquidated or shall function
without a Custodian.
10.4 Reports to Shareholders. The Trust shall send to each shareholder
of record at least semi-annually a statement of the condition of the Trust and
of the results of its operations, containing all information required by
applicable laws or regulations.
10.5 Valuation of Assets. In valuing the portfolio investments of the
Trust, securities for which market quotations are readily available shall be
valued at prices which, in the opinion of the Trustees or the person designated
by the Trustees to make the determination, most nearly represent the market
value of such securities, and other securities and assets shall be valued at
their fair value as determined by or pursuant to the direction of the Trustees,
which in the case of debt obligations, commercial paper and repurchase
agreements may, but need not, be on the basis of yields for securities of
comparable maturity, quality and type, or on the basis of amortized cost.
Expenses and liabilities of the Trust shall be accrued each day. Liabilities may
include such reserves for taxes, estimated accrued expenses and contingencies as
the Trustees or their designates may in their sole discretion deem fair and
reasonable under the circumstances. No accruals shall be made in respect of
taxes on unrealized appreciation of securities owned unless the Trustees shall
otherwise determine.
ARTICLE 11
Shareholders
11.1 Annual Meeting. The annual meeting of the shareholders of the
Trust shall be held on the last Friday in April in each year or on such other
day as may be fixed by the Trustees. The meeting shall be held at such time as
the Chairman of the Trustees or the Trustees may fix in the notice of the
meeting or otherwise. Purposes for which an annual meeting is to be held,
additional to those prescribed by law or these Bylaws, may be specified by the
Chairman of the Trustees or by the Trustees.
11.2 Record Dates. For the purpose of determining the shareholders of
any series or class of shares of the Trust who are entitled to vote or act at
any meeting or any adjournment thereof, or who are entitled to receive payment
of any dividend or of any other distribution, the Trustees may from time to time
fix a time, which shall be not more than 90 days before the date of any meeting
of shareholders or more than 60 days before the date of payment of any dividend
or of any other distribution, as the record date for determining the
shareholders of such series or class having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of record on such
record date shall have such right notwithstanding any transfer
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<PAGE>
of shares on the books of the Trust after the record date; or without fixing
such record date the Trustees may for any such purposes close the register or
transfer books for all or part of such period.
11.3 Proxies. The placing of a shareholder's name on a proxy pursuant
to telephone or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such shareholder shall constitute execution of such proxy by or on
behalf of such shareholder.
ARTICLE 12
Shares of Beneficial Interest
12. The Trust has an unlimited number of Common Shares, without par value, which
may be issued from time to time by the Trustees of the Trust. The Trust also has
a class of 6,000 preferred shares, without par value, which may be issued by the
Trustees from time to time in one or more series.
12.1 Statement Creating Three Series of Remarketed Preferred(R) Shares.
There are three series of Remarketed Preferred(R) Shares.
PART I
DESIGNATION
SERIES A: A series of 800 shares of preferred shares, without par
value, liquidation preference $50,000 per share plus accumulated but unpaid
dividends, if any, thereon (whether or not earned or declared), is hereby
designated "Remarketed Preferred Shares, Series A" and is referred to below as
"Series A RP(R)". Each share of Series A RP shall be issued on a date to be
determined by the Trustees, by any duly authorized committee thereof or by any
of the President, the Vice Chairman, any Executive Vice President or the
Treasurer of the Trust; have such initial dividend rate as shall be determined
in advance of the issuance thereof by the Trustees, by any duly authorized
committee thereof or by any of the President, the Vice Chairman, any Executive
Vice President or the Treasurer of the Trust; have an Initial Dividend Period
and an Initial Dividend Payment Date to be determined by the Trustees of the
Trust, by a duly authorized committee thereof or by any of the President, the
Vice Chairman, any Executive Vice President or the Treasurer of the Trust; be
redeemed (unless such share shall have been otherwise redeemed pursuant to
paragraph 4 of Part I of this Section 12.1 by the Trust on a date to be
determined by the Trustees of the Trust) at the option of the Trust at a
redemption price of $50,000 per share plus accumulated but unpaid dividends to
the date fixed for redemption (whether or not earned or declared) plus the
premium, if any, resulting from the designation of a Premium Call Period; and
have such other preferences, limitations and
- --------
(R) Registered trademark of Merrill Lynch & Co., Inc.
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<PAGE>
relative voting rights, in addition to those required by applicable law or set
forth in the Trust's Declaration of Trust applicable to preferred shares of the
Trust, as are set forth in Part I and Part II of this Section 12.1. Series A RP
shall constitute a separate series of preferred shares of the Trust, and each
share of Series A RP shall be identical except as provided in paragraph 4 of
this Part I of this Section 12.1.
SERIES B: A series of 1,620 shares of preferred shares, without par
value, liquidation preference $25,000 per share plus accumulated but unpaid
dividends, if any, thereon (whether or not earned or declared), is hereby
designated "Remarketed Preferred Shares, Series B" and is referred to below as
"Series B RP". Each share of Series B RP shall be issued on a date to be
determined by the Trustees, by any duly authorized committee thereof or by any
of the President, the Vice Chairman, any Executive Vice President or the
Treasurer of the Trust; have such initial dividend rate as shall be determined
in advance of the issuance thereof by the Trustees, by any duly authorized
committee thereof or by any of the President, the Vice Chairman, any Executive
Vice President or the Treasurer of the Trust; have an Initial Dividend Period
and an Initial Dividend Payment Date to be determined by the Trustees of the
Trust, by a duly authorized committee thereof or by any of the President, the
Vice Chairman, any Executive Vice President or the Treasurer of the Trust; be
redeemed (unless such share shall have been otherwise redeemed pursuant to
paragraph 4 of Part I of this Section 12.1 by the Trust on a date to be
determined by the Trustees of the Trust) at the option of the Trust at a
redemption price of $25,000 per share plus accumulated but unpaid dividends to
the date fixed for redemption (whether or not earned or declared) plus the
premium, if any, resulting from the designation of a Premium Call Period; and
have such other preferences, limitations and relative voting rights, in addition
to those required by applicable law or set forth in the Trust's Declaration of
Trust applicable to preferred shares of the Trust, as are set forth in Part I
and Part II of this Section 12.1. Series B RP shall constitute a separate series
of preferred shares of the Trust, and each share of Series B RP shall be
identical except as provided in paragraph 4 of this Part I of this Section 12.1.
SERIES C: A series of 1,620 shares of preferred shares, without par
value, liquidation preference $25,000 per share plus accumulated but unpaid
dividends, if any, thereon (whether or not earned or declared), is hereby
designated "Remarketed Preferred Shares, Series C" and is referred to below as
"Series C RP". Each share of Series C RP shall be issued on a date to be
determined by the Trustees, by any duly authorized committee thereof or by any
of the President, the Vice Chairman, any Executive Vice President or the
Treasurer of the Trust; have such initial dividend rate as shall be determined
in advance of the issuance thereof by the Trustees, by any duly authorized
committee thereof or by any of the President, the Vice Chairman, any Executive
Vice President or the Treasurer of the Trust; have an Initial Dividend Period
and an Initial Dividend Payment Date to be determined by the Trustees of the
Trust, by a duly authorized committee thereof or by any of the President, the
Vice Chairman, any Executive Vice President or the Treasurer of the Trust; be
redeemed (unless such share shall have been otherwise redeemed pursuant to
paragraph 4 of Part I of this Section 12.1 by the Trust on a date to be
determined by the Trustees of the Trust) at the option of the Trust at a
redemption price of $25,000 per share plus accumulated but unpaid dividends to
the date fixed
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<PAGE>
for redemption (whether or not earned or declared) plus the premium, if any,
resulting from the designation of a Premium Call Period; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Trust's Declaration of Trust
applicable to preferred shares of the Trust, as are set forth in Part I and Part
II of this Section 12.1. Series C RP shall constitute a separate series of
preferred shares of the Trust, and each share of Series C RP shall be identical
except as provided in paragraph 4 of this Part I of this Section 12.1.
1. Definitions. Unless the context or use indicates another or
different meaning or intent, in this Section 12.1 the following terms have the
following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally recognized rating agency,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by the Commercial Paper Dealers to the Remarketing
Agents for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Trust to provide such rate or rates not
being supplied by the Commercial Paper Dealer. If the number of Dividend Period
days (in each case determined without regard to any adjustment in the length of
a Dividend Period or in the remarketing schedule in respect of non-Business
Days, as provided herein) shall be (i) 7 or more days but fewer than 49 days,
such rate shall be the Interest Equivalent of the 30-day rate on such commercial
paper; (ii) 49 or more days but fewer than 70 days, such rate shall be the
Interest Equivalent of the 60-day rate on such commercial paper; (iii) 70 or
more days but fewer than 85 days, such rate shall be the arithmetic average of
the Interest Equivalent of the 60-day and 90-day rates on such commercial paper;
(iv) 85 or more days but fewer than 99 days, such rate shall be the Interest
Equivalent of the 90-day rate on such commercial paper; (v) 99 or more days but
fewer than 120 days, such rate shall be the arithmetic average of the Interest
Equivalent of the 90-day and 120-day rates on such commercial paper; (vi) 120 or
more days but fewer than 141 days, such rate shall be the Interest Equivalent of
the 120-day rate on such commercial paper; (vii) 141 or more days but fewer than
162 days, such rate shall be the arithmetic average of the Interest Equivalent
of the 120-day and 180-day rates on such commercial paper; and (viii) 162 or
more days but fewer than 183 days, such rate shall be the Interest Equivalent of
the 180-day rate on such commercial paper.
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<PAGE>
"Accountant's Confirmation" has the meaning set forth in paragraph 8(g)
of this Part I of Section 12.1.
"Additional Dividend" has the meaning set forth in paragraph 3(k) of
this Part I of Section 12.1.
"Adviser" means the Trust's investment manager which is Putnam
Investment Management, Inc.
"Agent Member" means a member of the Securities Depository that will
maintain records for a Beneficial Owner of one or more shares of RP.
"Alternate Treasury Bill Rate" has the meaning set forth under "U.S.
Treasury Bill Rate" below.
"Alternate Treasury Note Rate" has the meaning set forth under "U.S.
Treasury Note Rate" below.
"Anticipation Notes" shall mean the following Municipal Bonds: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation notes,
grant anticipation notes and bond anticipation notes.
"Applicable Dividend Rate" means, with respect to the Initial Dividend
Period, the rate of dividend per annum established by the Trustees, by a duly
authorized committee thereof or by any of the President, the Vice Chairman, any
Executive Vice President or the Treasurer of the Trust and, for each subsequent
Dividend Period, means the rate of dividend per annum that (i) except for a
Dividend Period commencing during a Non-Payment Period, will be equal to the
lower of the rate of dividend per annum that the Remarketing Agents advise
results on the Remarketing Date preceding the first day of such Dividend Period
from implementation of the remarketing procedures set forth in Part II hereof
and the Maximum Dividend Rate or (ii) for each Dividend Period commencing during
a Non-Payment Period, will be equal to the NonPayment Period Rate.
"Applicable Percentage" has the meaning set forth under "Maximum
Dividend Rate" below.
"Authorized Newspaper" means a newspaper of general circulation in the
English language generally published on Business Days in The City of New York.
"Beneficial Owner" means a person that is listed as the beneficial
owner of one or more shares of RP in the records of the Paying Agent or, with
respect to any share of RP not registered in the name of the Securities
Depository on the share transfer books of the Trust, the person in whose name
such share is so registered.
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<PAGE>
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading, and which is not a day on which banks in The City of New
York are authorized or obligated by law to close.
"By-laws" means these By-laws of the Trust, as amended from time to
time.
"Closing Transactions" has the meaning set forth in paragraph 12(a) of
this Part I of Section 12.1.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the Trust may
from time to time appoint, or, in lieu of any thereof, their respective
affiliates or successors.
"Common Shares" means the common shares of beneficial interest, without
par value, of the Trust.
"Date of Original Issue" means, with respect to any share of RP, the
date on which the Trust originally issues such share.
"Declaration of Trust" means the Agreement and Declaration of Trust
dated April 1, 1993 of the Trust on file with the Secretary of State of The
Commonwealth of Massachusetts.
"Deposit Securities" means cash and Municipal Bonds rated at least AAA,
A-1+ or SP-1+ by S&P.
"Discounted Value" means (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) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to RP, means, (i) with respect to
the Initial Dividend Period for RP, the Initial Dividend Payment Date; (ii) with
respect to any 7-day Dividend Period (in the case of Series B RP and Series C
RP) or 28-day Dividend Period (in the case of Series A RP) and any Short Term
Dividend Period of 35 or fewer days, the day next succeeding the last day
thereof; and (iii) with respect to any Short Term Dividend Period of more than
35 days and with respect to any Long Term Dividend Period, the first Business
Day of each calendar month during such Short Term Dividend Period or Long Term
Dividend Period and the day next succeeding the last day of such period (each
such date referred to in clause (i), (ii) or (iii) being herein referred to as a
"Normal Dividend Payment Date"), except that if such Normal Dividend Payment
Date is not a Business Day, then (a) the Dividend Payment Date shall be the
first Business Day next succeeding such Normal Dividend Payment Date if such
Normal Dividend Payment Date is a Monday, Tuesday, Wednesday or Thursday,
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or (b) the Dividend Payment Date shall be the first Business Day next preceding
such Normal Dividend Payment Date if such Normal Dividend Payment Date is a
Friday, and in each case the length of the current Dividend Period will be
adjusted accordingly, if necessary. If, however, in the case of clause (b) in
the preceding sentence, the Securities Depository shall make available to its
participants and members in funds immediately available in New York City on
Dividend Payment Dates the amount due as dividends on such Dividend Payment
Dates (and the Securities Depository shall have so advised the Trust), and if
the Normal Dividend Payment Date is not a Business Day, then the Dividend
Payment Date shall be the next succeeding Business Day and the length of the
current Dividend Period will be adjusted accordingly, if necessary. Although any
particular Dividend Payment Date may not occur on the originally scheduled date
because of the exceptions discussed above, the next succeeding Dividend Payment
Date, subject to such exceptions, will occur on the next following originally
scheduled date, and in each case the length of the next succeeding Dividend
Period will be adjusted accordingly, if necessary. If for any reason a Dividend
Payment Date cannot be fixed as described above, then the Trustees shall fix the
Dividend Payment Date and the length of the current Dividend Period will be
adjusted accordingly, if necessary. The Initial Dividend Period, 7-day Dividend
Periods (in the case of Series B RP and Series C RP), 28-day Dividend Periods
(in the case of Series A RP) and Special Dividend Periods are hereinafter
sometimes referred to as "Dividend Periods." Each dividend payment date
determined as provided above is hereinafter referred to as a "Dividend Payment
Date."
"Dividend Period" means with respect to any share of RP, the Initial
Dividend Period for such share and thereafter a period which shall commence on
each (but not the final) Dividend Payment Date for such share; provided,
however, that any Dividend Payment Date occurring after commencement of and
during a Special Dividend Period of more than 35 days, other than the last
Dividend Payment Date during such Dividend Period, will not give rise to a new
Dividend Period. Subject to the adjustment of Dividend Payment Dates as provided
elsewhere herein, each such subsequent Dividend Period for such share will be
comprised of, beginning with and including the day upon which it commences, 7
consecutive days (in the case of Series B RP and Series C RP) or 28 consecutive
days (in the case of Series A RP); or in the case of a Special Dividend Period,
the number of consecutive days as shall be specified by the Trustees in
accordance with the provisions set forth in paragraph 3(j) of this Part I at the
time the Trustees designate a Special Dividend Period. Notwithstanding the
foregoing, any adjustment of the remarketing schedule or the length of a
Dividend Period as provided herein shall also cause an adjustment of the
relevant Settlement Date, if necessary, so that such Settlement Date will be the
first day of the next Dividend Period.
"Forward Commitments" shall have the meaning specified in paragraph
12(c) of this Part I of Section 12.1.
"Gross-Up Tax Rate" has the meaning set forth in paragraph 3(k) of this
Part I of Section 12.1.
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<PAGE>
"Holder" means, with respect to any share of RP, the person whose name
appears on the share transfer books of the Trust as the registered holder of
such share.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Trust, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended.
"Initial Dividend Payment Date" means August 30, 1993 with respect to
Series A RP, [ ] with respect to Series B RP and [ ] with respect to Series C
RP.
"Initial Dividend Period" means, with respect to RP, the period
commencing on and including the Date of Original Issue of such RP and ending on
and including the day prior to the Initial Dividend Payment Date for such RP.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract or an option thereon.
"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.
"Kenny Index" has the meaning set forth under "Taxable Equivalent of
the Short-Term Municipal Bond Rate."
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of Series B RP and
Series C RP, or $50,000 per share of Series A RP, plus in the case of each
series of RP an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to the date fixed for redemption.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Trust means the market value thereof
determined by the Pricing Service. The Market Value of any asset shall include
any interest accrued thereon. The Pricing Service shall value 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 shall be valued at fair value as determined
by the Pricing Service using methods which include consideration of: yields or
prices of municipal bonds of comparable quality, type of issue, coupon, maturity
and rating; indications as to value from dealers; and general market conditions.
The Pricing Service may employ electronic data processing techniques and/or a
matrix system to determine valuations. In the event the Pricing
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Service is unable to value a security, the security shall be valued at the lower
of two dealer bids obtained by the Trust from dealers who are members of the
National Association of Securities Dealers, Inc. and make a market in the
security, at least one of which shall be in writing. Futures contracts and
options are valued at closing prices for such instruments established by the
exchange or board of trade on which they are traded, or if market quotations are
not readily available, are valued at fair value on a consistent basis using
methods determined in good faith by the Trustees.
"Maximum Dividend Rate" for any Dividend Period shall be the Applicable
Percentage of the Reference Rate determined as of the relevant Remarketing Date
or the Date of Original Issue, as the case may be, for such RP. The Applicable
Percentage on any date will be determined based on (i) the lower of the credit
rating or ratings assigned on such date to shares of such RP by Moody's and S&P
(or if Moody's or S&P or both shall not make such rating available, the
equivalent of either or both of such ratings by a Substitute Rating Agency or
two Substitute Rating Agencies or, in the event that only one such rating shall
be available, such rating) and (ii) whether the Trust has provided to the
Remarketing Agents prior to the Remarketing establishing the Applicable Dividend
Rate notification pursuant to paragraph 3(m) of this Part I of Section 12.1 that
net capital gain or other income subject to regular Federal income tax will be
included in a dividend on shares of such RP during such Dividend Period as
follows:
<TABLE>
<CAPTION>
Applicable Applicable
Percentage of Percentage of
Credit Ratings Reference Reference
- --------------------------------------- Rate - Rate -
Moody's S&P No Notification Notification
------- --- --------------- ------------
<S> <C> <C> <C>
"aa3" or higher AA-or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Remarketing Agents shall round each applicable Maximum Dividend
Rate to the nearest one-thousandth (0.001) of one percent per annum, with any
such number ending in five ten-thousandths (0.0005) of one percent being rounded
upwards to the nearest one-thousandth (0.001) of one percent. The Remarketing
Agents shall not round the Reference Rate as part of their calculation of any
Maximum Dividend Rate.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be payable
with respect to RP if the Trust were to make Retroactive Taxable Allocations,
with respect to any fiscal year, estimated based upon dividends paid and the
amount of undistributed realized net capital gain and other income subject to
regular Federal income tax earned by the Trust, as of the end of the calendar
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month immediately preceding such Valuation Date and assuming such Additional
Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Municipal Bond which constitutes a Moody's Eligible
Asset, the percentage determined by reference to (a) the rating by Moody's or
S&P on such Bond and (b) the Moody's Exposure Period, in accordance with the
table set forth below:
<TABLE>
<CAPTION>
Rating Category
---------------------------------------------------------------------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1***
- ----------------------- ---- --- -- ---- ------- ---------
SP-1+****
---------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less................... 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>
* Moody's rating.
** Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by
S&P.
*** Municipal Bonds rated MIG-1, VMIG-1 or P-1 by Moody's which do not
mature or have a demand feature at par exercisable within the Moody's
Exposure Period and which do not have a long-term rating. For the
purpose of the definition of Moody's Eligible Assets, these securities
will have an assumed rating of 'A' by Moody's.
**** Municipal Bonds rated SP-1+ or A-1+ by S&P which do not mature or have
a demand feature at par exercisable within the Moody's Exposure Period
and which do not have a long-term rating. For the purposes of the
definition of Moody's Eligible Assets, these securities will have an
assumed rating of 'A' by Moody's.
Notwithstanding the foregoing, (i) no Moody's Discount Factor will be
applied to short-term Municipal Bonds, so long as such Municipal Bonds are rated
at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at
par exercisable within the Moody's Exposure Period, and the Moody's Discount
Factor for such Bonds will be 125% if such Bonds are not rated by Moody's but
are rated A-l+ or SP-l+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for Municipal Bonds Sold.
"Receivables for Municipal Bonds Sold," for purposes of calculating Moody's
Eligible Assets as of any Valuation Date, means the aggregate of the following:
(i) the book value of receivables for Municipal Bonds 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 Trust 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 Discounted
Value of Municipal Bonds sold (applying the relevant Moody's Discount Factor to
such Bonds) as of or prior to such Valuation Date which generated such
receivables, if such receivables are due within five
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Business Days of such Valuation Date but do not comply with either of conditions
(x) or (y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for Municipal Bonds
Sold, a short-term Municipal Bond rated VMIG-1, MIG-1 or P-1 by Moody's or SP-1+
or A-1+ by S&P or a Municipal Bond 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 that, for purposes of determining
the Moody's Discount Factor applicable to any such S&P-rated Municipal Bond,
such Municipal Bond (excluding any short-term Municipal Bond and any Municipal
Bond rated BBB-, BBB or BBB+) will 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
Bonds of at least $10,000,000. In addition, Municipal Bonds in the Trust's
portfolio will be included as Moody's Eligible Assets only to the extent they
meet the following diversification requirements:
<TABLE>
<CAPTION>
Minimum Maximum Maximum State
Issue Size Underlying or Territory
Rating ($ Millions) Obligor (%)(1) Concentration(%)(1)(3)
- ------ ------------ -------------- ----------------------
<S> <C> <C> <C>
Aaa......................... 10 100 100
Aa.......................... 10 20 60
A........................... 10 10 40
Baa......................... 10 6 20
Other(2).................... 10 4 12
- ----------------------
</TABLE>
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by S&P.
(3) Territorial bonds (other than those issued by Puerto Rico and counted
collectively) of any territory are limited to 10% of Moody's Eligible
Assets.
For purposes of the maximum underlying obligor requirement described above, any
such Bond backed by a 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 Bond.
When the Trust sells a Municipal Bond and agrees to repurchase it at a
future date, such Bond will constitute a Moody's Eligible Asset and the amount
the Trust is required to pay
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<PAGE>
upon repurchase of such Bond will count as a liability for purposes of
calculating the RP Basic Maintenance Amount. When the Trust purchases a
Municipal Bond and agrees to sell it at a future date to another party, cash
receivable by the Trust in connection therewith will constitute a Moody's
Eligible Asset if the long-term debt of such other party is rated at least A2 by
Moody's and such agreement has a term of 30 days or less; otherwise such Bond
will constitute a Moody's Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Trust for the payment of
dividends or redemption.
"Moody's Exposure Period" means the period commencing on and including
a given Valuation Date and ending 48 days thereafter.
"Moody's Hedging Transaction" has the meaning set forth in paragraph
12(b) of this Part I of Section 12.1.
"Moody's Volatility Factor" means 272% as long as there has not been
enacted an increase to the Marginal Tax Rate. If an increase is enacted to the
Marginal Tax Rate but not yet implemented, the Moody's Volatility Factor shall
be as follows:
% Change in Moody's Volatility
Marginal Tax Rate Factor
----------------- ------
less than or equal to 5% 292%
greater than 5% but less than but equal to 10% 313%
greater than 10% but less than or equal to 15% 338%
greater than 15% but less than or equal to 20% 364%
greater than 20% but less than or equal to 25% 396%
greater than 25% but less than or equal to 30% 432%
greater than 30% but less than or equal to 35% 472%
greater than 35% but less than or equal to 40% 520%
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Trust in writing
is applicable.
"Municipal Bonds" means obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which, in the opinion of bond counsel or other counsel to the issuer of such
securities, is at the time of issuance not includable in gross income for
Federal income tax purposes.
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<PAGE>
"Municipal Index" has the meaning set forth in paragraph 12(a) of this
Part I of Section 12.1.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act Cure Date," with respect to the failure by the Trust to
maintain the 1940 Act RP Asset Coverage (as required by paragraph 7 of this Part
I of Section 12.1) as of the last Business Day of each month, means the last
Business Day of the following month.
"1940 Act RP Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Trust which are shares, including all outstanding
shares of each series of RP (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
paying dividends on its common shares).
"Non-Call Period" has the meaning described under "Specific Redemption
Provisions" below.
"Non-Payment Period" with respect to any shares of RP means any period
commencing on and including the day on which the Trust shall fail to (i)
declare, prior to 12:00 noon, New York City time, on any Dividend Payment Date
for shares of such RP, for payment on or (to the extent permitted below) within
three Business Days after such Dividend Payment Date to the Holders of such
shares as of 12:00 noon, New York City time, on the Business Day preceding such
Dividend Payment Date, the full amount of any dividend on such shares payable on
such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day
funds, with the Paying Agent by 12:00 noon, New York City time, (A) on or (to
the extent permitted below) within three Business Days after any Dividend
Payment Date for any shares of RP the full amount of any dividend on such shares
(whether or not earned or declared) payable on such Dividend Payment Date or (B)
on or (to the extent permitted below) within three Business Days after any
redemption date for any shares of RP called for redemption, the Mandatory
Redemption Price or Optional Redemption Price, as the case may be, and ending on
and including the Business Day on which, by 12:00 noon, New York City time, all
unpaid dividends and unpaid redemption prices shall have been so deposited or
shall have otherwise been made available to Holders in same-day funds; provided
that a Non-Payment Period shall not end during the first seven days thereof
unless the Trust shall have given at least three days' written notice to the
Paying Agent, the Remarketing Agents and the Securities Depository and
thereafter shall not end unless the Trust shall have given at least fourteen
days' written notice to the Paying Agent, the Remarketing Agents, the Securities
Depository and all Holders. Any dividend on shares of RP due on any Dividend
Payment Date for such shares (if, prior to 12:00 noon, New York City time, on
such Dividend Payment Date, the Trust has declared such dividend payable on or
within three Business Days after such Dividend Payment Date to the Holders who
held such shares as of 12:00 noon, New York City time, on the Business Day
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<PAGE>
preceding such Dividend Payment Date) or redemption price with respect to shares
of RP not paid to Holders when due may (if such non-payment occurs because the
Trust is prevented from doing so by these By-laws or applicable law) be paid pro
rata to such Holders in the same form of funds by 12:00 noon, New York City
time, on any of the first three Business Days after such Dividend Payment Date
or due date, as the case may be, provided that such amount is accompanied by a
late charge calculated for such period of non-payment at the NonPayment Period
Rate applied to the amount of such non-payment based on the actual number of
days comprising such period divided by 365.
"Non-Payment Period Rate" means 200% of the applicable Reference Rate
(or 275% of such rate if the Trust has provided notification to the Remarketing
Agents prior to the Remarketing Date establishing the Applicable Dividend Rate
for the relevant dividend pursuant to paragraph 3(m) hereof that net capital
gain or other income subject to regular Federal income tax will be included in
such dividend on shares of RP), provided that the Trustees shall have the
authority to adjust, modify, alter or change from time to time the Non-Payment
Period Rate if the Trustees determine and Moody's and S&P (or any Substitute
Rating Agency in lieu of Moody's or S&P in the event either of such parties
shall not rate the RP) advise the Trust in writing that such adjustment,
modification, alteration or change will not adversely affect the then-current
ratings of the RP.
"Normal Dividend Payment Date" has the meaning set forth under
"Dividend Payment Date."
"Notice of Redemption" means any notice with respect to the redemption
of shares of RP pursuant to paragraph 4 of this Part I of Section 12.1.
"Notice of Revocation" has the meaning set forth in paragraph 3(j) of
this Part I of Section 12.1.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 3(j) of this Part I of Section 12.1.
"Optional Redemption Price" shall mean $25,000 per share of Series B RP
or Series C RP, or $50,000 per share of Series A RP, as the case may be, plus in
the case of each series of RP an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) to the date fixed for redemption
plus any applicable redemption premium per share attributable to the designation
of a Premium Call Period for such share.
"Paragraph 3(a) Dividend" has the meaning set forth in paragraph 3(k)
of this Part I of Section 12.1.
"Paying Agent" means [ ] or any successor company or entity, which has
entered into a Paying Agent Agreement with the Trust to act for the Trust, among
other things, as the transfer agent, registrar, dividend and redemption price
disbursing agent, settlement agent and
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<PAGE>
agent for certain notifications in connection with the shares of RP in
accordance with such agreement.
"Paying Agent Agreement" means an agreement to be entered into between
the Trust and the Paying Agent.
"Preferred Shares" means the preferred shares of the Trust, and
includes RP.
"Premium Call Period" has the meaning specified in "Specific Redemption
Provisions," below.
"Pricing Service" means Muller Investdata Corp., or any successor
company or entity, or any other entity designated from time to time by the
Trustees. Notwithstanding the foregoing, the Trustees will not designate a new
Pricing Service unless the Trust has received a written confirmation from
Moody's and S&P that such action would not impair the ratings then assigned by
Moody's and S&P to any series of RP.
"Quarterly Valuation Date" means the last Business Day of each fiscal
quarter of the Trust in each fiscal year of the Trust, commencing July 31, 1993.
"Receivables for Municipal Bonds Sold" for Moody's has the meaning set
forth under the definition of Moody's Discount Factor, and for S&P has the
meaning set forth under the definition of S&P Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period having 28
or fewer days, the higher of the applicable "AA" Composite Commercial Paper Rate
and the Taxable Equivalent of the Short-Term Municipal Bond Rate, (ii) with
respect to any Short Term Dividend Period having more than 28 but fewer than 183
days, the applicable "AA" Composite Commercial Paper Rate, (iii) with respect to
any Short Term Dividend Period having 183 or more but fewer than 365 days, the
U.S. Treasury Bill Rate and (iv) with respect to any Long Term Dividend Period,
the applicable U.S. Treasury Note Rate.
"Remarketing" means each periodic operation of the process for
remarketing shares of RP as described in Part II of Section 12.1.
"Remarketing Agents" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and any additional or successor companies or entities, if any,
which have entered into an agreement with the Trust to follow the remarketing
procedures for the purpose of determining the Applicable Dividend Rate.
"Remarketing Agreement" means an agreement entered into between the
Trust and the Remarketing Agents with respect to Remarketing.
-21-
<PAGE>
"Remarketing Date" means any date on which (i) each Beneficial Owner of
shares of RP must provide to the Remarketing Agents irrevocable telephonic
notice of intent to tender shares in a Remarketing and (ii) the Remarketing
Agents (A) determine the Applicable Dividend Rate for the ensuing Dividend
Period, (B) notify Holders, purchasers and tendering Beneficial Owners of shares
of RP by telephone, telex or otherwise of the results of the Remarketing and (C)
announce the Applicable Dividend Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 3(j) of this Part I of Section 12.1.
"Response" has the meaning set forth in paragraph 3(j) of this Part I
of Section 12.1.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
3(k) of this Part I of Section 12.1.
"Right" has the meaning set forth in paragraph 3(k) of this Part I of
Section 12.1.
"RP" means, as the case may be, the Series A RP; the Series B RP; or
the Series C RP; or if the context shall so indicate, all such series.
"RP Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares of
Series A RP outstanding on such Valuation Date multiplied by the sum of (a)
$50,000 and (b) any applicable redemption premium per share attributable to the
designation of a Premium Call Period; (B) the product of the number of shares of
Series B RP and Series C RP outstanding on such Valuation Date multiplied by the
sum of (a) $25,000 and (b) any applicable redemption premium per share of each
series attributable to the designation of a Premium Call Period; (C) the
aggregate amount of cash dividends (whether or not earned or declared) that will
have accumulated for each series of RP outstanding, in each case, to (but not
including) the end of the current Dividend Period for such series of RP that
follows such Valuation Date or to (but not including) the 49th day after such
Valuation Date, whichever is sooner; (D) the aggregate amount of cash dividends
that would accumulate at the Maximum Dividend Rate applicable to a Dividend
Period of 28 days (in the case of shares of Series A RP) and 7 days (in the case
of shares of Series B RP and Series C RP) outstanding from the end of such
Dividend Period through the 49th day after such Valuation Date, multiplied by
the larger of the Moody's Volatility Factor and the S&P Volatility Factor,
determined from time to time by Moody's and S&P, respectively (except that if
such Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then current Non-Payment Period
Rate); (E) the amount of anticipated expenses of the Trust for the 90 days
subsequent to such Valuation Date; (F) the amount of the Trust's Maximum
Potential Additional Dividend Liability as of such Valuation Date; and (G) any
current liabilities as of such Valuation Date to the extent not reflected in any
of (i)(A) through (i)(F) (including, without limitation, any amounts due and
payable by the Trust pursuant to repurchase agreements and any payables for
Municipal Bonds purchased as of such Valuation Date) less (ii) either (A) the
Discounted
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<PAGE>
Value of any of the Trust's assets, or (B) the face value of any of the Trust's
assets if such assets mature prior to or on the date of redemption of any shares
of RP or payment of a liability and are either securities issued or guaranteed
by the U.S. Government or, with respect to Moody's, have a rating assigned by
Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 and, with respect to S&P, have a
rating assigned by S&P of at least AAA, SP-1+ or A-1+, in both cases irrevocably
deposited by the Trust for the payment of the amount needed to redeem shares of
RP subject to redemption or any of (i)(C) through (i)(G).
"RP Basic Maintenance Cure Date," with respect to the failure by the
Trust to satisfy the RP Basic Maintenance Amount (as required by paragraph 8(a)
of this Part I of Section 12.1) as of a given Valuation Date, means the sixth
Business Day following such Valuation Date.
"RP Basic Maintenance Report" means a report signed by the President,
Treasurer or any Executive Vice President or Vice President of the Trust which
sets forth, as of the related Valuation Date, the assets of the Trust, the
Market Value and the Discounted Value thereof (seriatim and in the aggregate),
and the RP Basic Maintenance Amount.
"S&P" means Standard & Poor's Rating Services or its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any Municipal Bond which constitutes an S&P Eligible Asset, the
percentage determined by reference to (a) the rating by S&P or Moody's on such
Bond and (b) the S&P Exposure Period, in accordance with the table set forth
below:
Rating Category
---------------
S&P Exposure Period AAA AA A BBB
- ------------------- --- -- - ---
40 Business Days.............. 190% 195% 210% 250%
22 Business Days.............. 170 175 190 230
10 Business Days.............. 155 160 175 215
7 Business Days............... 150 155 170 210
3 Business Days............... 130 135 150 190
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Bonds will be 115%, so long as such Municipal Bonds are rated A-l+ or
SP-l+ by S&P and mature or have a demand feature exercisable in 30 days or less,
or 125% if such Municipal Bonds are not rated by S&P but are rated VMIG-1, P-1
or MIG-1 by Moody's, and such short-term Municipal Bonds referred to in this
clause (i) shall qualify as S&P Eligible Assets; provided, however, such
short-term Municipal Bonds rated by Moody's but not rated by S&P having a demand
feature exercisable in 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution
having a short-term rating of at least A-l+ from S&P; and further provided that
such short-term Municipal Bonds rated by
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Moody's but not rated by S&P may comprise no more than 50% of short-term
Municipal Bonds that qualify as S&P Eligible Assets and (ii) no S&P Discount
Factor will be applied to cash or to Receivables for Municipal Bonds Sold.
"Receivables for Municipal Bonds Sold," for purposes of calculating S&P Eligible
Assets as of any Valuation Date, means the book value of receivables for
Municipal Bonds sold as of or prior to such Valuation Date if such receivables
are due within five Business Days of such Valuation Date. For purposes of the
foregoing, Anticipation Notes rated SP-l+ or, if not rated by S&P, rated VMIG-1
by Moody's, whether or not they mature or have a demand feature exercisable in
30 days and which do not have a long-term rating, shall be considered to be
short-term Municipal Bonds and shall qualify as S&P Eligible Assets.
"S&P Eligible Asset" means cash, Receivables for Municipal
Bonds Sold or a Municipal Bond that (i) is issued by any of the 50 states, any
territory or possession of the United States, the District of Columbia, and any
political subdivision, instrumentality, county, city, town, village, school
district or agency (such as authorities and special districts created by the
states) of any of the foregoing, and certain federally sponsored agencies such
as local housing authorities; (ii) is interest bearing and pays interest at
least semi-annually; (iii) is payable with respect to principal and interest in
United States Dollars; (iv) is publicly rated BBB or higher by S&P or, except in
the case of Anticipation Notes that are grant anticipation notes or bond
anticipation notes which must be rated by S&P to be included in S&P Eligible
Assets, if not rated by S&P but rated by Moody's, is rated at least A by Moody's
(provided that such Moody's-rated Municipal Bonds will be included in S&P
Eligible Assets only to the extent the Market Value of such Municipal Bonds does
not exceed 50% of the aggregate Market Value of the 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 Bond, such Municipal Bond will be
deemed to have an S&P rating which is one full rating category lower than its
Moody's rating); (v) is not subject to a covered call or covered put option
written by the Trust; (vi) is not part of a private placement of Municipal
Bonds; and (vii) is part of an issue of Municipal Bonds with an original issue
size of at least $20 million or, if of an issue with an original issue size
below $20 million (but in no event below $10 million), is issued by an issuer
with a total of at least $50 million of securities outstanding.
Notwithstanding the foregoing:
(1) Municipal Bonds of any one issuer will be considered S&P
Eligible Assets only to the extent the Market Value of such Municipal
Bonds does not exceed 10% of the aggregate Market Value of the S&P
Eligible Assets, provided that 2% is added to the applicable S&P
Discount Factor for every 1% by which the Market Value of such
Municipal Bonds exceeds 5% of the aggregate Market Value of the S&P
Eligible Assets; and
(2) Municipal Bonds issued by issuers in any one state or
territory will be considered S&P Eligible Assets only to the extent the
Market Value of such Municipal Bonds does not exceed 20% of the
aggregate Market Value of S&P Eligible Assets.
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<PAGE>
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the RP Basic Maintenance Cure
Date, that the Trust has under this Section 12.1 to cure any failure to
maintain, as of such Valuation Date, a Discounted Value of its portfolio at
least equal to the RP Basic Maintenance Amount (as described in paragraph 8(a)
of this Section 12.1).
"S&P Hedging Transactions" has the meaning set forth in paragraph 12(a)
of this Section 12.1.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Trust in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entity selected by the Trust as securities depository
of the shares of RP that agrees to follow the procedures required to be followed
by such securities depository in connection with shares of RP.
"Series A RP" means the Remarketed Preferred Shares, Series A.
"Series B RP" means the Remarketed Preferred Shares, Series B.
"Series C RP" means the Remarketed Preferred Shares, Series C.
"Service" means the Internal Revenue Service.
"Settlement Date" means the first Business Day after a Remarketing Date
applicable to a share of RP.
"7-day Dividend Period" means, with respect to Series B RP and Series C
RP, a Dividend Period consisting of seven days.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than 28, in the case of Series A RP, or
seven, in the case of Series B RP and Series C RP), evenly divisible by seven
and not fewer than seven or more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than 28, in the case of Series A RP, or seven,
in the case of Series B RP and Series C RP), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided herein).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period of 365 or more days, either, or any combination of, the
designation of (i) a period (a "Non-Call
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<PAGE>
Period") determined by the Trustees, after consultation with the Remarketing
Agents, during which the shares of RP subject to such Dividend Period shall not
be subject to redemption at the option of the Trust and (ii) a period (a
"Premium Call Period"), consisting of a number of whole years and determined by
the Trustees, after consultation with the Remarketing Agents, during each year
of which the shares of RP subject to such Dividend Period shall be redeemable at
the Trust's option at a price per share equal to $50,000 (in the case of Series
A RP), or $25,000 (in the case of Series B RP or Series C RP), plus in the case
of each series of RP accumulated but unpaid dividends plus an applicable
premium, as determined by the Trustees after consultation with the Remarketing
Agents.
"Substitute Commercial Paper Dealers" means such substitute commercial
paper dealer or dealers as the Trust may from time to time appoint or, in lieu
of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by the Trust
to act as the substitute rating agency or substitute rating agencies, as the
case may be, to determine the credit ratings of the shares of RP.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an Interest
Equivalent basis equal to the Kenny S&P 30-day High Grade Index or any
comparable index based upon 30-day yield evaluations at par of bonds the
interest on which is excludable for regular Federal income tax purposes under
the Code of "high grade" component issuers selected by Kenny Information Systems
Inc. (or any successor thereto from time to time selected by the Trust 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," (as defined
in the Code) (the "Kenny Index"), made available for the Business Day
immediately preceding such date but in any event not later than 8:30 A.M., New
York City time, on such date by Kenny Information Systems Inc. (or any such
successor), divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a
decimal); provided, however, that if the Kenny Index is not made so available by
8:30 A.M., New York City time, on such date by Kenny Information Systems Inc.
(or any such 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, divided
by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal). No successor
to Kenny Information Systems Inc. shall be chosen without first obtaining
written confirmation from Moody's and S&P that the choice of such successor
would not impair the rating then assigned to any series of RP by Moody's or S&P.
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"Tender and Dividend Reset" means the process pursuant to which shares
of RP may be tendered in a Remarketing or held and become subject to the new
Applicable Dividend Rate determined by the Remarketing Agents in such
Remarketing.
"Treasury Bonds" shall have the meaning set forth in paragraph 12(a) of
this Part I of Section 12.1.
"Trust" means Putnam Municipal Opportunities Trust, a Massachusetts
business trust.
"28-day Dividend Period" means, with respect to Series A RP, a Dividend
Period consisting of 28 days.
"Trustees" means the Trustees of the Trust.
"U.S. Treasury Bill Rate" on any date of determination means (i) the
Interest Equivalent of the rate on the actively traded Treasury Bill with a
maturity most nearly comparable to the length of the related Dividend Period, as
such rate is made available on a discount basis or otherwise on the Business Day
immediately preceding such date by the Federal Reserve Bank of New York in its
Composite 3:30 P.M. Quotations for U.S. Government Securities report for such
Business Day, or (ii) if such yield as so calculated is not available, the
Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on any
date means the Interest Equivalent of the yield as calculated by reference to
the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the
Remarketing Agents.
"U.S. Treasury Note Rate" on any date of determination means (i) the
yield as calculated by reference to the bid price quotation of the actively
traded, current coupon Treasury Note with a maturity most nearly comparable to
the length of the related Dividend Period, as such bid price quotation is
published on the Business Day immediately preceding such date by the Federal
Reserve Bank of New York in its Composite 3:30 P.M. Quotations for U.S.
Government Securities report for such Business Day, or (ii) if such yield as so
calculated is not available, the Alternate Treasury Note Rate on such date.
"Alternate Treasury Note Rate" on any date means the yield as calculated by
reference to the arithmetic average of the bid price quotations of the actively
traded, current coupon Treasury Note with a maturity most nearly comparable to
the length of the related Dividend Period, as determined by the bid price
quotations as of any time on the Business Day immediately preceding such date,
obtained from at least three recognized primary U.S. Government securities
dealers selected by the Remarketing Agents.
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"Valuation Date" means, for purposes of determining whether the Trust
is maintaining the RP Basic Maintenance Amount, each Business Day commencing
with the Date of Original Issue.
"Voting Period" has the meaning set forth in paragraph 6(b) of this
Part I of Section 12.1.
"Variation Margin" means, in connection with an outstanding futures
contract or option thereon owned or sold by the Trust, the amount of cash or
securities paid to or received from a broker (subsequent to the Initial Margin
payment) from time to time as the price of such futures contract or option
fluctuates.
2. Fractional Shares. No fractional shares of RP shall be issued.
3. Dividends.
(a) The Holders of RP as of 12:00 noon, New York City time, on the
Business Day preceding the applicable Dividend Payment Date, shall be entitled
to receive, when, as and if declared by the Trustees, out of funds legally
available therefor, (i) cumulative dividends, at the Applicable Dividend Rate,
(ii) a Right (as defined in paragraph 3(k) of this Part I of Section 12.1) to
receive an Additional Dividend or Additional Dividends in certain circumstances,
and (iii) any additional amounts as set forth in paragraph 3(m) of this Part I
of Section 12.1. Each share of RP shall remain on a parity with other shares of
RP with respect to the payment of dividends at the rates fixed for the
respective series. No dividends on any series of RP shall be paid or declared if
there shall exist a Non-Payment Period with respect to any other series of RP
unless dividends in ratable proportion are declared and paid on such other
series. Dividends on the shares of RP so declared and payable shall be paid in
preference to and in priority over any dividends declared and payable on the
Common Shares.
(b) Dividends on each share of RP shall accumulate from its Date of
Original Issue and will be payable, when, as and if declared by the Trustees, on
each Dividend Payment Date applicable to such share of RP.
(c) Each declared dividend shall be payable on the applicable Dividend
Payment Date to the Holder or Holders of such shares of RP as set forth in
paragraph 3(a) of this Part I of Section 12.1. Dividends on shares of RP in
arrears with respect to any past Dividend Payment Date may be declared and paid
at any time, without reference to any regular Dividend Payment Date, pro rata to
the Holders of such shares as of a date not exceeding five Business Days
preceding the date of payment thereof as may be fixed by the Trustees. Any
dividend payment made on any share of RP shall be first credited against the
dividends accumulated but unpaid (whether or not earned or declared) with
respect to the earliest Dividend Payment Date on which dividends were not paid.
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(d) Neither Holders nor Beneficial Owners of shares of RP shall be
entitled to any dividends on the shares of RP, whether payable in cash, property
or stock, in excess of full cumulative dividends thereon (which include any
amounts actually due and payable pursuant to paragraph 3(k), 3(l) or 3(m) of
this Part I of Section 12.1). Except as provided in paragraph 3(h) of this Part
I of Section 12.1, neither Holders nor Beneficial Owners of shares of RP shall
be entitled to any interest, or other additional amount, on any dividend payment
on any share of RP which may be in arrears.
(e) Except as otherwise provided herein, the Applicable Dividend Rate
on each share of RP for each Dividend Period with respect to such share shall be
equal to the lower of the rate per annum that results from implementation of the
remarketing procedures described in Part II hereof and the Maximum Dividend
Rate.
(f) The amount of declared dividends for each share of RP payable on
the Initial Dividend Payment Date, the Dividend Payment Date for each 7-day
Dividend Period, the Dividend Payment Date for each 28-day Dividend Period and
the Dividend Payment Date or Dates for each Short-Term Dividend Period shall be
computed by the Trust by multiplying the Applicable Dividend Rate in effect with
respect to dividends payable on such share on such Dividend Payment Date by a
fraction the numerator of which shall be the number of days in such Dividend
Period such share was outstanding from and including its Date of Original Issue
or the preceding Dividend Payment Date, as the case may be, to and including the
day preceding such Dividend Payment Date, and the denominator of which shall be
365, then multiplying the amount so obtained by $50,000 (in the case of Series A
RP) or $25,000 (in the case of Series B RP and Series C RP) and rounding the
amount so obtained to the nearest cent. During any Long Term Dividend Period,
the amount of dividends per share payable on any Dividend Payment Date shall be
computed by dividing the Applicable Dividend Rate for such Dividend Period by
twelve, multiplying the amount so obtained by $50,000 (in the case of Series A
RP) or $25,000 (in the case of Series B RP and Series C RP), and rounding the
amount so obtained to the nearest cent; provided, however, that, if the number
of days from and including the Date of Original Issue or the preceding Dividend
Payment Date, as the case may be, to and including the day preceding such
Dividend Payment Date is less than 30 and such days do not constitute a full
calendar month, then the amount of dividends per share payable on such Dividend
Payment Date shall be computed by multiplying the Applicable Dividend Rate for
such Dividend Period by a fraction, the numerator of which will be such number
of days and the denominator of which will be 360, multiplying the amount so
obtained by $50,000 (in the case of Series A RP) or $25,000 (in the case of
Series B RP and Series C RP), and rounding the amount so obtained to the nearest
cent.
(g) No later than 12:00 noon, New York City time, on each Dividend
Payment Date, the Trust shall deposit in same-day funds with the Paying Agent
the full amount of any dividend declared and payable on such Dividend Payment
Date on any share of RP.
(h) The Applicable Dividend Rate for each Dividend Period commencing
during a Non-Payment Period shall be equal to the Non-Payment Period Rate and
any share of RP for
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which a Special Dividend Period would otherwise have commenced on the first day
of or during a Non-Payment Period shall have a 28-day Dividend Period (in the
case of Series A RP) or a 7-day Dividend Period (in the case of Series B RP and
Series C RP). Any amount of any dividend due on any Dividend Payment Date for
any shares of RP (if, prior to 12:00 noon, New York City time, on such Dividend
Payment Date, the Trust has declared such dividend payable on or within three
Business Days after such Dividend Payment Date to the Holders who held such
shares of RP as of 12:00 noon, New York City time, on the Business Day preceding
such Dividend Payment Date) or redemption price with respect to any shares of RP
not paid to Holders when due but paid to such Holders in the same form of funds
by 12:00 noon, New York City time, on any of the first three Business Days after
such Dividend Payment Date or due date, as the case may be, shall incur a late
charge to be paid therewith to such Holders and calculated for such period of
non-payment at the Non-Payment Period Rate applied to the amount of such
non-payment based on the actual number of days comprising such period divided by
365. If the Trust fails to pay a dividend on a Dividend Payment Date or to
redeem any shares of RP on the date set for such redemption (otherwise than
because it is prevented from doing so by these By-laws or by applicable law),
the preceding sentence shall not apply and the Applicable Dividend Rate for the
Dividend Period commencing during the Non-Payment Period resulting from such
failure shall be the Non-Payment Period Rate. For the purposes of the foregoing
and paragraphs 3(g) and 4(g) of this Part I of Section 12.1, payment to a person
in New York Clearing House (next-day) funds on any Business Day at any time
shall be considered equivalent to payment to such person in same-day funds at
the same time on the next Business Day, and any payment made after 12:00 noon,
New York City time, on any Business Day shall be considered to have been made
instead in the same form of funds and to the same person before 12:00 noon, New
York City time, on the next Business Day.
(i) Except during a Non-Payment Period, by 12:00 noon, New York City
time, on the Remarketing Date in the Remarketing at the end of the Initial
Dividend Period applicable to a share of RP, and by 12:00 noon, New York City
time, on the Remarketing Date in the Remarketing at the end of each subsequent
Dividend Period applicable to a share of RP, the Beneficial Owner of such share
of RP may elect to tender such share or hold such share for the next Dividend
Period to the extent provided in Part II of Section 12.1.
(j) The Trust may, at its sole option and to the extent permitted by
law, by telephonic or written notice (a "Request for Special Dividend Period")
to the Remarketing Agents, request that the next succeeding Dividend Period for
a series of RP be the number of days (other than 28, in the case of Series A RP,
or seven, in the case of Series B RP or Series C RP) evenly divisible by seven,
and not fewer than seven or more than 364 in the case of a Short Term Dividend
Period or one whole year or more but not greater than five years in the case of
a Long Term Dividend Period, specified in such notice, provided that the Trust
may not give a Request for Special Dividend Period of greater than 28 days, in
the case of Series A RP, or seven days, in the case of Series B RP or Series C
RP (and any such request shall be null and void) unless the Trust has given
written notice thereof to Moody's and S&P and unless, with respect to such
series of RP, full cumulative dividends, any amounts due with respect to
redemptions, and any Additional Dividends payable prior to such date have been
paid in full
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and, for any Remarketing occurring after the initial Remarketing, all shares
tendered were remarketed in the last occurring Remarketing. Such Request for
Special Dividend Period, in the case of a Short Term Dividend Period, shall be
given on or prior to the fourth Business Day but not more than seven Business
Days prior to a Remarketing Date and, in the case of a Long Term Dividend
Period, shall be given on or prior to the 14th day but not more than 28 days
prior to a Remarketing Date. Upon receiving such Request for a Special Dividend
Period, the Remarketing Agents shall determine (i) whether, given the factors
set forth below, it is advisable that the Trust issue a Notice of Special
Dividend Period for such RP as contemplated by such Request for Special Dividend
Period, (ii) the Optional Redemption Price of such RP during such Special
Dividend Period and (iii) the Specific Redemption Provisions and shall give the
Trust written notice (a "Response") of such determination by no later than the
third Business Day prior to such Remarketing Date. In making such determination
the Remarketing Agents will consider (1) existing short-term and long-term
market rates and indices of such short-term and long-term rates, (2) existing
market supply and demand for short-term and long-term securities, (3) existing
yield curves for short-term and long-term securities comparable to the RP, (4)
industry and financial conditions which may affect such RP, (5) the investment
objective of the Trust, and (6) the Dividend Periods and dividend rates at which
current and potential Beneficial Owners of such RP would remain or become
Beneficial Owners. If the Remarketing Agents shall not give the Trust a Response
by such third Business Day or if the Response states that given the factors set
forth above it is not advisable that the Trust give a Notice of Special Dividend
Period, the Trust may not give a Notice of Special Dividend Period in respect of
such Request for Special Dividend Period. In the event the Response indicates
that it is advisable that the Trust give a Notice of Special Dividend Period,
the Trust may by no later than the second Business Day prior to such Remarketing
Date give a notice (a "Notice of Special Dividend Period") to the Remarketing
Agents and to the Securities Depository which notice will specify (i) the
duration of the Special Dividend Period, (ii) the Optional Redemption Price as
specified in the related Response and (iii) the Specific Redemption Provisions,
if any, as specified in the related Response. The Trust shall not give a Notice
of Special Dividend Period and, if the Trust has given a Notice of Special
Dividend Period, the Trust is required to give telephonic or written notice of
its revocation (a "Notice of Revocation") to the Remarketing Agents (in the case
of clauses (x) and (y)) and the Securities Depository (in the case of clauses
(x), (y) and (z)) on or prior to the Business Day prior to the relevant
Remarketing Date if (x) either the 1940 Act RP Asset Coverage is not satisfied
or the Trust shall fail to maintain S&P Eligible Assets and Moody's Eligible
Assets each with an aggregate Discounted Value at least equal to the RP Basic
Maintenance Amount, in each case on each of the two Valuation Dates immediately
preceding the Business Day prior to the relevant Remarketing Date on an actual
basis and on a pro forma basis giving effect to the proposed Special Dividend
Period (using as a pro forma dividend rate with respect to such Special Dividend
Period the dividend rate which the Remarketing Agents shall advise the Trust is
an approximately equal rate for securities similar to the RP with an equal
dividend period), provided that (unless Moody's advises the Trust to the
contrary), in calculating the aggregate Discounted Value of Moody's Eligible
Assets for this purpose, the Moody's Exposure Period shall be deemed to be one
week longer than the Moody's Exposure Period that would otherwise apply as of
the date of the Notice of Special Dividend Period, (y)
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sufficient funds for the payment of dividends payable on the immediately
succeeding Dividend Payment Date for RP have not been irrevocably deposited with
the Paying Agent by the close of business on the third Business Day preceding
the relevant Remarketing Date or (z) the Remarketing Agents advise the Trust
that after consideration of the factors listed above, it is advisable to give a
Notice of Revocation. If the Trust is prohibited from giving a Notice of Special
Dividend Period as a result of any of the factors enumerated in clause (x), (y)
or (z) of the prior sentence or if the Trust gives a Notice of Revocation with
respect to a Notice of Special Dividend Period for RP, the next succeeding
Dividend Period will be a 28-day Dividend Period (in the case of Series A RP) or
a 7-day Dividend Period (in the case of Series B RP or Series C RP), provided
that if the then current Dividend Period for RP is a Special Dividend Period of
less than 28 days (in the case of Series A RP), the next succeeding Dividend
Period will be the same length as the current Dividend Period. In addition, in
the event all shares of RP tendered for which the Trust has given a Notice of
Special Dividend Period are not remarketed or a Remarketing for RP is not held
for any reason, the Trust may not again give a Notice of Special Dividend Period
with respect to RP (and any such attempted notice shall be null and void) until
all shares of such RP tendered in a subsequent Remarketing with respect to a
28-day Dividend Period (in the case of Series A RP) or a 7-day Dividend Period
(in the case of Series B RP or Series C RP) have been Remarketed.
(k) Simultaneously with the declaration of each dividend at the
Applicable Dividend Rate to a Holder determined as set forth in paragraph 3(a)
of this Part I of Section 12.1 (each, a "Paragraph 3(a) Dividend"), the Trustees
shall also declare a dividend to the same Holder consisting of one right (a
"Right") to receive an Additional Dividend in respect of such Paragraph 3(a)
Dividend. If, after the close of its fiscal year, the Trust characterizes all or
a portion of a Paragraph 3(a) Dividend paid on shares of RP during such previous
fiscal year as consisting of net capital gain or other income subject to regular
Federal income tax, without having either given advance notice to the
Remarketing Agents of the inclusion of such taxable income in such Paragraph
3(a) Dividend prior to the setting of the Applicable Dividend Rate for such
Paragraph 3(a) Dividend or included an additional amount in the Paragraph 3(a)
Dividend to offset the tax effect of the inclusion therein of such taxable
income, in each case as provided in paragraph 3(m) hereof, and the Trust so
characterizes all or a portion of the Paragraph 3(a) Dividend solely because (i)
the Trust has redeemed all or a portion of the outstanding shares of RP or the
Trust has liquidated and (ii) the Trust, in its judgment, believes it is
required, in order to comply with a published position of the Internal Revenue
Service concerning the allocation of different types of income between different
classes and series of shares, Rev. Rul. 89-81, 1989-1 C.B. 226, to allocate such
taxable income to the RP (the amount so characterized referred to herein as a
"Retroactive Taxable Allocation"), the Trust will, within 90 days after the end
of such fiscal year, provide notice of the Retroactive Taxable Allocation made
with respect to the Paragraph 3(a) Dividend to the Paying Agent and to each
Holder who received such Paragraph 3(a) Dividend and the corresponding Right, at
such Holder's address as the same appears or last appeared on the share books of
the Trust. The Trust will, within 30 days after such notice is given to the
Paying Agent, pay to the Paying Agent (who will then distribute to such holders
of Rights), out of funds legally available therefor, an amount equal to the
aggregate of the Additional Dividends payable in respect of
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such Retroactive Taxable Allocation. The Trust may direct the Paying Agent to
invest any such available funds in Deposit Securities (provided that such
Deposit Securities are also rated at least P-1, MIG-1 or VMIG-1 by Moody's)
provided that the proceeds of any such investment will be available in The City
of New York at the opening of business on the payment date for such Additional
Dividends. All such funds (to the extent necessary to pay the full amount of
such Additional Dividends) shall be held in trust for the benefit of the holders
of Rights. An Additional Dividend or Additional Dividends declared in respect of
a Right shall be paid to the Holder that received such Right, whether or not
such Holder continues to own the shares of RP in respect of which such Right was
issued. Rights shall be nontransferable except by operation of law, and no
purported transfer of a Right will be recognized by the Trust. No certificates
will be issued evidencing Rights.
An "Additional Dividend" in respect of any Paragraph 3(a) Dividend
means payment to a present or former Holder of a share of RP of an amount which,
giving effect to the Retroactive Taxable Allocation made with respect to such
Paragraph 3(a) Dividend, would cause such Holder's after-tax return (taking into
account both the Paragraph 3(a) Dividend and the Additional Dividend and
assuming such Holder is taxable at the Gross-Up Tax Rate) to be equal to the
after-tax return which the Holder would have realized if the retroactive
allocation of taxable income had not been made. Such Additional Dividend shall
be calculated (i) without consideration being given to the time value of money;
(ii) assuming that no Holder or former Holder of shares of RP is subject to the
Federal alternative minimum tax with respect to dividends received from the
Trust; and (iii) assuming that the Holder of the share of RP in respect of which
a Retroactive Taxable Allocation was made is taxable at the Gross-Up Tax Rate.
An Additional Dividend will not include an amount to compensate for the fact
that the Additional Dividend or the retroactive allocation of taxable income may
be subject to state and local taxes. The Gross-Up Tax Rate shall be equal to the
sum of (i) the percentage of the taxable income included in the Paragraph 3(a)
Dividend that is taxable for Federal income tax purposes as ordinary income,
multiplied by the greater of (A) the highest marginal Federal corporate income
tax rate (without regard to the phase-out of graduated rates) applicable to
ordinary income and (B) the highest marginal Federal individual income tax rate
applicable to ordinary income (including any surtax but without regard to any
phase-out of personal exemptions or any limitation on itemized deductions), and
(ii) the percentage of the taxable income included in the Paragraph 3(a)
Dividend that is taxable for Federal income tax purposes as long-term capital
gain, multiplied by the greater of (A) the highest marginal Federal corporate
income tax rate (without regard to the phase-out of graduated rates) applicable
to long-term capital gain and (B) the highest marginal Federal individual income
tax rate applicable to long-term capital gain (including any surtax, but without
regard to any phase-out of personal exemptions or any limitation on itemized
deductions).
Except as provided above, no Additional Dividend shall for any reason
be payable in respect of any Paragraph 3(a) Dividend previously paid to a
Holder. In particular, and without limiting the generality of the foregoing, no
Additional Dividend shall be payable as a result of any Internal Revenue Service
challenge to, among other things, the characterization of the RP as equity, the
Trust's method of allocating various types of income between dividends paid on
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different classes or series of shares or between dividends paid on the same
class or series of shares, or the designations made by the Trust relating to
distributions made with respect to an earlier taxable year.
(l) The Trustees may in their sole discretion from time to time declare
a special dividend (each, a "special dividend") in an amount determined in their
sole judgment to be necessary or desirable to cause the Trust to comply with any
distribution requirements of the Code and thereby to avoid the incurrence by the
Trust of any income or excise tax under the Code, provided that the Trustees
shall not declare a special dividend if the declaration thereof causes the Trust
to fail to maintain the RP Basic Maintenance Amount or the 1940 Act RP Asset
Coverage. Any such special dividend shall be payable on a date specified by the
Trustees to Holders of record on a date specified by the Trustees consistent
with these Bylaws. The Trust shall deposit with the Paying Agent sufficient
funds for the payment of any such special dividend not later than noon on the
Business Day immediately preceding the date on which such special dividend
becomes payable and shall give the Paying Agent irrevocable instructions to
apply such funds and, if applicable, the income and proceeds therefrom, to
payment of such special dividends. The Trust may direct the Paying Agent to
invest any such available funds in Deposit Securities (provided that such
Deposit Securities are also rated at least P-1, MIG-1 or VMIG-1 by Moody's)
provided that the proceeds of any such investment will be available in The City
of New York at the opening of business on the payment date for such special
dividend. All such funds (to the extent necessary to pay the full amount of such
special dividend) shall be held in trust for the benefit of the Holders.
(m) Whenever the Trust intends to include any net capital gain or other
income subject to regular Federal income tax in a dividend on shares of RP
solely because the Trust, in its judgment, believes it is required, in order to
comply with Rev. Rul. 89-81 described in paragraph 3(k) of this Part I of
Section 12.1, to allocate taxable income to shares of RP, the Trust may notify
the Remarketing Agents of the amount to be so included at least five Business
Days prior to the Remarketing Date on which the Applicable Dividend Rate for
such dividend is to be established. In the event the Trust has provided such
notice to the Remarketing Agents, yet, after giving such notice and prior to
paying the dividend the Trust intends to include additional income subject to
regular Federal income tax beyond the amount set forth in such Notice in such
dividend because the Trust, in its sole judgment, believes it is required, in
order to comply with such Rev. Rul. 89-81, to allocate such additional income to
such shares of the series of RP, the Trust will (i) increase the dividend by an
amount such that
the return to a Holder of RP with respect to such dividend (as so increased and
after giving effect to Federal income tax at the Gross-Up Tax Rate) shall equal
the return such Holder of RP would have received, after application of Federal
income tax, if such additional amount of taxable income had not been included in
such dividend (and such dividend had not been increased to take account of any
additional amount of taxable income) and (ii) notify the Paying Agent of the
additional amount to be included in the dividend at least five Business Days
prior to the applicable Dividend Payment Date. Alternatively, if the Trust has
not provided the notice referred to in the second preceding sentence, yet
nevertheless prior to paying the dividend intends to include income subject to
regular Federal income tax in a dividend on shares of RP
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solely because the Trust, in its judgment, believes it is required, in order to
comply with such Rev. Rul. 89-81, to allocate such income to shares of RP, the
Trust will (i) increase the dividend by an amount such that the return to a
Holder of RP with respect to such dividend (as so increased and after giving
effect to tax at the Gross-Up Tax Rate) equals the Applicable Dividend Rate and
(ii) notify the Paying Agent of the additional amount to be included in the
dividend at least five Business Days prior to the applicable Dividend Payment
Date. The Trust will not be required to notify any Holder of RP of the
prospective inclusion of, or to increase any dividend as a result of the
inclusion of, any taxable income in any dividend other than as provided in this
paragraph 3(m) or in paragraph 3(k) of this Part I of Section 12.1.
4. Redemption. Shares of RP shall be redeemable by the Trust as
provided below:
(a) To the extent permitted under the 1940 Act, upon giving a Notice of
Redemption, the Trust at its option may redeem shares of any series of RP, in
whole or in part, on the next succeeding scheduled Dividend Payment Date
applicable to those shares of RP called for redemption, out of funds legally
available therefor, at the Optional Redemption Price per share; provided that no
share of RP shall be subject to redemption pursuant to this paragraph 4(a) on
any Dividend Payment Date during (A) the Initial Dividend Period with respect to
such share or (B) a Non-Call Period to which such share is subject; and provided
further that the Trust shall effect no redemption pursuant to this paragraph
4(a) if as a result of such redemption the Trust shall have failed to maintain
S&P Eligible Assets and Moody's Eligible Assets with an aggregate Discounted
Value at least equal to the RP Basic Maintenance Amount or to maintain the 1940
Act RP Asset Coverage. For so long as S&P rates any series of RP, the Trust may
not give a Notice of Redemption relating to an optional redemption as described
in paragraph 4(a) unless, at the time of giving such Notice of Redemption, the
Trust has available Deposit Securities with maturity or tender dates not later
than the day preceding the applicable redemption date and having a Discounted
Value not less than the amount due to Holders by reason of the redemption of
shares of such series of RP on such redemption date.
(b) The Trust shall redeem, out of funds legally available therefor, at
the Mandatory Redemption Price per share, certain of the shares of RP, to the
extent permitted under the 1940 Act, if the Trust fails to maintain S&P Eligible
Assets and Moody's Eligible Assets with an aggregate Discounted Value at least
equal to the RP Basic Maintenance Amount or to maintain the 1940 Act RP Asset
Coverage and such failure is not cured on or before the RP Basic Maintenance
Cure Date or the 1940 Act Cure Date (each herein referred to as a "Cure Date"),
as the case may be. The number of shares of RP to be redeemed shall be equal to
the lesser of (i) the minimum number of shares of all series of RP the
redemption of which, if deemed to have occurred immediately prior to the opening
of business on the Cure Date, together with all other Preferred Shares subject
to redemption or retirement, would result in the satisfaction of the RP Basic
Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, on
such Cure Date (provided that, if there is no such minimum number of shares of
all series of RP and other Preferred Shares the redemption of which would have
such result, all shares of all series of RP then outstanding shall be redeemed)
and (ii) the maximum number of shares of RP, together with all other Preferred
Shares subject to redemption or retirement, that can be
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redeemed out of funds expected to be legally available therefor. In determining
the number of shares of RP required to be redeemed in accordance with the
foregoing, the Trust shall allocate the number required to be redeemed to
satisfy the RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage, as
the case may be, pro rata among shares of all series of RP and other Preferred
Shares (as determined by the liquidation preferences of such series of RP and
other Preferred Shares) subject to redemption provisions similar to those
contained in this paragraph 4(b). The Trust shall effect such redemption not
later than 35 days after such Cure Date, except that if the Trust does not have
funds legally available for the redemption of all of the required number of
shares of all series of RP and other Preferred Shares which are subject to
mandatory redemption or the Trust otherwise is unable to effect such redemption
on or prior to 35 days after such Cure Date, the Trust shall redeem those shares
of all series of RP and other Preferred Shares which it was unable to redeem on
the earliest practicable date on which it is able to effect such redemption.
Any share of RP shall be subject to mandatory redemption regardless of
whether such share is subject to a Non-Call Period, provided that shares of RP
subject to a Non-Call Period will only be subject to redemption to the extent
that the other shares of such series of RP not subject to a Non-Call Period or
other Preferred Shares are not available to satisfy the number of shares
required to be redeemed. In such event, such shares subject to a Non-Call Period
will be selected for redemption in an ascending order of outstanding Non-Call
Period (with shares with the lowest number of days remaining in the respective
Dividend Period to be called first) and by lot in the event of equal outstanding
Non-Call Periods.
(c) Subject to paragraph 4(d) of this Part I of Section 12.1, if fewer
than all the outstanding shares of any series of RP are to be redeemed pursuant
to this paragraph 4, the number of such shares of such series of RP so to be
redeemed shall be a whole number of shares and shall be determined by the
Trustees, and the Trust shall give a Notice of Redemption as provided in
paragraph 4(e) of this Part I, provided that no such share of RP will be subject
to optional redemption on any Dividend Payment Date during a Non-Call Period to
which it is subject and shares of RP subject to a Non-Call Period will be
subject to mandatory redemption only on the basis described under paragraph 4(b)
of this Part I. Unless certificates representing shares of RP are held by
Holders other than the Securities Depository or its nominee, the Securities
Depository, upon receipt of such notice, shall determine by lot (or otherwise in
accordance with procedures in effect at the time which shall be consistent with
the 1940 Act) the number of shares of such series of RP to be redeemed from the
account of each Agent Member (which may include an Agent Member, including a
Remarketing Agent, holding shares for its own account) and notify the Paying
Agent of such determination. The Paying Agent, upon receipt of such notice,
shall in turn determine by lot the number of shares of such series of RP to be
redeemed from the accounts of the Beneficial Owners of the shares of such series
of RP whose Agent Members have been selected by the Securities Depository and
give notice of such determination to the Remarketing Agents. In doing so, the
Paying Agent may determine that shares of RP shall be redeemed from the accounts
of some Beneficial Owners, which may include the Remarketing Agents, without
shares of RP being redeemed from the accounts of other Beneficial Owners.
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(d) Notwithstanding paragraph 4(c) of this Part I, if any certificates
representing shares of any series of RP are held by Holders other than the
Securities Depository or its nominee, then the shares of such series of RP to be
redeemed shall be selected by the Paying Agent by lot.
(e) Any Notice of Redemption with respect to shares of RP shall be
given (A) in the case of a redemption pursuant to paragraph 4(a) of this Part I,
by the Trust to the Paying Agent, the Securities Depository (and any other
Holder) and the Remarketing Agents, by telephone, not later than 1:00 p.m. New
York City time (and later confirmed in writing) not less than 20 nor more than
30 days prior to the earliest date upon which any such redemption may occur and
(B) in the case of a mandatory redemption pursuant to paragraph 4(b) of this
Part I, by the Trust to the Paying Agent, the Securities Depository (and any
other Holder) and the Remarketing Agents, by telephone, not later than 1:00
p.m., New York City time (and later confirmed in writing) not less than 20 nor
more than 30 days prior to the redemption date established by the Trustees and
specified in such notice. In the case of a partial redemption of the shares of
any series of RP, the Paying Agent shall use its reasonable efforts to provide
telephonic notice to each Beneficial Owner of shares of RP called for redemption
not later than the close of business on the Business Day on which the Paying
Agent determines the shares to be redeemed, as described in paragraphs 4(c) and
4(d) of this Part I of Section 12.1 (or, during a Non-Payment Period with
respect to such shares, not later than the close of business on the Business Day
immediately following the day on which the Paying Agent receives a Notice of
Redemption from the Trust). Such telephonic notice shall be confirmed promptly
in writing to the Remarketing Agents, the Securities Depository and each
Beneficial Owner of shares of RP called for redemption not later than the close
of business on the Business Day immediately following the day on which the
Paying Agent determines the shares to be redeemed. In the case of a redemption
in whole of the shares of any series of RP, the Paying Agent shall use its
reasonable efforts to provide telephonic notice to each Beneficial Owner of
shares of RP called for redemption not later than the close of business on the
Business Day immediately following the day on which it receives a Notice of
Redemption from the Trust. Such telephonic notice shall be confirmed promptly in
writing to each Beneficial Owner of shares of RP called for redemption, the
Remarketing Agents and the Securities Depository not later than the close of
business on the second Business Day following the day on which the Paying Agent
receives a Notice of Redemption.
(f) Every Notice of Redemption and other redemption notice shall state:
(i) the redemption date; (ii) the number of shares of RP to be redeemed; (iii)
the redemption price; (iv) that dividends on the shares of RP to be redeemed
shall cease to accumulate as of such redemption date; and (v) the provision of
the Declaration of Trust or the By-laws pursuant to which such shares are being
redeemed. In addition, notice of redemption given to a Beneficial Owner by the
Paying Agent shall state the CUSIP number, if any, of the shares of RP to be
redeemed and the manner in which the Beneficial Owners of such shares may obtain
payment of the redemption price. No defect in the Notice of Redemption or other
redemption notice or in the transmittal or the mailing thereof shall affect the
validity of the redemption proceedings,
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except as required by applicable law. The Paying Agent shall use its reasonable
efforts to cause the publication of a Notice of Redemption in an Authorized
Newspaper within two Business Days of the date of the Notice of Redemption, but
failure so to publish such notification shall not affect the validity or
effectiveness of any such redemption proceedings.
(g) On any redemption date, the Trust shall deposit, irrevocably in
trust, in same-day funds, with the Paying Agent, by 12:00 noon, New York City
time, the Optional Redemption Price or Mandatory Redemption Price, as the case
may be, for each share of RP called for redemption.
(h) In connection with any redemption, upon the giving of a Notice of
Redemption and the deposit of sufficient funds necessary for such redemption
with the Paying Agent in accordance with this paragraph 4, shares of RP so
called for redemption shall no longer be deemed outstanding for any purpose and
all rights of the Holders of shares of RP so called for redemption shall cease
and terminate, except the right of the Holders thereof to receive the Optional
Redemption Price or the Mandatory Redemption Price, as the case may be, but
without any interest or other additional amount (except as provided in paragraph
3(k) of this Part I of Section 12.1). The Trust shall be entitled to receive
from the Paying Agent, promptly after the date fixed for redemption, any cash
deposited with the Paying Agent as aforesaid in excess of the sum of (i) the
aggregate redemption price of the shares of RP called for redemption on such
date and (ii) all other amounts to which Holders of shares of RP called for
redemption may be entitled. The Trust shall be entitled to receive, from time to
time after the date fixed for redemption, any interest on any funds deposited in
respect of such redemption. Any funds so deposited with the Paying Agent which
are unclaimed at the end of ninety days from such redemption date shall, to the
extent permitted by law, be repaid to the Trust, after which time the Holders of
shares of RP so called for redemption shall look only to the Trust for payment
of the redemption price and all other amounts to which they may be entitled. For
so long as S&P rates any series of RP, if any such unclaimed funds relating to
shares of such series of RP are repaid to the Trust, the Trust shall invest such
unclaimed funds in Deposit Securities with a maturity of no more than one
Business Day until such time as there are no unclaimed funds.
(i) To the extent that any redemption for which Notice of Redemption
has been given 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 RP shall be deemed to
exist at any time after the date specified for redemption in a Notice of
Redemption when the Trust shall have failed, for any reason whatsoever, to
deposit funds with the Paying Agent pursuant to paragraph 4(g) of this Part I of
Section 12.1 with respect to any shares for which such Notice of Redemption has
been given.
(j) Notwithstanding any of the foregoing provisions of this paragraph
4, the Remarketing Agents may, in their sole discretion, modify the procedures
set forth above with respect to notification of redemption, provided that any
such modification does not adversely affect any Holder of shares of RP or
materially alter the obligations of the Paying Agent or the
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Fund; and further provided that the Trust receives written confirmation from S&P
or Moody's that any such modification would not impair the ratings then assigned
by S&P or Moody's to shares of any series of RP.
(k) In effecting any redemption pursuant to this paragraph 4, the Trust
shall use all reasonable efforts to satisfy all applicable procedural conditions
precedent to effecting such redemption under the 1940 Act and Massachusetts law.
(l) Notwithstanding the foregoing, (i) no share of RP may be redeemed
pursuant to paragraph 4(a) of this Part I of Section 12.1 unless the full amount
of accumulated but unpaid dividends to the date fixed for redemption for each
such share of RP called for redemption shall have been declared, and (ii) no
share of RP may be redeemed unless all outstanding shares of such series of RP
are simultaneously redeemed, nor may any shares of RP be purchased or otherwise
acquired by the Trust except in accordance with a purchase offer made on
substantially equivalent terms by the Trust for all outstanding shares of RP,
unless, in each such instance, dividends (other than dividends, if any, to be
paid pursuant to paragraph 3(k) or 3(l) of this Part I of Section 12.1 which
have not yet become due and payable) on all outstanding shares of RP through the
most recent Dividend Payment Date shall have been paid or declared and
sufficient funds for the payment thereof deposited with the Paying Agent.
(m) Except as set forth in this paragraph 4 with respect to redemptions
and subject to paragraph 4(l) of this Part I of Section 12.1, nothing contained
herein shall limit any legal right of the Trust or any affiliate to purchase or
otherwise acquire any share of RP at any price. Any shares of RP which have been
redeemed, purchased or otherwise acquired by the Trust or any affiliate thereof
may be resold if, after the resale, the Trust has Moody's Eligible Assets with
an aggregate Discounted Value equal to or greater than the RP Basic Maintenance
Amount as provided in Paragraph 8(a) of this Part I of Section 12.1. In lieu of
redeeming shares called for redemption, the Trust shall have the right to
arrange for other purchasers to purchase from Holders all shares of RP to be
redeemed pursuant to this paragraph 4, except those shares of RP to be redeemed
pursuant to paragraph 4(b) of this Part I of Section 12.1, by their paying to
such Holders on or before the close of business on the redemption date an amount
equal to not less than the redemption price payable by the Trust on the
redemption of such shares, and the obligation of the Trust to pay such
redemption price shall be satisfied and discharged to the extent such payment is
so made by such purchasers. Prior to the purchase of such shares by such
purchasers, the Trust shall notify each purchaser that such shares have been
called for redemption.
5. Liquidation.
(a) Upon a liquidation, dissolution or winding up of the affairs of the
Trust, whether voluntary or involuntary, the Holders of each share of RP shall
be entitled, whether from capital or surplus, before any assets of the Trust
shall be distributed among or paid over to holders of Common Shares or any other
class or series of shares of the Trust ranking junior to the RP as to
liquidation payments, to be paid the amount of $50,000 per share of Series A RP,
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and $25,000 per share of Series B RP and Series C RP, as the case may be, plus
in the case of each series of RP an amount equal to all accumulated but unpaid
dividends thereon (whether or not earned or declared) to but excluding the date
of final distribution, in same-day funds. After any such payment, the Holders
shall not be entitled to any further participation in any distribution of assets
of the Trust, except as provided in paragraph 3(k) of this Part I of Section
12.1.
(b) If, upon any such liquidation, dissolution or winding up of the
Trust, the assets of the Trust shall be insufficient to make such full payments
to the Holders of shares of RP and the holders of any Preferred Shares ranking
as to liquidation, dissolution or winding up on a parity with the RP, then such
assets shall be distributed among the Holders of shares of each series of RP and
such parity holders ratably in accordance with the respective amounts which
would be payable on such shares of RP and any other such parity Preferred Shares
if all amounts thereof were paid in full.
(c) Neither the consolidation nor the merger of the Trust with or into
any other entity or entities nor a reorganization of the Trust alone nor the
sale, lease or transfer by the Trust of all or substantially all of its assets
shall be deemed to be a dissolution or liquidation of the Trust.
6. Voting Rights.
(a) General. Except as otherwise provided in the Declaration of Trust
or By-laws, each Holder of shares of RP and each record holder of Common Shares
shall be entitled to one vote for each share held on each matter submitted to a
vote of shareholders of the Trust, and the holders of outstanding Preferred
Shares, including each series of RP, and of Common Shares shall vote together as
a single class; provided that, at any meeting of the shareholders of the Trust
held for the election of Trustees, the holders of Preferred Shares, including
each series of RP, present in person or represented 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 shares of the Trust, to elect two Trustees of
the Trust, each Preferred Share, including each share of each series of RP,
entitling the holder thereof to one vote. Subject to paragraph 6(b) of this Part
I of Section 12.1, the holders of outstanding Common Shares and Preferred
Shares, including each series of RP, voting as a single class, shall elect the
balance of the Trustees.
(b) Right to Elect Majority of Trustees. During any period in which any
one or more of the conditions described below shall exist (such period being
referred to herein as a "Voting Period"), the number of Trustees shall be
automatically increased by the smallest number that, when added to the two
Trustees elected exclusively by the holders of Preferred Shares (including each
series of RP), would constitute a majority of the Trustees as so increased by
such smallest number; and the holders of Preferred Shares (including each series
of RP) 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
shares of the Trust), to elect such smallest number of
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additional Trustees, together with the two Trustees that such holders are in any
event entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or
declared, and whether or not funds are then legally available
in an amount sufficient therefor) on the outstanding shares of
any series of RP equal to at least two full years' dividends
shall be due and unpaid and sufficient cash or securities
shall not have been deposited with the Paying Agent for the
payment of such accumulated dividends; or
(ii) if at any time holders of any Preferred Shares other than the
RP are entitled to elect a majority of the Trustees of the
Trust.
Upon the termination of a Voting Period, the voting rights described in this
paragraph 6(b) 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 paragraph 6(b). A Voting Period shall terminate when all
dividends in arrears shall have been paid or otherwise provided for.
(c) Other Actions. Except as otherwise provided herein, so long as any
shares of RP are outstanding, the Trust shall not, without the affirmative vote
or consent of the Holders of at least a majority of the shares of RP outstanding
at the time, in person or by proxy, either in writing or at a meeting (voting
separately as one class): (i) authorize, create or issue, or increase or
decrease the authorized or issued amount of, any class or series of shares of
beneficial interest ranking prior to or on a parity with the RP with respect to
payment of dividends or the distribution of assets on liquidation, or increase
or decrease the number of authorized Preferred Shares (although the Trust may,
to the extent of the amount of Preferred Shares authorized from time to time,
issue additional shares of RP or other series of Preferred Shares on a parity
with the RP with respect to payment of dividends and the distribution of assets
on liquidation (including Preferred Shares with different dividend rates and
periods) without such vote or consent); (ii) amend, alter or repeal the
provisions of the Declaration of Trust and the By-laws, including this Section
12.1, whether by merger, consolidation or otherwise, so as to affect materially
and adversely any preference, right or power of such shares of RP or the Holders
thereof; or (iii) take any other action (including without limitation bankruptcy
proceedings) which pursuant to Section 18(a)(2)(D) of the 1940 Act requires such
approval by the Holders; provided that (i) the issuance of not more than the
6,000 Preferred Shares presently authorized and (ii) the creation and issuance
of series of Preferred Shares ranking junior to the RP with respect to payment
of dividends and the distribution of assets on liquidation, will not be deemed
to affect such preferences, rights or powers unless such issuance would, at the
time thereof, cause the Trust not to satisfy the 1940 Act RP Asset Coverage or
the RP Basic Maintenance Amount.
In the event of an amendment, alteration or repeal of the provisions of
the Declaration of Trust or the By-Laws, whether by merger, consolidation or
otherwise, so as to affect materially and adversely any preference, right or
power of shares of any series of RP or the
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Holders thereof, the affirmative vote or consent of the Holders of at least a
majority of the outstanding shares of such series, in person or by proxy, either
in writing or at a meeting voting as a separate series shall be required.
The foregoing voting provisions shall not apply with respect to shares
of RP if, at or prior to the time when a vote is required, such shares of RP
shall have been (i) redeemed or (ii) called for redemption and sufficient funds
(in the form of cash or Municipal Bonds rated at least P-1, MIG-1 or VMIG-1 by
Moody's and which mature prior to the redemption date) shall have been deposited
in trust to effect such redemption.
Notwithstanding the foregoing, the Trustees may, without the vote or
consent of the Holders of any series of RP, from time to time amend, alter or
repeal any or all of the provisions of paragraphs 12(a), 12(b), 12(c), 13(a) and
13(b) of this Part I of Section 12.1, as well as any or all of the definitions
of the terms listed below, and any such amendment, alteration or repeal will be
deemed not to affect the preferences, rights or powers of shares of RP or the
Holders thereof, provided the Trustees receive written confirmation from
Moody's, in the case of any such action with respect to paragraphs 12(b), 12(c),
13(a) and 13(b), or from S&P, in the case of any such action with respect to
paragraphs 12(a), 13(a) and 13(b), or from both Moody's and S&P, in the case of
any such action with respect to the definitions of the terms listed below, that
any such amendment, alteration or repeal would not impair the ratings then
assigned to any series of RP by the rating agency providing such confirmation:
Accountant's Confirmation Municipal Bonds
Anticipation Notes Municipal Index
Closing Transactions Non-Payment Period Rate
Deposit Securities Quarterly Valuation Date
Discounted Value Receivables for Municipal
Forward Commitments Bonds Sold
Independent Accountant RP Basic Maintenance Amount
Initial Margin RP Basic Maintenance Cure Date
Market Value RP Basic Maintenance Report
Maximum Potential Additional S&P Discount Factor
Dividend Liability S&P Eligible Asset
Moody's Discount Factor S&P Hedging Transaction
Moody's Eligible Asset S&P Exposure Period
Moody's Hedging Transaction S&P Volatility Factor
Moody's Exposure Period Treasury Bonds
Moody's Volatility Factor Valuation Date
1940 Act Cure Date Variation Margin
1940 Act RP Asset Coverage
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(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Shares (including shares of
each series of RP) to elect additional Trustees as described
in paragraph 6(b) above, the Trust shall notify the Paying
Agent and the Paying 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 Trust fails to send such notice to the Paying Agent or if
the Paying Agent does not call such a special meeting, it may
be called by any such holder on like notice. The record date
for determining the holders entitled to notice of and to vote
at such special meeting shall be the close of business on the
fifth Business Day preceding the day on which such notice is
mailed. At any such special meeting and at each meeting held
during a Voting Period, such holders, voting together as a
class (to the exclusion of the holders of all other securities
and classes of capital shares of the Trust), shall be entitled
to elect the number of Trustees prescribed in paragraph 6(b)
above on a one-vote-per-share basis. At any such meeting or
adjournment thereof in the absence of a quorum, a majority of
such holders present in person or by proxy shall have the
power to adjourn the meeting without notice, other than an
announcement at the meeting, until a quorum is present.
(ii) For purposes of determining any rights of the Holders of
shares of any series of RP to vote on any matter, whether such
right is created by this Section 12.1, by the other provisions
of the Declaration of Trust or the By-laws, by statute or
otherwise, no Holder of shares of any series of RP shall be
entitled to vote and no share of any series of RP 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,
sufficient funds (in the form of cash or Municipal Bonds rated
at least P-1, MIG-1 or VMIG-1 by Moody's and A-1+ or SP-1+ by
S&P and which mature prior to the redemption date) for the
redemption of such shares have been deposited in trust with
the Paying Agent for that purpose and the requisite Notice of
Redemption with respect to such shares shall have been given
as provided in paragraph 4 of this Part I of Section 12.1. No
share of RP held by the Trust or any affiliate of the Trust
shall have any voting rights or be deemed to be outstanding
for voting purposes.
(iii) The terms of office of all persons who are Trustees of the
Trust at the time of a special meeting of Holders of shares of
RP and holders of other Preferred Shares to elect Trustees
shall continue, notwithstanding the
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election at such meeting by the Holders of shares of RP and
such other holders of the number of Trustees that
they are entitled to elect, and the persons so elected by the
Holders of shares of RP and such other holders of Preferred
Shares, together with the two incumbent Trustees elected by
the Holders of shares of RP and such other holders of
Preferred Shares and the remaining incumbent Trustees elected
by the holders of the Common Shares and Preferred Shares,
shall constitute the duly elected Trustees of the Trust.
(iv) Simultaneously with the expiration of a Voting Period, the
terms of office of the additional Trustees elected by the
Holders of shares of RP and holders of other Preferred Shares
pursuant to paragraph 6(b) of this Part I of Section 12.1
shall terminate, the remaining Trustees shall constitute the
Trustees of the Trust and the voting rights of the Holders of
shares of RP and such other holders to elect additional
Trustees pursuant to paragraph 6(b) of this Part I of Section
12.1 shall cease, subject to the provisions of the penultimate
sentence of paragraph 6(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
shares of RP shall not have any relative rights or preferences or other special
rights other than those specifically set forth herein. The Holders of shares of
RP shall have no preemptive rights or rights to cumulative voting. In the event
that the Trust fails to pay any dividends on the shares of RP, the exclusive
remedy of the Holders of shares of RP shall be the right to vote for Trustees
pursuant to the provisions of this paragraph 6. In no event shall the Holders of
shares of RP have any right to sue for, or bring a proceeding with respect to,
such dividends or redemptions or damages for the failure to receive any
dividends or the proceeds of a redemption.
(f) Notification to Moody's and S&P. In the event a vote of Holders of
shares of RP is required pursuant to the provisions of Section 13(a) of the 1940
Act, the Trust shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify Moody's and S&P that such vote is to be
taken, the nature of the action with respect to which such vote is to be taken
and, not later than 10 Business Days following the vote, the results of the
vote.
7. 1940 Act RP Asset Coverage. The Trust shall maintain, as of the last
Business Day of each month in which any share of RP is outstanding, the 1940 Act
RP Asset Coverage.
8. RP Basic Maintenance Amount.
(a) The Trust shall maintain, on each Valuation Date, and shall verify
to its satisfaction that it is maintaining on such Valuation Date, S&P Eligible
Assets having an aggregate Discounted Value equal to or greater than the RP
Basic Maintenance Amount and Moody's Eligible Assets having an aggregate
Discounted Value equal to or greater than the RP Basic Maintenance Amount. Upon
any failure to maintain the required Discounted Value, the Trust
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will use its best efforts to alter the composition of its portfolio to reattain
the RP Basic Maintenance Amount on or prior to the RP Basic Maintenance Cure
Date. If, on any Valuation Date, the Trust shall have Moody's Eligible Assets
with a Discounted Value which exceeds the RP Basic Maintenance Amount by not
more than 5%, the Adviser shall not alter the composition of the Trust's
portfolio unless it determines that such action will not cause the Trust to have
Moody's Eligible Assets with a Discounted Value less than the RP Basic
Maintenance Amount.
(b) The Trust will deliver an RP Basic Maintenance Report to the
Remarketing Agents, the Paying Agent, Moody's and S&P as of (i) each Quarterly
Valuation Date, (ii) the first day of a Special Dividend Period, and (iii) any
other time when specifically requested by either Moody's or S&P, in each case at
or before 5:00 p.m., New York City time, on the third Business Day after such
day.
(c) At or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Trust fails to maintain Moody's Eligible
Assets or S&P Eligible Assets, as the case may be, with an aggregate Discounted
Value which exceeds the RP Basic Maintenance Amount by 5% or more or to satisfy
the RP Basic Maintenance Amount, the Trust shall complete and deliver to the
Remarketing Agents, the Paying Agent, Moody's and S&P an RP Basic Maintenance
Report as of the date of such failure.
(d) At or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Trust cures any failure to satisfy the
RP Basic Maintenance Amount, the Trust shall complete and deliver to the
Remarketing Agents, the Paying Agent, Moody's and S&P an RP Basic Maintenance
Report as of the date of such cure.
(e) An RP Basic Maintenance Report or Accountant's Confirmation will be
deemed to have been delivered to the Remarketing Agents, the Paying Agent,
Moody's and S&P if the Remarketing Agents, the Paying Agent, Moody's and S&P
receive a copy or telecopy, telex or other electronic transcription thereof and
on the same day the Trust mails to the Remarketing Agents, the Paying Agent,
Moody's and S&P for delivery on the next Business Day the full RP Basic
Maintenance Report. A failure by the Trust to deliver an RP Basic Maintenance
Report under subparagraph (b), (c) or (d) of this paragraph 8 shall be deemed to
be delivery of an RP Basic Maintenance Report indicating that the Discounted
Value for all assets of the Trust is less than the RP Basic Maintenance Amount,
as of the relevant Valuation Date.
(f) Within ten Business Days after the date of delivery to the
Remarketing Agents, the Paying Agent, S&P and Moody's of an RP Basic Maintenance
Report in accordance with paragraph 8(b) above relating to a Quarterly Valuation
Date, the Independent Accountant will confirm in writing to the Remarketing
Agents, the Paying Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and, in any other RP Basic Maintenance
Report that was delivered by the Trust during the quarter ending on such
Quarterly Valuation Date, if any, with such RP Basic Maintenance Report to be
randomly selected by the Independent Accountant); (ii) that, in such Report (and
in such randomly
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selected Report, if any), (a) the Trust determined in accordance with this
Section 12.1 whether the Trust had, at such Quarterly Valuation Date (and at the
Valuation Date addressed in such randomly selected Report, if any), S&P Eligible
Assets of an aggregate Discounted Value at least equal to the RP Basic
Maintenance Amount and Moody's Eligible Assets of an aggregate Discounted Value
at least equal to the RP Basic Maintenance Amount, and (b) it has obtained
confirmation from the Pricing Service that the Market Value of portfolio
securities as determined by the Pricing Service equals the mean between the
quoted bid and asked prices or the yield equivalent (when quotations are readily
available); (iii) that the Trust has excluded from the RP Basic Maintenance
Report assets not qualifying as Eligible Assets; and (iv) with respect to such
confirmation to Moody's, that the Trust has satisfied the requirements of
paragraph 12(b) of this Part I of Section 12.1 as of the Quarterly Valuation
Date (and at the Valuation Date addressed in such randomly selected Report, if
any) (such confirmation is herein called the "Accountant's Confirmation"). In
preparing the Accountant's Confirmation, the Independent Accountant shall be
entitled to rely, without further investigation, on such interpretations of law
by the Trust as may have been necessary for the Trust to perform the
computations contained in the RP Basic Maintenance Report.
(g) Within ten Business Days after the date of delivery to the
Remarketing Agents, the Paying Agent, S&P and Moody's of an RP Basic Maintenance
Report in accordance with paragraph 8(c) above relating to any Valuation Date on
which the Trust failed to satisfy the RP Basic Maintenance Amount, the
Independent Accountant will provide to the Remarketing Agents, the Paying Agent,
S&P and Moody's an Accountant's Confirmation as to such RP Basic Maintenance
Report.
(h) Within ten Business Days after the date of delivery to the
Remarketing Agents, the Paying Agent, S&P and Moody's of an RP Basic Maintenance
Report in accordance with paragraph 8(d) above relating to any Valuation Date on
which the Trust cured any failure to satisfy the RP Basic Maintenance Amount,
the Independent Accountant will provide to the Remarketing Agents, the Paying
Agent, S&P and Moody's an Accountant's Confirmation as to such RP Basic
Maintenance Report.
(i) If any Accountant's Confirmation delivered pursuant to subparagraph
(g), (h) or (i) of this paragraph 8 shows that an error was made in the RP 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 or Moody's
Eligible Assets, as the case may be, of the Trust 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
Trust, and the Trust shall accordingly amend and deliver the RP Basic
Maintenance Report to the Remarketing Agents, the Paying Agent, S&P and Moody's
promptly following receipt by the Trust of such Accountant's Confirmation.
(j) At or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of the shares of RP, the Trust will
complete and deliver to Moody's and
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S&P an RP Basic Maintenance Report as of the close of business on such Date of
Original Issue. Within five Business Days of such Date of Original Issue, the
Independent Accountant will provide to Moody's and S&P an Accountant's
Confirmation as to such RP Basic Maintenance Report.
(k) At or before 5:00 p.m., New York City time, on the first Business
Day following any date on which the Trust repurchases any outstanding Common
Shares, the Trust will complete and deliver to Moody's and S&P an RP Basic
Maintenance Report as of the close of business on the date of the repurchase.
9. [RESERVED]
10. Restrictions on Certain Distributions. For so long as any share of
RP is outstanding, the Trust shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase, Common
Shares or other shares, if any, ranking junior to the shares of RP as to
dividends and upon liquidation) in respect of Common Shares or any other shares
of the Trust ranking junior to or on a parity with the shares of RP as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any Common Shares or any other such junior
shares or parity shares (except by conversion into or exchange for shares of the
Trust ranking junior to the shares of RP as to dividends and upon liquidation),
unless (i) full cumulative dividends on shares of RP through the most recent
Dividend Payment Date shall have been paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Paying Agent, (ii)
the Trust has redeemed the full number of shares of RP required to be redeemed
by any provision for mandatory redemption pertaining thereto, (iii) immediately
after such transaction the aggregate Discounted Value of Moody's Eligible Assets
and S&P Eligible Assets would at least equal the RP Basic Maintenance Amount and
(iv) the Trust meets the applicable requirements of Section 18(a)(2)(B) of the
1940 Act.
11. Notice. All notices or communications, unless otherwise specified
in these Bylaws, shall be sufficiently given if in writing and delivered in
person or mailed by first-class mail, postage prepaid. Notice shall be deemed
given on the earlier of the date received or the date seven days after which
such notice is mailed.
12. Futures and Options Transactions; Forward Commitments. (a) For so
long as any shares of RP are rated by S&P, the Trust will not purchase or sell
futures contracts, write, purchase or sell options on futures contracts or write
put options (except covered put options) or call options (except covered call
options) on portfolio securities unless it receives written confirmation from
S&P that engaging in such transactions will not impair the rating then assigned
to such shares of RP by S&P, except that the Trust may purchase or sell futures
contracts based on the Bond Buyer Municipal Bond Index (the "Municipal Index")
or U.S. Treasury Bonds with remaining maturities of ten years or more ("Treasury
Bonds") and write,
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purchase or sell put and call options on such contracts (collectively "S&P
Hedging Transactions"), subject to the following limitations:
(A) the Trust will not engage in any S&P Hedging Transaction
based on the Municipal Index (other than transactions which terminate a
futures contract or option held by the Trust by the Trust's taking an
opposite position thereto ("Closing Transactions")), which would cause
the Trust at the time of such transaction to own or have sold (1) 1,001
or more outstanding futures contracts based on the Municipal Index, (2)
outstanding futures contracts based on the Municipal Index and on
Treasury Bonds exceeding in number 25% of the quotient of the Market
Value of the Trust's total assets divided by $100,000 or (3)
outstanding futures contracts based on the Municipal Index exceeding in
number 10% of the average number of daily traded futures contracts
based on the Municipal Index in the thirty days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(B) the Trust will not engage in any S&P Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) which would
cause the Trust at the time of such transaction to own or have sold (1)
outstanding futures contracts based on Treasury Bonds and on the
Municipal Index exceeding in number 25% of the quotient of the Market
Value of the Trust's total assets divided by $100,000 or (2)
outstanding futures contracts based on Treasury Bonds exceeding in
number 10% of the average number of daily traded futures contracts
based on Treasury Bonds in the thirty days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(C) the Trust will engage in Closing Transactions to close out
any outstanding futures contract which the Trust owns or has sold or
any outstanding option thereon owned by the Trust in the event (i) the
Trust does not have S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the RP Basic Maintenance Amount on two
consecutive Valuation Dates and (ii) the Trust is required to pay
Variation Margin on the second such Valuation Date;
(D) the Trust will engage in a Closing Transaction to close
out any outstanding futures contract or option thereon in the month
prior to the delivery month under the terms of such futures contract or
option thereon unless the Trust holds the securities deliverable under
such terms; and
(E) when the Trust writes a futures contract or option thereon
(including a futures contract or option thereon which requires delivery
of an underlying security), it will either maintain an amount of cash,
cash equivalents or short-term, fixed-income securities in a segregated
account with the Trust's custodian, so that the amount so segregated
plus the amount of Initial Margin and Variation Margin held in the
account of or on behalf of the Trust's broker with respect to such
futures contract or option equals the Market Value of the futures
contract or option, or, in the event the Trust
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writes a futures contract or option thereon which requires delivery of
an underlying security, it shall hold such underlying security in its
portfolio.
For purposes of determining whether the Trust has S&P Eligible Assets
with a Discounted Value that equals or exceeds the RP Basic Maintenance Amount,
such Discounted Value shall, unless the Trust receives written confirmation from
S&P to the contrary, be reduced by an amount equal to (i) 30% of the aggregate
settlement value, as marked to market, of any outstanding futures contracts
based on the Municipal Index which are owned by the Trust plus (ii) 25% of the
aggregate settlement value, as marked to market, of any outstanding futures
contracts based on Treasury Bonds which contracts are owned by the Trust.
(b) For so long as any shares of RP are rated by Moody's, the Trust
will not buy or sell futures contracts, write, purchase or sell put or call
options on futures contracts or write put or call options (except covered call
or put options) on portfolio securities unless it receives written confirmation
from Moody's that engaging in such transactions would not impair the rating then
assigned to any shares of RP by Moody's, except that the Trust may purchase or
sell exchange-traded futures contracts based on the Municipal Index or Treasury
Bonds and purchase, write or sell exchange-traded put options on such futures
contracts and purchase, write or sell exchange-traded call options on such
futures contracts (collectively "Moody's Hedging Transactions"), subject to the
following limitations:
(A) the Trust will not engage in any Moody's Hedging
Transaction based on the Municipal Index (other than Closing
Transactions) which would cause the Trust at the time of such
transaction to own or have sold (1) outstanding futures contracts based
on the Municipal Index exceeding in number 10% of the average number of
daily traded futures contracts based on the Municipal Index in the
thirty days preceding the time of effecting such transaction as
reported by The Wall Street Journal or (2) outstanding futures
contracts based on the Municipal Index having a Market Value exceeding
the Market Value of Municipal Bonds constituting Moody's Eligible
Assets owned by the Trust;
(B) the Trust will not engage in any Moody's Hedging
Transaction based on Treasury Bonds (other than Closing Transactions)
which would cause the Trust at the time of such transaction to own or
have sold in the aggregate (1) outstanding futures contracts based on
Treasury Bonds having an aggregate Market Value exceeding 10% of the
aggregate Market Value of all Moody's Eligible Assets owned by the
Trust and rated Aaa by Moody's, (2) outstanding futures contracts based
on Treasury Bonds having an aggregate Market Value exceeding 50% of the
aggregate Market Value of all Moody's Eligible Assets owned by the
Trust and rated Aa by Moody's (or, if not rated by Moody's but rated by
S&P, rated AAA by S&P) or (3) outstanding futures contracts based on
Treasury Bonds having an aggregate Market Value exceeding 90% of the
aggregate Market Value of Moody's Eligible Assets owned by the Trust
and rated Baa or A by Moody's (or, if not rated by Moody's but rated by
S&P, rated A or AA by S&P) (for purposes of the foregoing clauses (A)
and (B), the Trust shall be deemed to
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own the number of futures contracts that underlie any outstanding
options written by the Trust);
(C) the Trust will engage in Closing Transactions to close out
any outstanding futures contract based on the Municipal Index if the
amount of open interest in the Municipal Index as reported by The Wall
Street Journal is less than 5,000;
(D) the Trust will engage in a Closing Transaction to close
out any outstanding futures contract by no later than the fifth
Business Day of the month in which such contract expires and will
engage in a Closing Transaction to close out any outstanding option on
a futures contract by no later than the first Business Day of the month
in which such option expires;
(E) the Trust will engage in Moody's Hedging Transactions only
with respect to futures contracts or options thereon having the next
settlement date for such type of futures contract or option, or the
settlement date immediately thereafter;
(F) the Trust will not engage in options and futures
transactions for leveraging or speculative purposes unless Moody's
shall advise the Trust that to do so would not adversely affect
Moody's' then current rating of the shares of RP; provided, however,
that the Trust will not be deemed to have engaged in a futures or
options transaction for leveraging or speculative purposes so long as
it has done so otherwise in accordance with this paragraph 12; and
(G) the Trust will not enter into an option or futures
transaction unless, after giving effect thereto, the Trust would
continue to have Moody's Eligible Assets with an aggregate Discounted
Value equal to or greater than the RP Basic Maintenance Amount.
For purposes of determining whether the Trust has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the RP Basic
Maintenance Amount, the Discounted Value of Moody's Eligible Assets which the
Trust is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows (unless the Trust receives written
confirmation to the contrary from Moody's): (i) assets subject to call options
written by the Trust which are either exchange-traded and "readily reversible"
or which expire within 48 days after the date as of which such valuation is made
shall be valued at the lesser of (a) Discounted Value and (b) the exercise price
of the call option written by the Trust; (ii) assets subject to call options
written by the Trust not meeting the requirements of clause (i) of this sentence
shall have no value; (iii) assets subject to put options written by the Trust
shall be valued at the lesser of (a) the exercise price and (b) the Discounted
Value of such security; and (iv) futures contracts shall be valued at the lesser
of (a) settlement price and (b) the Discounted Value of the subject security,
provided that, if a contract matures within 48 days after the date as of which
such valuation is made, where the Trust is the seller the contract may be valued
at
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the settlement price and where the Trust is the buyer the contract may be valued
at the Discounted Value of the subject securities.
For purposes of determining whether the Trust has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the RP Basic
Maintenance Amount, the following amounts shall be added to the RP Basic
Maintenance Amount required to be maintained by the Trust under paragraph 8(a)
of this Part I of Section 12.1 (unless the Trust receives written confirmation
to the contrary from Moody's): (i) 10% of the exercise price of a written call
option; (ii) the exercise price of any written put option; (iii) where the Trust
is the seller under a futures contract, 10% of the settlement price of the
futures contract; (iv) where the Trust is the purchaser under a futures
contract, the settlement price of assets to be purchased under such futures
contract; (v) the settlement price of the underlying futures contract if the
Trust writes put options on a futures contract; and (vi) 105% of the Market
Value of the underlying futures contracts if the Trust writes call options on
futures contracts and does not own the underlying contract.
(c) For so long as any shares of RP are rated by Moody's, the Trust
will not enter into any contract to purchase securities for a fixed price at a
future date beyond customary settlement time (other than such contracts that
constitute Moody's Hedging Transactions that are permitted under paragraph 12(b)
of this Part I of Section 12.1) unless it receives written confirmation from
Moody's that engaging in such transactions would not impair the rating then
assigned to such shares of RP by Moody's except that the Trust may enter into
such contracts to purchase newly-issued securities on the date such securities
are issued ("Forward Commitments"), subject to the following limitations:
(A) the Trust will maintain in a segregated account with its
custodian cash, cash equivalents or short-term, fixed income securities
rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to the date of
the Forward Commitment with a face value that equals or exceeds the
amount of the Trust's obligations under any Forward Commitments to
which it is from time to time a party or long-term fixed income
securities with a Discounted Value that equals or exceeds the amount of
the Trust's obligations under any Forward Commitments to which it is
from time to time a party; and
(B) the Trust will not enter into a Forward Commitment unless,
after giving effect thereto, the Trust would continue to have Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater
than the RP Basic Maintenance Amount.
For purposes of determining whether the Trust has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the RP Basic
Maintenance Amount, the Discounted Value of all Forward Commitments to which the
Trust is a party and of all securities deliverable to the Trust pursuant to such
Forward Commitments shall be zero.
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13. Certain Other Restrictions.
(a) For so long as any shares of RP are outstanding, the Trust will
not, unless it has received written confirmation from Moody's and S&P that any
such action would not impair the ratings then assigned by Moody's and S&P to any
shares of RP, engage in any one or more of the following transactions:
(i) borrow any money except as may be necessary for the
clearance of purchases and sales of portfolio
securities and which borrowings shall be
repaid within 60 days and not be extended or renewed
(provided that no such borrowing will be permitted
unless the Trust, after giving effect to such
borrowing, maintains Moody's Eligible Assets and S&P
Eligible Assets at least equal to the RP Basic
Maintenance Amount);
(ii) lend portfolio securities;
(iii) designate a new Pricing Service;
(iv) engage in short sales;
(v) merge or consolidate with any other entity;
(vi) engage in reverse repurchase agreements; or
(vii) issue a class or series of shares of beneficial
interest ranking prior to or on a parity with the RP
with respect to payment of dividends or the
distribution of assets on liquidation.
(b) For so long as any shares of RP are rated by Moody's or S&P, the
Trust shall give to Moody's or S&P, as the case may be, prompt written notice of
the following circumstances:
(i) any change to the Declaration of Trust or Article 12
of the Bylaws;
(ii) any failure to declare or pay any dividend on the
shares of RP;
(iii) any mandatory or optional redemption of the shares of
RP;
(iv) any assumption of control of the Trustees by the
Holders of shares of RP pursuant to Section 6(b) of
this Part I of Section 12.1;
(v) in the event the Trust shall not be a party to a
pricing services agreement and dealer quotes on
assets are not available;
(vi) in the event that the Applicable Dividend Rate equals
or exceeds 95% of the applicable Reference Rate;
(vii) any person owning of record more than 5% of the
Trust's Common Shares;
(viii) a change in Internal Revenue Service rules on
Additional Dividends relating to the operation of the
Trust; and
(ix) Putnam Investment Management, Inc. is no longer the
Trust's investment manager.
14. Legally Available Funds. For purposes of this Section 12.1, funds
shall not be "legally available" for the payment of dividends or the redemption
price with respect to any
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share of RP if the Trust is insolvent at the time such payment would be made or
to the extent that such payment cannot be made without rendering the Trust
insolvent.
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PART II
REMARKETING PROCEDURES
The provisions of this Part II of Section 12.1 and other provisions of
these Bylaws describe the procedures pursuant to which the Applicable Dividend
Rate shall, except as otherwise provided in these Bylaws, be determined for any
Dividend Period for any series of RP. In the event that any of the Remarketing
Agents, Paying Agent, Securities Depository, Agent Members and Beneficial Owners
fail for any reason to perform any of the acts or obligations to be performed by
him or it as described herein, then no Holder or Beneficial Owner of any shares
of such series of RP shall have any right in respect thereof against the Trust
or any Trustee or officer of the Trust, and the sole obligation of the Trust in
respect of the determination of the amount and the payment of any dividend shall
be to pay to the Holders of such series of RP as shown on the share transfer
books of the Trust from time to time dividends as determined in accordance with
the terms of this Part II of Section 12.1 and any other applicable provisions of
these Bylaws. Notwithstanding any provision of these Bylaws, the Trust shall
have no obligation at any time to provide notice (other than to the Remarketing
Agents, the Paying Agent, the Securities Depository, S&P and Moody's), or to
make any payment (in respect of any dividend or otherwise), to any person other
than the Holders of the shares of RP shown on the share transfer books of the
Trust from time to time, and the providing of any notice or the payment of any
amount to such Holders (or to such other entities) shall discharge in full for
all purposes (including without limitation as against all Beneficial Owners of
any shares of RP) the Trust's obligation to provide any notice or to make any
payment.
1. Remarketing Schedule. Each Remarketing shall take place over a
two-Business Day period consisting of the Remarketing Date and the Settlement
Date. Such dates or the method of establishing such dates shall be determined by
the Trustees from time to time and until further action by the Trustees, a
Remarketing Date shall occur on the last Business Day of a Dividend Period for a
series of RP (except for the last Dividend Period for such RP) and the related
Settlement Date shall occur on the first Business Day of the succeeding Dividend
Period.
2. Procedure for Tendering.
(a) Each share of RP is subject to Tender and Dividend Reset at the end
of each Dividend Period for such RP and may be tendered in the Remarketing which
commences on the Remarketing Date immediately prior to the end of the current
Dividend Period. By 9:00 a.m., New York City time, on each such Remarketing
Date, the Remarketing Agents shall, after canvassing the market and considering
prevailing market conditions at the time for shares of such RP and similar
securities, provide Beneficial Owners of such RP non-binding indications of the
Applicable Dividend Rate for the next succeeding 28-day Dividend Period (in the
case of Series A RP) or 7-day Dividend Period (in the case of Series B RP or
Series C RP) or, if applicable, a Special Dividend Period; provided that, if the
Trust has designated the next Dividend Period for such RP as a Special Dividend
Period, the Remarketing Agents will
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provide to Beneficial Owners a non-binding indication only of the Applicable
Dividend Rate for such Special Dividend Period. The actual Applicable Dividend
Rate for such Dividend Period may be greater than or less than the rate per
annum indicated in such non-binding indications (but not greater than the
applicable Maximum Dividend Rate). By 12:00 noon, New York City time, on such
Remarketing Date, each Beneficial Owner of a share of RP must notify a
Remarketing Agent of its desire, on a share-by-share basis, either to tender
such share of RP at a price of $50,000 per share (in the case of Series A RP) or
$25,000 per share (in the case of Series B RP or Series C RP) or to continue to
hold such share for the next 28-day Dividend Period (in the case of Series A RP)
or 7-day Dividend Period (in the case of Series B RP or Series C RP) or, if
applicable, the next Special Dividend Period. Beneficial Owners who do not
provide such notice shall be deemed to have elected (i) to hold all their shares
of RP if each of the current Dividend Period and succeeding Dividend Period is a
28-day Dividend Period (in the case of Series A RP) or 7-day Dividend Period (in
the case of Series B RP or Series C RP) or a Special Dividend Period of 60 days
or less, and (ii) to tender all their shares of RP if the current Dividend
Period or succeeding Dividend Period is a Special Dividend Period of more than
60 days. Any notice given to a Remarketing Agent to tender or hold shares for a
particular Dividend Period shall be irrevocable and shall not be conditioned
upon the level at which the Applicable Dividend Rate is established. A
Remarketing Agent may, in its sole discretion, (i) at the request of a
Beneficial Owner that has tendered one or more shares to such Remarketing Agent,
waive such Beneficial Owner's tender, and thereby enable such Beneficial Owner
to continue to hold the share or shares for the next 28-day Dividend Period (in
the case of Series A RP) or 7-day Dividend Period (in the case of Series B RP or
Series C RP) or, if applicable, a designated Special Dividend Period, as agreed
to by such Beneficial Owner and such Remarketing Agent at such time, so long as
such tendering Beneficial Owner has indicated to such Remarketing Agent that it
would accept the new Applicable Dividend Rate for such Dividend Period, such
waiver to be contingent upon the Remarketing Agents' ability to remarket all
shares of RP tendered in such Remarketing, and (ii) at the request of a
Beneficial Owner that has elected to hold one or more of its shares of RP, waive
such Beneficial Owner's election with respect thereto, such waiver to be
contingent upon the Remarketing Agents' ability to remarket all shares of RP
tendered in such Remarketing.
(b) The ability of each Beneficial Owner to tender shares of RP in a
Remarketing shall be limited to the extent that (i) the Remarketing Agents
conduct a Remarketing pursuant to the terms of the Remarketing Agreement, (ii)
shares tendered have not been called for redemption and (iii) the Remarketing
Agents are able to find a purchaser or purchasers for tendered shares of RP at
an Applicable Dividend Rate for the next applicable Dividend Period that is not
in excess of the Maximum Dividend Rate for such Dividend Period.
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3. Determination of Applicable Dividend Rates.
(a) By 3:00 p.m., New York City time, on each Remarketing Date for a
series of RP, the Remarketing Agents shall determine the Applicable Dividend
Rate to the nearest one-thousandth (0.001) of one percent per annum for the next
28-day Dividend Period (in the case of Series A RP) or 7-day Dividend Period (in
the case of Series B RP or Series C RP), or, if designated, Special Dividend
Period. The Applicable Dividend Rate for each such Dividend Period, except as
otherwise required herein, shall be the dividend rate per annum which the
Remarketing Agents determine, in their sole judgment, to be the lowest rate that
will enable them to remarket on behalf of the Beneficial Owners thereof all
shares of RP subject to Tender and Dividend Reset in such Remarketing and
tendered to them on such Remarketing Date at a price of $50,000 per share (in
the case of Series A RP) or $25,000 per share (in the case of Series B RP and
Series C RP).
(b) For any series of RP, if no Applicable Dividend Rate shall have
been established on a Remarketing Date in a Remarketing for the next 28-day
Dividend Period (in the case of Series A RP) or 7-day Dividend Period (in the
case of Series B RP or Series C RP), or Special Dividend Period, if any, for any
reason (other than because there are no Remarketing Agents, the Remarketing
Agents are not required to conduct a Remarketing pursuant to the terms of the
Remarketing Agreement or the Remarketing Agents are unable to remarket on the
Remarketing Date all shares of RP tendered (or deemed tendered) to them at a
price of $50,000 per share (in the case of Series A RP) or $25,000 per share (in
the case of Series B RP and Series C RP)), then the Remarketing Agents, in their
sole discretion, shall, if necessary and except during a Non-Payment Period,
after taking into account market conditions as reflected in the prevailing
yields on fixed and variable rate taxable and tax exempt debt securities and the
prevailing dividend yields of fixed and variable rate preferred stock, determine
the Applicable Dividend Rate that would be the rate per annum that would be the
initial dividend rate fixed in an offering on such Remarketing Date, assuming in
each case a comparable dividend period, issuer and security. If there is no
Remarketing for such series of RP because there are no Remarketing Agents or the
Remarketing Agents are not required to conduct a Remarketing pursuant to the
Remarketing Agreement or if the Remarketing Agents are unable to remarket on the
Remarketing Date all shares of RP tendered (or deemed tendered) to them at a
price of $50,000 per share (in the case of Series A RP) or $25,000 per share (in
the case of Series B RP or Series C RP), then, except during a Non-Payment
Period, the Applicable Dividend Rate for the subsequent Dividend Period for RP
and for each subsequent Dividend Period for RP for which no Remarketing takes
place because of the foregoing shall be the applicable Maximum Dividend Rate for
a 28-day Dividend Period (in the case of Series A RP) or 7-day Dividend Period
(in the case of Series B RP or Series C RP) and the next Dividend Period for RP
and each such subsequent Dividend Period shall be a 28- day Dividend Period (in
the case of Series A RP) or 7-day Dividend Period (in the case of Series B RP or
Series C RP).
(c) In determining the Applicable Dividend Rate for a series of RP, the
Remarketing Agents shall, after taking into account market conditions as
reflected in the prevailing yields on
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fixed and variable rate taxable and tax exempt debt securities and the
prevailing dividend yields of fixed and variable rate preferred stock determined
for the purpose of providing non-binding indications of the Applicable Dividend
Rate to Beneficial Owners and potential purchasers of shares of RP, (i) consider
the number of shares of RP tendered and the number of shares of RP potential
purchasers are willing to purchase and (ii) contact by telephone or otherwise
current and potential Beneficial Owners of shares of RP subject to Tender and
Dividend Reset to ascertain the dividend rates at which they would be willing to
hold shares of RP.
(d) The Applicable Dividend Rate for each series of RP shall be
determined as aforesaid by the Remarketing Agents in their sole discretion
(except as otherwise provided in this Section 12.1 with respect to an Applicable
Dividend Rate that shall be the Non-Payment Period Rate or the Maximum Dividend
Rate) and shall be conclusive and binding on Holders and Beneficial Owners.
(e) Except during a Non-Payment Period, the Applicable Dividend Rate
for any Dividend Period for each series of RP shall not be more than the
applicable Maximum Dividend Rate.
4. Allocation of Shares; Failure to Remarket at Liquidation Preference.
(a) If the Remarketing Agents are unable to remarket by 3:00 p.m., New
York City time, on a Remarketing Date all shares of RP tendered (or deemed
tendered) to them in the related Remarketing at a price of $50,000 per share (in
the case of Series A RP) or $25,000 per share (in the case of Series B RP or
Series C RP), (i) each Beneficial Owner that tendered or was deemed to have
tendered shares of RP for sale shall sell a number of shares of RP on a pro rata
basis, to the extent practicable, or by lot, as determined by the Remarketing
Agents in their sole discretion, based on the number of orders to purchase
shares of RP in such Remarketing, and (ii) the Applicable Dividend Rate for the
next Dividend Period for RP, which shall be a 28-day Dividend Period, shall be
the Maximum Dividend Rate for such 28- day Dividend Period (in the case of
Series A RP) or 7-day Dividend Period (in the case of Series B RP or Series C
RP).
(b) If the allocation procedures described above would result in the
sale of a fraction of a share of RP, the Remarketing Agents shall, in their sole
discretion, round up or down the number of shares of RP sold by each Beneficial
Owner on the applicable Remarketing Date so that each share sold by a Beneficial
Owner shall be a whole share of RP, and the total number of shares sold equals
the total number of shares purchased on such Remarketing Date.
5. Notification of Results; Settlement.
(a) By telephone at approximately 3:30 p.m., New York City time, on
each Remarketing Date, the Remarketing Agents shall advise each Beneficial Owner
of tendered shares and each purchaser thereof (or the Agent Member thereof) (i)
of the number of shares such Beneficial Owner or purchaser is to sell or
purchase and (ii) to give instructions to its
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Agent Member to deliver such shares against payment therefor or to pay the
purchase price against delivery as appropriate. The Remarketing Agents will also
advise each Beneficial Owner or purchaser that is to continue to hold, or to
purchase, shares with a Dividend Period beginning on the Business Day following
such Remarketing Date of the Applicable Dividend Rate for such shares.
(b) In accordance with the Securities Depository's normal procedures,
on the Settlement Date, the transactions described above with respect to each
share of RP shall be executed through the Securities Depository, if the
Securities Depository or its nominee holds or is to hold the certificate
relating to the shares to be purchased, and the accounts of the respective Agent
Members of the Securities Depository shall be debited and credited and shares
delivered by book entry as necessary to effect the purchases and sales of shares
of RP in the related Remarketing. Purchasers of such shares of RP shall make
payment to the Paying Agent in same-day funds against delivery to such
purchasers or their nominees of one or more certificates representing such
shares of RP, or, if the Securities Depository or its nominee holds or is to
hold the certificate relating to such shares to be purchased, through their
Agent Members in same-day funds to the Securities Depository against delivery by
book entry of such shares of RP through their Agent Members. The Securities
Depository shall make payment in accordance with its normal procedures.
(c) If any Beneficial Owner selling shares of RP in a Remarketing fails
to deliver such shares, the Agent Member of such selling Beneficial Owner and of
any other person that was to have purchased shares of RP in such Remarketing may
deliver to any such other person a number of whole shares of RP 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 RP to be so delivered shall be determined by
such Agent Member. Delivery of such lesser number of shares of RP shall
constitute good delivery of such number of shares.
(d) The Remarketing Agents, the Paying Agent and the Securities
Depository each will use its reasonable commercial efforts to meet the timing
requirements set forth in paragraphs (a) and (b) above; provided that, in the
event that there is a delay in the occurrence of any delivery or other event
connected with a Remarketing, the Remarketing Agents, the Paying Agent and the
Securities Depository each will use its reasonable commercial efforts to
accommodate such delivery in furtherance of the Remarketing.
(e) Notwithstanding any of the foregoing provisions of this paragraph
5, the Remarketing Agents may, in their sole discretion, modify the settlement
procedures set forth above with respect to any Remarketing, provided any such
modification does not adversely affect the Beneficial Owners or the Holders of
RP or the Trust.
(f) Neither the Trust, the Paying Agent nor any of the Remarketing
Agents shall be obligated in any case to provide funds to make payment to a
Beneficial Owner upon such Beneficial Owner's tender of its shares of RP in a
Remarketing, unless, in each case, such
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<PAGE>
shares of RP were acquired for the account of the Trust, the Paying Agent or any
of the Remarketing Agents, as the case may be.
6. Purchase of Shares of RP by Remarketing Agents. The Remarketing
Agents may purchase for their own account shares of RP in a Remarketing,
provided that they purchase all tendered (or deemed tendered) shares of RP not
sold in such Remarketing to other purchasers. If the Remarketing Agents hold
shares of RP for their own account upon completion of a Remarketing, they must
establish an Applicable Dividend Rate with respect to such shares in such
Remarketing that is not higher than the Applicable Dividend Rate that would have
been established if the Remarketing Agents did not hold or had not purchased
such shares. Except as provided in the first sentence of this paragraph 6, the
Remarketing Agents shall not be obligated to purchase any shares of RP that
would otherwise remain unsold in a Remarketing. If the Remarketing Agents hold
for their own account any shares of RP subject to a Remarketing immediately
prior to such Remarketing and if all other shares subject to such Remarketing
and tendered for sale by other Beneficial Owners of shares of RP (including
circumstances where any of the Remarketing Agents hold such shares as nominee)
have been sold in such Remarketing, then the Remarketing Agents may sell such
number of their shares in such Remarketing as there are outstanding orders to
purchase that have not been filled by shares tendered for sale by other
Beneficial Owners.
7. Applicable Dividend Rate During a Non-Payment Period. So long as a
NonPayment Period for any series of RP shall continue, paragraphs 1, 2, 3, 4, 5
and 6 of this Part II of Section 12.1 shall not be applicable to any of the
shares of all series of RP and the shares of all series of RP shall not be
subject to Tender and Dividend Reset.
8. Transfers. Unless the Trust has elected, during a Non-Payment
Period, to waive this requirement, ownership of shares of RP will be maintained
in book entry form by the Securities Depository, for the account of a designated
Agent Member which, in turn, shall maintain records of such purchaser's
beneficial ownership.
9. Miscellaneous.
(a) To the extent permitted by applicable law, the Trustees may
interpret or adjust the provisions hereof to resolve any inconsistency or
ambiguity, or to remedy any formal defect.
(b) Notwithstanding any provision of these Bylaws, (i) no Remarketing
Agent, Paying Agent, Securities Depository or Agent Member shall have any
obligation in respect of any person having any interest in any share of RP other
than the Beneficial Owner thereof, and the Paying Agent shall have no obligation
to record any transfer of beneficial ownership in any share unless and until it
shall have received proper notice and evidence of such transfer and the right of
the transferee in accordance with its procedures in effect from time to time,
and (ii) the record books of the Trust as kept by the Paying Agent shall be
conclusive as to who is the Holder of any share of RP and as to the number of
shares of RP held from time to time by any
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<PAGE>
Holder, and the Trust shall have no obligation in respect of any share of RP to
any person other than such Holder.
10. Securities Depository; Share Certificates.
(a) If there is a Securities Depository, one certificate for all of the
shares of each series of RP shall be issued to the Securities Depository and
registered in the name of the Securities Depository or its nominee. Any such
certificate shall bear a legend to the effect that such certificate is issued
subject to the provisions contained in this Section 12.1. Unless the Trust shall
have elected, during a Non-Payment Period, to waive this requirement, the Trust
will also issue stop-transfer instructions to this effect to the Paying Agent
for the shares of RP. Except as provided in paragraph (b) below, the Securities
Depository or its nominee will be the Holder, and no Beneficial Owner shall
receive certificates representing its ownership interest in such shares.
(b) If the Applicable Dividend Rate applicable to all shares of any
series of RP shall be the Non-Payment Period Rate or there is no Securities
Depository, the Trust may at its option issue one or more new certificates with
respect to such shares (without the legend referred to in paragraph 10(a) of
this Part II of Section 12.1) registered in the names of the Beneficial Owners
or their nominees and rescind the stop-transfer instructions referred to in
paragraph 10(a) of this Part II of Section 12.1 with respect to such shares.
ARTICLE 13
Amendments to the Bylaws
13.1 General. Except as otherwise expressly stated herein, these Bylaws
may be amended or repealed, in whole or in part, by a majority of the Trustees
then in office at any meeting of the Trustees, or by one or more writings signed
by such a majority.
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EXHIBIT 2(d)(5)
(PORTIONS OF AGREEMENT AND DECLARATION OF TRUST
RELATING TO SHAREHOLDERS' RIGHTS)
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
AGREEMENT AND DECLARATION OF TRUST
* * * * * * * *
ARTICLE I
Name and Definitions
* * * * * * * *
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one class or series of
Shares is authorized by the Trustees, the equal proportionate
transferable units into which each class or series of Shares shall be
divided from time to time;
(d) "Shareholder" means a record owner of Shares;
* * * * * * * *
(i) The term "class" or "class of Shares" refers to the division of
Shares into two or more classes as provided in Article III, Section 1
hereof; and
(j) The term "series" or "series of Shares" refers to the division of
Shares representing any class into two or more series as provided in
Article III, Section 1 hereof.
* * * * * * * *
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Trustees may, without Shareholder approval, authorize
one or more classes of Shares (which classes may be divided into two or more
series), Shares of each such class or series having such preferences, voting
powers and special or relative rights or privileges (including conversion
rights, if any) as the Trustees may determine and as shall be set forth in the
Bylaws. The number of Shares of each class or series
<PAGE>
authorized shall be unlimited except as the Bylaws may otherwise provide. The
Trustees may from time to time divide or combine the Shares of any class or
series into a greater or lesser number without thereby changing the
proportionate beneficial interest in the class or series.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of
the Trust or a transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders of each class or series and as to the number of Shares of each
class or series held from time to time by each Shareholder.
* * * * * * * *
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only
the rights provided in this Declaration of Trust or the Bylaws. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms of this Declaration of Trust and the
Bylaws and to have become a party hereto and thereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor except
as specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
* * * * * * * *
<PAGE>
ARTICLE IV
The Trustees
* * * * * * * *
Powers
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders of one or more classes or series. Subject to the
voting power of one or more classes or series of Shares as set forth in the
Bylaws, the Trustees may fill vacancies in or add to their number, and may elect
and remove such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; they
may employ one or more custodians of the assets of the Trust and may authorize
such custodians to employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of securities, retain a
transfer agent or a Shareholder servicing agent, or both, provide for the
distribution of Shares by the Trust, through one or more principal underwriters
or otherwise, set record dates for the determination of Shareholders with
respect to various matters, and in general delegate such authority as they
consider desirable to any officer of the Trust, to any committee of the Trustees
and to any agent or employee of the Trust or to any such custodian or
underwriter.
* * * * * * * *
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting powers of one or more classes or
series of Shares as set forth in this Declaration of Trust or in the Bylaws, the
Shareholders shall have power to vote only (i) for the election of Trustees as
provided in Article IV, Section 1, (ii) for the removal of Trustees as provided
in Article IV, Section 1, (iii) with respect to any Manager as provided in
Article IV, Section 6, (iv) with respect to any termination of this Trust to the
extent and as provided in Article IX, Section 4, (v) with respect to any
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<PAGE>
merger, consolidation or sale of assets of the Trust to the extent and as
provided in Article IX, Section 5, (vi) with respect to any conversion of the
Trust as provided in Article IX, Section 6, (vii) with respect to any amendment
of this Declaration of Trust to the extent and as provided in Article IX,
Section 9, (viii) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, and (ix) with respect to such
additional matters relating to the Trust as may be required by this Declaration
of Trust, the Bylaws or any registration of the Trust with the Securities and
Exchange Commission (or any successor agency) or any state, or as the Trustees
may consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional Share
shall be entitled to a proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall, except as
otherwise provided in the Bylaws, be voted in the aggregate as a single class
without regard to classes or series of Shares. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares of any class or
series are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration of Trust or the Bylaws to be
taken by Shareholders as to such class or series.
Voting Power and Meetings
Section 2. There shall be an annual meeting of the Shareholders in each
year beginning in 1994 on the date fixed in the Bylaws at the office of the
Trust in Boston, Massachusetts, or at such other place as may be designated in
the call thereof, which call shall be made by the Trustees. In the event that
such meeting is not held in any year on the date fixed in the Bylaws, whether
the omission be by oversight or otherwise, a subsequent special meeting may be
called by the Trustees and held in lieu of the annual meeting with the same
effect as though held on such date. Special meetings of Shareholders of any or
all classes or series may also be called by the Trustees from time to time for
the purpose of taking action upon any matter requiring the vote or authority of
the Shareholders of such class or series as herein provided or upon any other
matter deemed by the Trustees to be necessary or desirable. Written notice of
any meeting of Shareholders shall be given or caused to be given by the Trustees
by mailing such notice at least seven days before such meeting, postage prepaid,
stating the time, place and purpose of the meeting, to each Shareholder entitled
to vote at such meeting at the
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<PAGE>
Shareholder's address as it appears on the records of the Trust. If the Trustees
shall fail to call or give notice of any meeting of Shareholders for a period of
30 days after written application by Shareholders holding at least 25% of the
then outstanding Shares of all classes and series entitled to vote at such
meeting requesting a meeting to be called for a purpose requiring action by the
Shareholders as provided herein or in the Bylaws, then Shareholders holding at
least 25% of the then outstanding Shares of all classes and series entitled to
vote at such meeting may call and give notice of such meeting, and thereupon the
meeting shall be held in the manner provided for herein in case of call thereof
by the Trustees. Notice of a meeting need not be given to any Shareholder if a
written waiver of notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Shareholder who attends the
meeting without protesting prior thereto or at its commencement the lack of
notice to him or her.
Quorum and Required Vote
Section 3. A majority of Shares entitled to vote on a particular matter
shall be a quorum for the transaction of business on that matter at a
Shareholders' meeting, except that where the Bylaws require that holders of any
class or series shall vote as an individual class or series, then a majority of
the aggregate number of Shares of that class or series entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class
or series. Any lesser number shall be sufficient for adjournments. Any adjourned
session or sessions may be held, within a reasonable time after the date set for
the original meeting, without the necessity of further notice. Except when a
different vote is required by any provision of this Declaration of Trust or the
Bylaws, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, provided that where the Bylaws require that the
holders of any class or series shall vote as an individual class or series, a
majority of the Shares of that class or series voted on the matter (or a
plurality with respect to the election of a Trustee) shall decide that matter
insofar as that class or series is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a
meeting if a majority of Shareholders entitled to vote on the matter (or such
different proportion thereof as shall be required by any express provision of
this Declaration of Trust or the Bylaws) consent to the action in writing and
such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
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<PAGE>
Additional Provisions
Section 5. The Bylaws may include further provisions, not inconsistent
with this Declaration of Trust, regarding Shareholders' voting powers, the
conduct of meetings and related matters.
ARTICLE VI
Distributions
The Trustees may each year, or more frequently if they so determine,
distribute to the Shareholders of each class or series such amounts as the
Trustees may determine subject to the preferences, special or relative rights
and privileges of the various classes or series of Shares. Any such distribution
to the Shareholders of a particular class or series shall be made to said
Shareholders pro rata in proportion to the number of Shares of such class or
series held by each of them. Such distributions shall be made in cash or Shares
or other property or a combination thereof as determined by the Trustees.
* * * * * * * *
ARTICLE VIII
Indemnification
* * * * * * * *
Shareholders
Section 4. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified against all loss and expense arising from
such liability.
ARTICLE IX
Miscellaneous
Trustees, Shareholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust shall look only to the assets of the Trust for
payment under such credit, contract or claim, and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any
-6-
<PAGE>
liability to which such Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officer or officers shall give notice that
this Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustee or Trustees or as
officer or officers and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, and may contain such
further recital as he or she or they may deem appropriate, but the omission
thereof shall not operate to bind any Trustee or Trustees or officer or officers
or Shareholder or Shareholders individually.
* * * * * * * *
Duration and Termination of Trust
Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. Subject to the voting powers of one or more
classes or series of Shares as set forth in the Bylaws, the Trust may be
terminated at any time by vote of Shareholders holding at least two-thirds of
the Shares entitled to vote (provided, however, if such termination is
recommended by two-thirds of the total number of the Trustees then in office,
the vote of a majority of the Shares entitled to vote shall be sufficient
authorization) or by the Trustees by written notice to the Shareholders. Upon
termination of the Trust, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated, of the
Trust as may be determined by the Trustees, the Trust shall, in accordance with
such procedures as the Trustees consider appropriate, reduce the remaining
assets to distributable form in cash or shares or other property, or any
combination thereof, and distribute the proceeds to the Shareholders, ratably
according to the number of Shares held by the several Shareholders on the date
of termination, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any classes or
series of Shares.
Merger, Consolidation and Sale of Assets
Section 5. The Trust may merge or consolidate with any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of its assets, including its good will, upon
such terms and conditions and for such consideration when and as authorized at
any meeting of Shareholders called for the
-7-
<PAGE>
purpose, or may liquidate or dissolve when and as authorized, by the affirmative
vote of the holders of not less than two-thirds of the Shares entitled to vote,
provided, however, that if such merger, consolidation, sale, lease or exchange
is recommended by two-thirds of the total number of Trustees then in office, the
vote of the holders of a majority of the Shares entitled to vote shall be
sufficient authorization. Nothing contained herein shall be construed as
requiring approval of the Shareholders for any sale of assets in the ordinary
course of business of the Trust. The provisions of this Section shall be subject
to the voting powers of one or more classes or series of Shares as set forth in
the Bylaws.
Conversion
Section 6. Subject to the voting powers of one or more classes or
series of Shares as set forth in the Bylaws, the Trust may be converted at any
time from a "closed-end company" to an "open-end company" as those terms are
defined in Section 5(a)(2) and 5(a)(1) of the 1940 Act, respectively, as in
effect on the date of the execution hereof, upon the approval of such a
proposal, together with any necessary amendments to the Declaration of Trust to
permit such a conversion, by the holders of two-thirds of the Shares entitled to
vote, except that if such proposal is recommended by two-thirds of the total
number of Trustees then in office, such proposal may be adopted by a vote of the
majority of the Shares entitled to vote. Upon the adoption of such proposal and
related amendments by the Trust's Shareholders as provided above, the Trust
shall, upon complying with any requirements of the 1940 Act and state law,
become an "open-end" investment company. Such affirmative vote or consent shall
be in addition to the vote or consent of the holders of the Shares otherwise
required by law, the Bylaws or any agreement between the Trust and any national
securities exchange.
* * * * * * * *
-8-
<PAGE>
Amendments
Section 9. Subject to the voting powers of one or more classes or
series of Shares, as set forth in the Bylaws, this Declaration of Trust may be
amended at any time by an instrument in writing signed by a majority of the then
Trustees (a) when authorized to do so by vote of Shareholders holding a majority
of the Shares entitled to vote, except that an amendment amending or affecting
the provisions of Section 1 of Article IV, Section 4, 5 or 6 of this Article IX
or this sentence shall require the vote of Shareholders holding two-thirds of
the Shares entitled to vote, or (b) without Shareholder approval as may be
necessary or desirable in order to authorize one or more classes or series of
Shares as provided in Section 1 of Article III. Amendments having the purpose of
changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by Shareholder vote.
* * * * * * * *
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EXHIBIT 2(e)(1)
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
TERMS AND CONDITIONS OF
DIVIDEND REINVESTMENT PLAN
1. State Street Bank and Trust Company (the "Agent") will act as
Agent for participants in the Dividend Reinvestment Plan (the "Plan") of Putnam
Municipal Opportunities Trust (the "Fund"), and will open and maintain an
account for each participant under the Plan in the same name as the
participant's shares are registered. Each registered shareholder will be deemed
conclusively upon purchase and, where applicable, registration of transfer on
the shareholder records of the Fund to have elected to participate in the Plan.
2. Whenever the Fund declares a distribution from capital gains or
surplus or an income dividend, the Agent will apply the amount of such dividend
or distribution payable to each participant (less such participant's pro rata
share of brokerage commissions incurred with respect to open-market purchases in
connection with the reinvestment of such dividend or distribution) to the
purchase on the open market of common shares of the Fund (the "Shares") for such
participant's account. Such purchases will be made on or shortly after the
payment date for such dividend or distribution, and in no event later than the
last business day before the next month's ex-dividend date except where
temporary curtailment or suspension of purchase is necessary to comply with
applicable provisions of federal securities law.
3. Open-market purchases may be made on any securities exchange where
the Fund's Shares are traded, in the over-the-counter market, or in negotiated
transactions and may be on such terms as to price, delivery, and otherwise as
the Agent shall determine. It is understood that, in any event, the Agent shall
have no liability in connection with any inability to purchase Shares prior to
the next month's ex-dividend date, or with the timing of any purchases effected.
The Agent shall have no responsibility as to the value of the Shares of the Fund
acquired for any participant's account. For the purposes of purchase in the open
market, the Agent may aggregate a participant's purchase with those of other
shareholders of the Fund for whom it similarly acts as Agent, and the average
price (including brokerage commissions) of all Shares purchased by the Agent as
such shall be the price per Share allocable to such participant in connection
therewith.
4. The Agent may hold the Shares in a participant's account under the
Plan, together with the Shares in other accounts under the Plan, in
noncertificated form in the Agent's name or that of the Agent's nominee. The
Agent will forward to each participant any proxy solicitation material and will
vote any Shares so held for a participant only in accordance with the proxy
returned by such participant to the Fund. Upon a participant's written request,
the Agent will deliver to such participant, without charge, a certificate or
certificates for the full Shares.
<PAGE>
5. The Agent will confirm to each participant each acquisition made
for such participant's account as soon as practicable but not later than 30 days
after the date thereof. Although a participant may from time to time have any
undivided fractional interest (computed to three decimal places) in a Share of
the Fund, no certificates for a fractional Share will be issued. However,
dividends and distributions on fractional Shares will be credited to a
participant's account. In the event of termination of a participant's account
under the Plan, the Agent will adjust for any such undivided fractional interest
in cash at the market value of the Fund's Shares at the time of termination.
6. Any stock dividends or split share distributed by the Fund on
Shares held by the Agent for a participant will be credited to such
participant's account. In the event that the Fund makes available to its
shareholders rights to purchase additional Shares or other securities, the
Shares held for a participant under the Plan will be added to other Shares held
by such participant in calculating the number of rights to be issued to such
participant.
7. The Agent's service fee for handling capital gains distributions
or income dividends will be paid by the Fund. Each participant will be charged a
pro rata share of brokerage commissions on all open-market purchases.
8. A participant may terminate his account under the Plan by
notifying the Agent in writing or by telephone. Such termination will be
effective immediately if notice is received by the Agent not less than ten days
prior to any dividend or distribution record date; otherwise such termination
will be effective on or shortly after the first trading day after the date for
such dividend or distribution with respect to any subsequent dividend or
distribution. The Plan may be terminated by the Agent or the Fund upon notice in
writing mailed to participants at least 30 days prior to any record date for the
payment of any dividend or distribution by the Fund. Upon any termination the
Agent will cause a certificate or certificates for the full Shares held for
participants under the Plan and cash adjustment for any fraction to be delivered
to them without charge. If a participant elects by notice to the Agent in
writing or by telephone in advance of such termination to have the Agent sell
part or all of such participant's Shares and remit the proceeds to such
participant, the Agent is authorized to deduct a $2.50 fee plus brokerage
commission for this transaction from the proceeds.
9. These terms and conditions may be amended or supplemented by the
Agent or the Fund at any time or times but, except when necessary or appropriate
to comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to
participants appropriate written notice at least 30 days prior to the effective
date thereof. Any such amendment or supplement shall be deemed to be accepted by
each participant unless, prior to the effective date thereof, the Agent receives
written notice of the termination of such participant's account under the Plan.
Any such amendment may include an appointment by the Agent in its place and
stead of a successor Agent under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Agent under
these terms and conditions. Upon any such appointment of any Agent for the
purpose of receiving dividends and distributions, the Fund
-2-
<PAGE>
will be authorized to pay to such successor Agent, for each participant's
account, all dividends and distributions payable on Shares of the Fund held in
such participant's name or under the Plan for retention or application by such
successor Agent as provided in these terms and conditions.
10. The Agent shall at all times act in good faith and agree to use
its best efforts within reasonable limits to insure the accuracy of all services
performed pursuant to these terms and conditions and to comply with applicable
law, but assume no responsibility and shall not be liable for loss or damage due
to errors unless such error is caused by the Agent's negligence, bad faith, or
willful misconduct or that of its employees.
11. These terms and conditions shall be governed by the laws of The
Commonwealth of Massachusetts.
-3-
<PAGE>
[Outside Back Cover of Plan Brochure]
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
This form is for shareholders who hold Shares of Putnam Municipal Opportunities
Trust in their own name (registered shareholders). If your Shares are held at a
brokerage firm, bank, or other nominee and your distributions are being
reinvested, you must contact that institution if you wish to withdraw from the
Dividend Reinvestment Plan.
I hereby authorize State Street Bank and Trust Company to withdraw my
account from the Dividend Reinvestment Plan. I elect to receive all future
dividends and distributions paid by Putnam Municipal Opportunities Trust in
cash.
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Shareholder Signature
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Shareholder Signature
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Date
Please sign exactly as your Shares are registered. All persons whose
names appear on the share certificates must sign this authorization form.
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO CONTINUE TO HAVE YOUR DIVIDENDS
AND DISTRIBUTIONS REINVESTED IN ADDITIONAL COMMON SHARES OF PUTNAM MUNICIPAL
OPPORTUNITIES TRUST.
This authorization form, when signed, should be mailed to:
Putnam Investor Services
P.O. Box 41203
Providence, RI 02940-1203
THIS IS NOT A PROXY
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EXHIBIT 2(e)(2)
DIVIDEND REINVESTMENT PLAN AGENCY AGREEMENT
THIS AGREEMENT is made as of the 15th day of October, 1993, by and
among each of the closed-end Putnam Funds listed in Appendix A hereto (as the
same may from time to time be amended to add one or more additional closed-end
Putnam Funds or to delete one or more of such Funds), each of such Funds acting
severally and not jointly with any of such other Funds, and each of such Funds
having its principal office and place of business at One Post Office Square,
Boston, Massachusetts 02109 (each Fund being referred to herein as the "Fund"),
Putnam Fiduciary Trust Company, a Massachusetts trust company having its
principal office and place of business at One Post Office Square, Boston,
Massachusetts 02109 (the "Agent"), and The First National Bank of Boston, a
national banking association having its principal office and place of business
at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to make available to its shareholders an
opportunity to reinvest their Fund distributions in additional shares of the
Fund pursuant to the terms and conditions of a Dividend Reinvestment Plan in the
form heretofore furnished to the Bank, as the same may be amended from time to
time by the Trustees of the Fund (the "Plan");
WHEREAS, the Fund has engaged the Agent to act as its "Investor
Servicing Agent", including in such capacity acting as its transfer agent,
registrar and distribution disbursing agent;
WHEREAS, the Fund desires to employ the Bank to act as agent for
shareholders of the Fund pursuant to the terms and conditions of the Plan and
the Bank desires to accept such employment; and
WHEREAS, the Agent will provide certain administrative services in
connection with the Plan;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank and the Agent.
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs the Bank to act as, and the Bank agrees to
act as, Dividend Reinvestment Plan Agent for the Fund's shareholders pursuant
to the terms and conditions of the Plan.
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1.02 Upon receipt of the cash distributions payable to
shareholders of the Fund participating in the Plan, the Bank will apply such
monies to the purchase of shares of the Fund in accordance with the terms and
conditions of the Plan. The Bank shall thereafter deliver shares purchased as
instructed by the Agent.
1.03 Pending purchase of shares of the Fund, the Bank
shall invest all of the cash deposited with the Bank in an interest bearing
account for the benefit of the Fund at the Bank, unless otherwise directed by
the Fund.
1.04 The Bank shall provide monthly a complete statement
of transactions in Fund shares on behalf of shareholders in the Plan and a
statement of interest earned under Section 1.03.
1.05 The Agent, pursuant to the terms and conditions of
its Investor Servicing Agreement with the Funds, shall perform all
administrative and bookkeeping services required in connection with the
operation of the Plan.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this
Agreement, the Agent agrees to pay the Bank such fees and out-of-pocket expenses
as may from time to time be specified by mutual written agreement between the
Agent and the Bank.
2.02 The Agent agrees to pay all fees and reimbursable
expenses within 30 days following the mailing of the respective billing notice.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a national banking association duly organized
and existing and in good standing under the laws of the United States of
America.
3.02 It is duly qualified to carry on its business in the
United States of America.
3.03 It is empowered under applicable laws and by its
charter and by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
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3.05 It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
3.06 It will take and accept instructions from persons
duly authorized by the Fund, as certified to the Bank from time to time.
Article 4 Representations and Warranties of the Fund and the Agent.
4.01 The Fund represents and warrants to the Bank that:
(a) It is a business trust duly organized and existing
under the laws of Massachusetts.
(b) It is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into and perform this Agreement.
(c) All proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
(d) It is a closed-end investment company registered under
the Investment Company Act of 1940.
(e) It shall make all filings required to be made by it
under federal and state securities laws.
4.02 The Agent represents and warrants to the Bank that:
(a) It is a trust company duly organized and existing and
in good standing under the laws of Massachusetts.
(b) It is empowered under applicable laws and by its
Articles of Organization and Bylaws to enter into and perform this Agreement.
(c) All proceedings required by said Articles of
Organization and Bylaws have been taken to authorize it to enter into and
perform this Agreement.
(d) It is duly registered as a transfer agent with the
Federal Deposit Insurance Corporation and the New York and American Stock
Exchanges.
(e) It shall make all filings required to be made by it
under federal and state securities laws.
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Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund
shall indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agents or
subcontractors required to be taken pursuant to this Agreement, provided that
such actions are taken in good faith consistent with the exercise of reasonable
care.
(b) The Fund's refusal or failure to comply with the terms
of this Agreement, or which arise out of the Fund's lack of good faith,
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are received by
the Bank or its agents or subcontractors and furnished to it by or on behalf of
the Fund, and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund. Such other person or firm shall include
any former transfer agent or former registrar, or co-transfer agent or
co-registrar.
(d) The reliance on, or the carrying out by the Bank or
its agents or subcontractors of, any instructions or requests of the Fund's
representative as certified from time to time by the Fund.
(e) The offer or sale of shares of the Fund in violation
of any requirement under the federal securities laws or regulations or the
securities laws or regulations of any state that such shares be registered in
such state or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of such shares
in such state.
5.02 The Bank shall indemnify and hold the Fund and the
Agent harmless from and against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or attributable to
any action or failure or omission to act by the Bank as a result of the Bank's
lack of good faith or failure to exercise reasonable care.
5.03 At any time the Bank may apply to any officer of the
Fund or the Agent for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to be performed by
the Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund for any action in good
faith taken or omitted by it in reliance upon such instructions or upon the
written opinion of such counsel. The Bank, its agents and subcontractors shall
be protected and indemnified in acting upon any paper or document furnished by
or on behalf of the Fund or the Agent, reasonably believed to be genuine and to
have been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided to the
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<PAGE>
Bank or its agents or subcontractors by telephone, in person, machine readable
input, telex, CRT data entry or other similar means authorized by the Fund or
the Agent, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund or the Agent.
5.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
5.05 Neither party to this Agreement shall be liable to
the other party for consequential damages under any provision of this Agreement
or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions
contained in this Article 5 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all developments concerning
such claim. The party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense of such claim.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6 Covenants of the Fund, the Agent and the Bank
6.01 The Fund and the Agent shall promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of
Trustees of the Fund authorizing the employment of the Bank and the execution
and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the
Fund and a copy of the Articles of Organization and Bylaws of the Agent and all
amendments thereto.
6.02 The Bank and the Agent shall keep records relating to
the services to be performed hereunder, in the form and manner as they may deem
advisable. To the extent required by Section 31 of the Investment Company Act of
1940, as amended, and the Rules thereunder, the Bank and the Agent agree that
all such records prepared or maintained by the Bank relating to the services to
be performed by the Bank hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Fund on and in accordance with
its request.
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<PAGE>
6.03 The Bank, the Agent and the Fund agree that all
books, records, information and data pertaining to the business of the other
party which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required by law.
6.04 In case of any requests or demands for the inspection
of the records of the Fund or the Agent, the Bank will endeavor to notify the
Fund or the Agent and to secure instructions from an authorized officer of the
Fund or the Agent as to such inspection. The Bank reserves the right, however,
to exhibit such records to any person whenever it is advised by its counsel that
it may be held liable for the failure to exhibit such records to such person.
6.05 The Agent agrees to notify the Bank immediately of
any declaration of dividends by the Fund.
Article 7 Effective Date; Termination of Agreement
7.01 This Agreement shall take effect on October 15, 1993.
7.02 This Agreement may be terminated thereafter by either
the Fund or the Bank upon sixty (60) days written notice to the other.
7.03 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Agent. Additionally, the Bank reserves the right to charge the
Agent for any other reasonable expenses associated with such termination.
Article 8 Assignment
8.01 Neither this Agreement nor any rights or obligations
hereunder may be assigned by any party without the written consent of the other
parties.
8.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
Article 9 Amendment
9.01 This Agreement may be amended or modified by a
written agreement executed by all parties.
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<PAGE>
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect to
the subject hereof whether oral or written.
Article 12 Declaration of Trust
12.01 A copy of the Agreement and Declaration of Trust of
the Fund is on file with the Secretary of State of The Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Fund as Trustees and not individually and that the
obligations of or arising out of this instrument are not binding upon any of the
Trustees or shareholders individually but binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
THE PUTNAM FUNDS LISTED ON APPENDIX A
/s/Charles E. Porter
BY: ---------------------------------
Charles E. Porter
Executive Vice President
PUTNAM FIDUCIARY TRUST COMPANY
/s/ Robert F. Lucey
BY: -----------------------------------
Robert F. Lucey
President
THE FIRST NATIONAL BANK OF BOSTON
/s/ Janice Chanbonnier
BY: -------------------------------------
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<PAGE>
Appendix A
List of Closed-End Putnam Funds Executing
Dividend Reinvestment Plan Agency Agreement
dated as of March 30, 1995
Putnam High Income Convertible and Bond Fund
Putnam Master Income Trust
Putnam Premier Income Trust
Putnam Master Intermediate Income Trust
Putnam Intermediate Government Income Trust
Putnam Managed Municipal Income Trust
Putnam High Yield Municipal Trust
Putnam Dividend Income Fund
Putnam Investment Grade Municipal Trust
Putnam Tax-Free Health Care Fund
Putnam Investment Grade Municipal Trust II
Putnam Investment Grade Municipal Trust III
Putnam California Investment Grade Municipal Trust
Putnam New York Investment Grade Municipal Trust
Putnam Municipal Opportunities Trust
Putnam Investment Grade Intermediate Municipal Trust
Putnam Managed High Yield Trust
Putnam Convertible Opportunities and Income Trust
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<PAGE>
BANK OF BOSTON
Dividend Reinvestment Plan Agent
Fee Schedule
For
PUTNAM INVESTMENTS
Annual Administrative Fee for Omnibus Account:
$3,000.00
Transactions: $12.00 Each for DTC
$10.00 Each for DWAC
Out-of Pocket Expenses as incurred including but not limited to:
Insurance, Expedited Mail, Duplicating, Fax Charges, Wires in and out,
Microfiche, etc.
Overdraft Recovery
Overdraft charge will be calculated on the actual overdraft incurred plus
Federal Reserve requirements and F.D.I.C. assessments.
Term of Contract
Three years
THE PUTNAM FUNDS LISTED ON APPENDIX A
/s/ Charles E. Porter
BY: ____________________________
PUTNAM FIDUCIARY TRUST COMPANY
/s/ Robert F. Lucey
BY: _____________________________
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<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
/s/ Janice Chanbonnier
BY: _____________________________
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EXHIBIT 2(g)
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
MANAGEMENT CONTRACT
Management Contract dated as of May 7, 1993 between PUTNAM MUNICIPAL
OPPORTUNITIES TRUST, a Massachusetts business trust (the "Fund"), and PUTNAM
INVESTMENT MANAGEMENT, INC., a Delaware corporation (the "Manager")
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO FUND.
(a) The Manager, at its expense, will furnish continuously an
investment program for the Fund, will determine what investments shall be
purchased, held, sold or exchanged by the Fund and what portion, if any, of the
assets of the Fund shall be held uninvested and shall, on behalf of the Fund,
make changes in the Fund's investments. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and Bylaws of the Fund and its stated investment objectives, policies and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Fund and to comply with other policies which the Trustees may from time
to time determine and shall exercise the same care and diligence expected of the
Trustees.
(b) The Manager, at its expense, except as such expense is paid by
the Fund as provided in Section 1(d), will furnish all necessary investment and
related management facilities, including salaries of personnel, required for it
to execute its duties faithfully. Except as otherwise provided in Section 1(d),
the Manager will pay the compensation, if any, of certain officers of the Fund
carrying out the investment management and related duties provided for by this
Contract.
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for the Fund's account with brokers
or dealers selected by the Manager. In the selection of such brokers or dealers
and the placing of such orders, the Manager shall use its best efforts to obtain
for the Fund the most favorable price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager, bearing
in mind the Fund's best interests at all times, shall consider all factors it
deems relevant, including by way of illustration, price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker or
dealer involved, and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Trustees of the Fund may
determine, the Manager shall not be deemed to have
<PAGE>
acted unlawfully or to have breached any duty created by this Contract or
otherwise solely by reason of its having caused the Fund to pay a broker or
dealer that provides brokerage and research services to the Manager an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission that another broker or dealer would have charged for
effecting that transaction, if the Manager determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Manager's overall responsibilities
with respect to the Fund and to other clients of the Manager as to which the
Manager exercises investment discretion. The Manager agrees that in connection
with purchases or sales of portfolio investments for the Fund's account, neither
the Manager nor any officer, director, employee or agent of the Manager shall
act as a principal or receive any commission other than as provided in Section
3.
(d) The Fund will pay or reimburse the Manager for the compensation
in whole or in part of such officers of the Fund and persons assisting them as
may be determined from time to time by the Trustees of the Fund. The Fund will
also pay or reimburse the Manager for all or part of the cost of suitable office
space, utilities, support services and equipment attributable to such officers
and persons, as may be determined in each case by the Trustees of the Fund. The
Fund will pay the fees, if any, of the Trustees of the Fund.
(e) The Manager shall not be obligated to pay any expenses of or for
the Fund not expressly assumed by the Manager pursuant to this Section 1 other
than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers,
and employees of the Fund may be a shareholder, director, officer or employee
of, or be otherwise interested in, the Manager, and in any person controlled by
or under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Fund. It is also understood that the Manager and any person controlled by or
under common control with the Manager have and may have advisory, management,
service or other contracts with other organizations and persons, and may have
other interests and business.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to paragraphs (a), (b), (c) and (e) of Section 1, a fee,
computed and paid quarterly at the following annual rate:
(a) 0.50% of the first $500 million of the average net asset value
of the Fund;
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(b) 0.43% of the next $500 million of such average net asset value;
(c) 0.39% of the next $500 million of such average net asset value;
and
(d) 0.35% of any excess over $1.5 billion of such average net asset
value.
Such average net asset value shall be determined by taking an average of all of
the determinations of such net asset value during such quarter at the close of
business on the last business day of each week, for each week which ends during
such quarter. Such fees shall be payable for each fiscal quarter within 30 days
after the close of such quarter.
The fees payable by the Fund to the Manager pursuant to this Section
3 shall be reduced by any commissions, fees, brokerage or similar payments
received by the Manager or any affiliated person of the Manager in connection
with the purchase and sale of portfolio investments of the Fund, less any direct
expenses approved by the Trustees incurred by the Manager or any affiliate of
the Manager in connection with obtaining such payments.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer or sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Fund, voluntarily
declare to be effective subject to such terms and conditions as the Manager may
prescribe in such notice, the compensation due the Manager shall be reduced,
and, if necessary, the Manager shall assume expenses of the Fund, to the extent
required by such expense limitation.
In the event that the amount of dividends payable with respect to any
outstanding shares of beneficial interest of the Fund with preference rights
("Preferred Shares") during any period for which regular payments of dividends
or other distributions on such Preferred Shares are payable (each, a "Dividend
Period") plus expenses attributable to such Preferred Shares for such Dividend
Period exceeds the portion of the Fund's net income and net short-term capital
gains (but not long-term capital gains) accruing during such Dividend Period as
a result of the fact that such Preferred Shares were outstanding during such
Dividend Period, then the fee payable to the Manager pursuant to this Section 3
shall be reduced by an amount equal to the product of such excess and a
fraction, the numerator of which shall be the fee otherwise payable to the
Manager pursuant to this Section 3 and the denominator of which shall be the sum
of the fee otherwise payable to the Manager pursuant to this Section 3 and the
administrative services fee otherwise payable to the Manager under the
Administrative Services Contract dated as of ___________, 1993 between the Fund
and the Manager; provided, however, that the amount of such reduction for any
such Dividend Period shall not exceed the amount determined by multiplying (i)
the aggregate liquidation preference of the average number of Preferred Shares
outstanding during the Dividend Period, by (ii) the percentage of the aggregate
net asset value of the Fund which the fee payable to the Manager during such
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<PAGE>
Period pursuant to this Section 3 would constitute without giving effect to such
reduction. The amount of such reduction attributable to any Dividend Period
shall reduce the amount of the next quarterly payment of the fee payable
pursuant to this Section 3 following the end of such Dividend Period, and of any
subsequent quarterly or more frequent payments, as may be necessary. The
expenses attributable to Preferred Shares and the portion of the Fund's net
income and net short-term capital gains accruing during any Dividend Period as a
result of the fact that Preferred Shares were outstanding during such Dividend
Period shall be determined by the Trustees of the Fund.
If the Manager shall serve for less than the whole of a quarter, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of
any penalty, in the event of its assignment; and this Contract shall not be
amended unless such amendment be approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Fund, and by the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Fund who are not interested persons of the Fund
or of the Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract by
not more than sixty days' nor less than thirty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Fund or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a
majority of the Trustees of the Fund who are not interested persons of the Fund
or of the Manager, by vote cast in person at a meeting called for the purpose of
voting on such approval, do not specifically approve at least annually the
continuance of this Contract, then this Contract shall automatically terminate
at the close of business on ______________, 1994 or the expiration of one year
from the effective date of the last such continuance, whichever is later.
Action by the Fund under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 will be
without the payment of any penalty.
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<PAGE>
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a
majority of the outstanding shares of the Fund" means the affirmative vote, at a
duly called and held meeting of shareholders of the Fund, (a) of the holders of
67% or more of the shares of the Fund present (in person or by proxy) and
entitled to vote at such meeting, if the holders of more than 50% of the
outstanding shares of the Fund entitled to vote at such meeting are present in
person or by proxy, or (b) of the holders of more than 50% of the outstanding
shares of the Fund entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person", and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; the term "specifically
approve at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the Rules and Regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
7. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Fund is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Fund as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers or
shareholders of the Fund but are binding only upon the assets and property of
the Fund.
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<PAGE>
IN WITNESS WHEREOF, PUTNAM MUNICIPAL OPPORTUNITIES TRUST and
PUTNAM INVESTMENT MANAGEMENT, INC. have each caused this instrument to be
signed in duplicate in its behalf by its President or Vice President thereunto
duly authorized, all as of the day and year first above written.
PUTNAM MUNICIPAL OPPORTUNITIES
TRUST
By: /s/ Charles E. Porter
--------------------------
PUTNAM INVESTMENT MANAGEMENT,
INC.
By: /s/ Gordon H. Silver
--------------------------
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EXHIBIT 2(h)(1)
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
(a Massachusetts business trust)
15,000,000 Common Shares
(Without Par Value)
PURCHASE AGREEMENT
------------------
May 21, 1993
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
A.G. EDWARDS & SONS, INC.
KEMPER SECURITIES, INC.
PRUDENTIAL SECURITIES INCORPORATED
SHEARSON LEHMAN BROTHERS INC.
DAIN BOSWORTH INCORPORATED
FIRST OF MICHIGAN CORPORATION
RAYMOND JAMES & ASSOCIATES, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
RONEY & CO.
TUCKER ANTHONY INCORPORATED
As Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch World Headquarters
World Financial Center, North Tower
New York, New York 10281-1209
Dear Sirs:
Putnam Municipal Opportunities Trust, a Massachusetts business trust
(the "Fund"), and Putnam Investment Management, Inc., a Delaware corporation
(the "Adviser"), each confirms its agreement with you (the "Representatives")
and each of the other underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 10) with respect to the sale by the Fund and the
purchase by the Underwriters, acting severally and not jointly, of 15,000,000
common shares of beneficial interest, without par value, of the Fund (the
"Common Shares") as set forth in Schedule A and, with respect to the grant by
the Fund to the Underwriters, acting severally and not jointly, of the option
described in Section 2 hereof to purchase all or any part of 2,250,000
additional Common Shares to cover over-allotments. The aforesaid 15,000,000
Common Shares (the "Initial Shares"), together with all or any part of the
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2,250,000 additional Common Shares subject to the option described in Section 2
hereof (the "Option Shares"), hereinafter are collectively called the "Shares".
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Fund and the Representatives, on behalf of the several
Underwriters, shall enter into an agreement substantially in the form of Exhibit
A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of
an exchange of any standard form of written telecommunication between the Fund
and the Representative and shall specify such applicable information as is
indicated in Exhibit A hereto. The offering of the Shares will be governed by
this Agreement, as supplemented by the Pricing Agreement. From and after the
date of the execution and delivery of the Pricing Agreement, this Agreement
shall be deemed to incorporate the Pricing Agreement.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (No. 33-60790) and a related
preliminary prospectus for the registration of the Shares under the Securities
Act of 1933, as amended (the "1933 Act"), and a notification on Form N-8A of
registration of the Fund under the Investment Company Act of 1940, as amended
(the "1940 Act"), and the rules and regulations of the Commission under the 1940
Act (together with the rules and regulations of the Commission under the 1933
Act, the "Rules and Regulations"), and has filed such amendments to such
registration statement on Form N-2, if any, and such amended preliminary
prospectuses as may have been required to the date hereof. The Fund will prepare
and file such additional amendments thereto and such amended prospectuses as may
hereafter be required. Such registration statement (as amended, if applicable)
and the prospectus constituting a part thereof (including, in each case, the
information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the
Rules and Regulations), as from time to time amended or supplemented pursuant to
the 1933 Act (or otherwise), are hereinafter referred to as the "Registration
Statement" and the "Prospectus", respectively, except that if any revised
prospectus shall be provided to the Underwriters by the Fund for use in
connection with the offering of the Shares which differs from the Prospectus on
file at the Commission at the time the Registration Statement becomes effective
(whether such revised prospectus is required to be filed by the Fund pursuant to
Rule 497(b) or Rule 497(h) of the Rules and Regulations), the term "Prospectus"
shall refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use. The term "Registration Statement" as
used herein does not include any registration statement relating to an offering
of preferred shares of beneficial interest offered by the Fund.
The Fund understands that the Underwriters propose to make a public
offering of the Shares as soon as the Representatives deem advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
SECTION 1. Representations and Warranties. (a) The Fund and the Adviser
each severally represents and warrants to each Underwriter as of the date hereof
and as of the date of the Pricing Agreement (such latter date being hereinafter
referred to as the "Representation Date") as follows:
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(i) At the time the Registration Statement becomes effective
and at the Representation Date, the Registration Statement will comply
in all material respects with the requirements of the 1933 Act, the
1940 Act and the Rules and Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Prospectus, at the Representation Date (unless the term
"Prospectus" refers to a prospectus which has been provided to the
Underwriters by the Fund for use in connection with the offering of the
Shares which differs from the Prospectus on file at the Commission at
the time the Registration Statement becomes effective, in which case at
the time it is first provided to the Underwriters for such use) and at
Closing Time referred to in Section 2, will not contain an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or Prospectus made in reliance upon and in conformity with
information furnished to the Fund in writing by the Underwriters
through their Representatives expressly for use in the Registration
Statement or Prospectus and, with respect to the representations and
warranties of the Fund, shall not apply to the description of the
Investment Manager contained in the Prospectus under the caption
"Investment Manager" and to the section of the Prospectus under the
caption "Conditions in the Tax Exempt Securities Market".
(ii) The accountants who certified the statement of assets and
liabilities included in the Registration Statement are independent
public accountants as required by the 1933 Act and the Rules and
Regulations.
(iii) The statement of assets and liabilities included in the
Registration Statement presents fairly the financial position of the
Fund as at the date indicated; and such statement of assets and
liabilities has been prepared in conformity with generally accepted
accounting principles applied on a consistent basis.
(iv) Since the date as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated
therein, (a) there has been no material adverse change in the
condition, financial or otherwise, of the Fund, or in the earnings,
business affairs or business prospects of the Fund, whether or not
arising in the ordinary course of business, (b) there have been no
transactions entered into by the Fund which are material to the Fund
other than those in the ordinary course of business and (c) there has
been no dividend or distribution of any kind declared, paid or made by
the Fund on any class of its common shares of beneficial interest.
(v) The Fund has been duly established and is validly existing
as a voluntary association (commonly referred to as a business trust)
under the laws of The
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Commonwealth of Massachusetts; the Agreement and Declaration of Trust,
as it may have been amended (the "Declaration of Trust"), pursuant to
which the Fund was established, confers on the trustees named therein,
and their successors in trust, power and authority to own, lease and
operate its properties and conduct its business as described in the
Prospectus; the Fund is duly qualified to transact business and is in
good standing in each jurisdiction in which such qualification is
required or is subject to no material liability or disability by reason
of the failure to be so qualified in any such jurisdiction; and the
Fund has no subsidiaries.
(vi) The Fund has filed with the Commission a notification on
Form N-8A of the registration of the Fund as a closed-end
non-diversified management investment company under the 1940 Act and is
registered with the Commission under the 1940 Act as a closed-end
non-diversified management investment company.
(vii) The authorized, issued and outstanding common shares of
beneficial interest of the Fund are as set forth in the Prospectus
under the caption "Description of Shares"; the Shares have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Fund pursuant to this
Agreement against payment of the consideration set forth in the Pricing
Agreement, will be validly issued and fully paid and non-assessable
(except as set forth in the Prospectus); the Shares conform in all
material respects to all statements relating thereto contained in the
Prospectus; the issuance of the Shares to be purchased by the
Underwriters is not subject to preemptive or other similar rights; and
this Agreement and the Pricing Agreement have been duly authorized,
executed and delivered by the Fund.
(viii) The Fund is not in violation of its Declaration of
Trust or the by-laws, as amended, of the Fund (the "By-laws") or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which it is a party or by which it or its properties may be bound; and
the execution, delivery and performance of this Agreement, the Pricing
Agreement, the Management Contract and the Administrative Services
Contract referred to in the Prospectus (as used herein, the "Management
Contract" and the "Administration Contract", respectively) and the
Custodian Agreement dated May 3, 1991 among the Fund, certain
affiliates of the Fund and Putnam Fiduciary Trust Company (the
"Custodian Agreement") and the Investor Servicing Agreement dated July
1, 1991 pursuant to which Putnam Fiduciary Trust Company will act as
the Fund's dividend disbursing agent, transfer agent and registrar (the
"Investor Servicing Agreement") and the consummation of the
transactions contemplated herein and therein have been duly authorized
by all necessary trust action and will not conflict with or constitute
a breach of, or default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Fund pursuant to, any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Fund is a party
or by which it may be
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bound or to which any of the property or assets of the Fund is subject,
nor will such action result in any violation of the provisions of the
Declaration of Trust or the By-laws or, to the best of its knowledge,
any law, administrative regulation or administrative or court decree;
and no consent, approval, authorization or order of any court or
governmental authority or agency is required for the consummation by
the Fund of the transactions contemplated by this Agreement, the
Pricing Agreement, the Management Contract, the Investor Servicing
Agreement or the Custodian Agreement, except such as has been obtained
under the 1940 Act or as may be required under the 1933 Act, or state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(ix) The Management Contract, the Administration Contract, the
Investor Servicing Agreement and the Custodian Agreement have each been
duly authorized, executed and delivered by the Fund and comply with all
applicable provisions of the 1940 Act.
(x) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to
operate its properties and to carry on its business as contemplated in
the Prospectus.
(xi) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending,
or, to the knowledge of the Fund, threatened against the Fund which
might result in any material adverse change in the condition, financial
or otherwise, business affairs or business prospects of the Fund, or
might materially and adversely affect the properties or assets of the
Fund; and there are no material contracts or documents of the Fund
which are required to be filed as exhibits to the Registration
Statement by the 1933 Act, the 1940 Act or by the Rules and Regulations
which have not been so filed.
(xii) The Fund owns or possesses, or can acquire on reasonable
terms, adequate trademarks, service marks and trade names necessary to
conduct the business now operated by it, and the Fund has not received
any notice of infringement of or conflict with asserted rights of
others with respect to any trademarks, service marks or trade names
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially adversely affect the
conduct of the business, operations, financial condition or income of
the Fund.
(xiii) The Shares have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange.
(b) The Adviser represents and warrants to each Underwriter as follows:
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(i) The Adviser has been duly incorporated as a corporation
under the laws of the State of Delaware with corporate power and
authority to conduct its business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers
Act") and is not prohibited by the Advisers Act or the 1940 Act, or the
rules and regulations under such Acts, from acting under the Management
Contract for the Fund as contemplated by the Prospectus.
(iii) This Agreement has been duly authorized, executed and
delivered by the Adviser; the Management Contract and the
Administration Contract have each been duly authorized, executed and
delivered by the Adviser and constitute a valid and binding obligation
of the Adviser, enforceable in accordance with their terms, subject, as
to enforcement, to bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights and to general equity
principles; and neither the execution and delivery of this Agreement,
the Management Contract or the Administration Contract nor the
performance by the Adviser of its obligations hereunder or thereunder
will conflict with, or result in a breach of, any of the terms and
provisions of, or constitute, with or without giving notice or lapse of
time or both, a default under, any material agreement or instrument to
which the Adviser is a party or by which the Adviser is bound, or any
law, order, rule or regulation applicable to it of any jurisdiction,
court, federal or state regulatory body, administrative agency or other
governmental body, stock exchange or securities association having
jurisdiction over the Adviser or its properties or operations.
(iv) The Adviser has the financial resources available for the
performance of its services and obligations as contemplated in the
Prospectus.
(v) All advertisements authorized in writing or prepared by
the Fund or the Adviser for use in the public offering of the Shares
pursuant to Rule 482 under the Rules and Regulations (an "Omitting
Prospectus") and all other advertisements and sales literature
authorized in writing prepared by the Fund or the Adviser for use in
connection with the public offering of the Shares complied and comply
with the requirements of the 1933 Act, the Rules and Regulations and
the rules and interpretations of the NASD and no such advertisement
contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.
(c) Any certificate signed by any officer of the Fund or the Adviser
and delivered to the Representatives or to counsel for the Underwriters shall be
deemed a representation and warranty by the Fund or the Adviser, as the case may
be, to each Underwriter as to the matters covered thereby.
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SECTION 2. Sale and Delivery to the Underwriters; Closing. (a) On the
basis of the representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Fund agrees to sell to each
Underwriter and each Underwriter, severally and not jointly, agrees to purchase
from the Fund at the price per share set forth in the Pricing Agreement the
Shares set forth in Schedule A opposite the name of such Underwriter (except as
otherwise provided in the Pricing Agreement), plus any additional number of
Shares which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(1) If the Fund has elected not to rely upon Rule 430A under
the Rules and Regulations, the initial public offering price and the
purchase price per share to be paid by the several Underwriters for the
Shares have each been determined and set forth in the Pricing
Agreement, dated the date hereof, and an amendment to the Registration
Statement and the Prospectus will be filed before the Registration
Statement becomes effective.
(2) If the Fund has elected to rely upon Rule 430A under the
Rules and Regulations, the purchase price per share to be paid by the
Underwriters for the Shares shall be an amount equal to the initial
public offering price, less an amount to be determined by agreement
between the Representatives and the Fund. The initial public offering
price per share of the Shares shall be a fixed price to be determined
by agreement between the Representatives and the Fund. The initial
public offering price and the purchase price, when so determined, shall
be set forth in the Pricing Agreement. In the event that such prices
have not been agreed upon and the Pricing Agreement has not been
executed and delivered by all parties thereto by the close of business
on the fourth business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of any party to
any other party, unless otherwise agreed to by the Fund and the
Representatives.
(3) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Fund hereby grants an option to the Underwriters
to purchase up to an additional 2,250,000 Shares at the price per share
set forth in the Pricing Agreement. The option hereby granted will
expire 45 days after the date hereof (or, if the Fund has elected to
rely upon Rule 430A under the Rules and Regulations, 45 days after the
execution of the Pricing Agreement) and may be exercised, up to three
times, only for the purpose of covering over-allotments which may be
made in connection with the offering and distribution of the Initial
Shares upon notice by the Representatives to the Fund setting forth the
number of Option Shares as to which the several Underwriters are then
exercising the option and the time, date and place of payment and
delivery for such Option Shares. Any such time and date of delivery (a
"Date of Delivery") shall be determined by the Representatives but
shall not be later than seven full business days after the exercise of
such option, nor in any event prior to Closing Time, as hereinafter
defined, unless otherwise agreed upon by the Representatives and the
Fund. If the option is exercised
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as to all or any portion of the Option Shares, the Option Shares shall
be purchased by the Underwriters, severally and not jointly, in
proportion to their respective Initial Share underwriting obligations
as set forth in Schedule A (except as otherwise provided in the Pricing
Agreement).
(4) The Fund will notify the Underwriters at least 10 days
prior to the declaration of any dividend to be declared during the 45
day period during which the option to purchase the Option Shares is in
effect.
(b) Payment of the purchase price for, and delivery of certificates
for, the Initial Shares shall be made at the office of Brown & Wood, One World
Trade Center, New York, New York 10048 or at such other place as shall be agreed
upon by the Representatives and the Fund, at 10:00 A.M. on the fifth business
day (unless postponed in accordance with the provisions of Section 10) following
the date the Registration Statement becomes effective (or, if the Fund has
elected to rely upon Rule 430A, the fifth business day after execution of the
Pricing Agreement), or such other time not later than ten business days after
such date as shall be agreed upon by the Representatives and the Fund (such time
and date of payment and delivery being herein called "Closing Time"). In
addition, in the event that any or all of the Option Shares are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Shares shall be made at the above-mentioned office of Brown &
Wood, or at such other place as shall be mutually agreed upon by the Fund and
the Representatives, on each Date of Delivery as specified in the notice from
the Representatives to the Fund. Payment shall be made to the Fund by certified
or official bank check or checks drawn in New York Clearing House or similar
next-day funds and payable to the order of the Fund, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Shares to be purchased by them. Certificates for the Initial Shares and
Option Shares shall be in such denominations and registered in such names as the
Representatives may request in writing at least two business days before Closing
Time or the Date of Delivery, as the case may be. It is understood that each
Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Shares and the Option Shares which it has agreed to purchase. The
Representatives, individually and not as representatives of the Underwriters,
may (but shall not be obligated to) make payment of the purchase price for the
Initial Shares and the Option Shares to be purchased by any Underwriter whose
check has not been received by Closing Time or the Date of Delivery, as the case
may be, but such payment shall not relieve such Underwriter from its obligations
hereunder. The certificate for the Initial Shares and the Option Shares will be
made available for examination and packaging by the Underwriters not later than
10:00 A.M. on the last business day prior to Closing Time or the Date of
Delivery, as the case may be.
SECTION 3. Covenants of the Fund. The Fund covenants with each
Underwriter as follows:
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(a) The Fund will use its best efforts to cause the Registration
Statement to become effective under the 1933 Act, and will advise the
Representatives promptly as to the time at which the Registration Statement
becomes so effective.
(b) The Fund will notify the Representatives immediately, and confirm
the notice in writing, (i) of the effectiveness of the Registration Statement
and any amendment thereto (including any post-effective amendment), (ii) when
the Prospectus has been timely filed pursuant to Rule 497(b) or Rule 497(h) of
the Rules and Regulations, whichever is applicable under the Rules and
Regulations, (iii) of the receipt by the Fund of any comments from the
Commission, (iv) of any request by the Commission to the Fund for any amendment
to the Registration Statement or any amendment or supplement to the Prospectus
or for additional information, and (v) of the issuance to the Fund by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose. The Fund will
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(c) During any period in which an Underwriter is required to deliver a
prospectus in connection with the sale or offer of Shares, the Fund will give
the Representatives notice of its intention to file any amendment to the
Registration Statement (including any post-effective amendment) or any amendment
or supplement to the Prospectus whether pursuant to the 1933 Act, the 1940 Act
or otherwise, and the Fund will not file any such amendment or supplement or use
any such prospectus to which the Representatives or counsel to the Underwriters
shall reasonably object.
(d) The Fund will deliver to the Representatives, as soon as
practicable, two signed copies of the Registration Statement as originally filed
and of each amendment thereto, in each case with three sets of the exhibits
filed therewith, and will also deliver to the Representatives a conformed copy
of the Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the other Underwriters.
(e) The Fund will furnish to each Underwriter, from time to time during
the period when the Prospectus is required to be delivered under the 1933 Act,
such number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request for the purposes contemplated by the 1933
Act, the 1940 Act or the Rules and Regulations.
(f) During any period in which an Underwriter is required to deliver a
prospectus in connection with the sale or offer of Shares, if any event shall
occur as a result of which it is necessary, in the reasonable opinion of counsel
for the Underwriters, to amend or supplement the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the time
it is delivered to a purchaser, the Fund will forthwith amend or supplement the
Prospectus by preparing and furnishing to the Underwriters a reasonable number
of copies of an amendment or amendments of, or a supplement or supplements to,
the Prospectus (in form and substance reasonably satisfactory to counsel for the
Underwriters), so that, as so
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amended or supplemented, the Prospectus will not contain an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
Statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading; and, in case any
Underwriter is required to deliver a Prospectus nine months or more after the
effective date of the Registration Statement in connection with sales of any of
the Shares, the Fund will prepare promptly, upon request of such Underwriter
(made through the Representatives), and at the expense of such Underwriter, such
amendment or amendments to the Registration Statement, and such Prospectus, as
may be necessary to permit compliance with the 1933 Act, the 1940 Act and the
Rules and Regulations.
(g) The Fund will endeavor, in cooperation with the Underwriters, to
qualify the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the Representatives
may designate, and will maintain such qualifications in effect for a period of
not less than one year after the date hereof. The Fund will file such statements
and reports as may be required by the laws of each jurisdiction in which the
Shares have been qualified as above provided; provided, however, the Fund shall
not be required to qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction where it is not now so qualified or
required to file such a consent.
(h) The Fund will make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earning statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve month period beginning not later
than the first day of the Fund's fiscal quarter next following the effective
date of the Registration Statement.
(i) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A of
the Rules and Regulations, then immediately following the execution of the
Pricing Agreement, the Fund will prepare, and file or transmit for filing with
the Commission in accordance with such Rule 430A and Rule 497(h) of the Rules
and Regulations copies of an amended Prospectus or, if required by such Rule
430A, a post-effective amendment to the Registration Statement (including an
amended Prospectus) containing all information so omitted.
(j) Between the date of this Agreement and the termination of any
trading restrictions or Closing Time, whichever is later, the Fund will not,
without the Underwriters' prior consent, offer or sell, or enter into any
agreement to sell, any equity related securities of the Fund, except with regard
to any preferred shares as contemplated in the Prospectus.
SECTION 4. Payment of Expenses. The Fund will pay all expenses incident
to the performance of its obligations under this Agreement, including, but not
limited to, expenses relating to (i) the printing and filing of the registration
statement as originally filed and of each amendment thereto, (ii) the printing
of this Agreement and the Pricing Agreement, (iii) the preparation, issuance and
delivery of the certificates for the Shares to the Underwriters, (iv) the fees
and disbursements of the Fund's counsel and accountants, (v) the qualification
of the
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Shares under securities laws in accordance with the provisions of Section 3(g)
of this Agreement, including filing fees and any reasonable fees or
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey, (vi) the printing and
delivery to the Underwriters of copies of the registration statement as
originally filed and of each amendment thereto, of the preliminary prospectuses,
of any Omitting Prospectus and of the Prospectus and any amendments or
supplements thereto, (vii) the printing and delivery to the Underwriters of
copies of the Blue Sky Survey, (viii) the fees and expenses incurred with
respect to the filing with the National Association of Securities Dealers, Inc.
and (ix) the fees and expenses incurred with respect to the listing of the
Shares on the New York Stock Exchange.
If this Agreement is terminated by the Representatives in accordance
with the provisions of Section 5 or Section 9(a)(i), the Adviser shall reimburse
the Underwriters for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters. In the event
the transactions contemplated hereunder are not consummated (except as a result
of a termination of this Agreement pursuant to Section 10), the Adviser agrees
to pay all of the costs and expenses set forth in the first paragraph of this
Section 4 which the Fund would have paid if such transactions were consummated.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the Underwriters hereunder are subject to the accuracy of the representations
and warranties of the Fund and the Adviser herein contained, to the performance
by the Fund and the Adviser of their respective obligations hereunder, and to
the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City time, on the date hereof, or with the consent of
the Representatives, at a later time and date not later, however, than 5:30 P.M.
on the first business day following the date hereof, or at such later time and
date as may be approved by the Representatives, and at Closing Time no stop
order suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Fund has elected to rely upon Rule 430A of the Rules and
Regulations, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 497(h) of the Rules and Regulations within the prescribed time period, and
prior to Closing Time the Fund shall have provided evidence satisfactory to the
Underwriters of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A of the Rules and Regulations.
(b) At Closing Time the Representatives shall have received:
(1) The favorable opinion, dated as of Closing Time, of Ropes
& Gray, counsel for the Fund, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
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(i) The Fund has been duly organized and is validly
existing as an unincorporated association commonly referred to
as a business trust under the laws of The Commonwealth of
Massachusetts.
(ii) The Fund has power and authority to own, lease
and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus.
(iii) The Shares have been duly authorized for
issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Fund pursuant
to this Agreement against payment of the consideration set
forth in the Pricing Agreement, will be validly issued and
fully paid and non-assessable (except as set forth in the
Prospectus); and the issuance of the Shares is not subject to
preemptive or other similar rights.
(iv) This Agreement and the Pricing Agreement have
each been duly authorized, executed and delivered by the Fund.
(v) The Registration Statement is effective under the
1933 Act and, to the best of their knowledge and information,
no stop order suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission.
(vi) At the time the Registration Statement became
effective and at the Representation Date, the Registration
Statement (other than the statement of assets and liabilities
and other financial and statistical data included therein, as
to which no opinion need be rendered) complied as to form in
all material respects with the requirements of the 1933 Act,
the 1940 Act and the Rules and Regulations.
(vii) The authorized shares of beneficial interest of
the Fund conform to the description thereof contained in the
Prospectus, and the form of certificate used to evidence the
Common Shares is in proper form and complies with all
applicable statutory requirements.
(viii) To the best of their knowledge and
information, there are no legal or governmental proceedings
pending or threatened against the Fund which are required to
be disclosed in the Registration Statement, other than those
disclosed therein.
(ix) To the best of their knowledge and information,
there are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments of the Fund
required to be described or referred to in the
-12-
<PAGE>
Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed as
exhibits thereto, the descriptions thereof or references
thereto are correct, and no default exists in the due
performance or observance of any material obligation,
agreement, covenant or condition contained in any contract,
indenture, loan agreement, note or lease so described,
referred to or filed.
(x) No consent, approval, authorization or order of
any court or governmental authority or agency is required in
connection with the sale of the Shares to the Underwriters,
except such as has been obtained under the 1933 Act, the 1940
Act or the Rules and Regulations or such as may be required
under state securities laws; and to the best of their
knowledge and information, the execution and delivery of this
Agreement, the Pricing Agreement, the Management Contract, the
Administration Contract, the Custodian Agreement and the
Investor Servicing Agreement and the consummation of the
transactions contemplated herein and therein, will not
conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Fund pursuant
to, any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Fund is a party or by
which it may be bound or to which any of the property or
assets of the Fund is subject, nor will such action result in
any violation of the provisions of the Declaration of Trust or
By-laws, or any law, administrative regulation or
administrative or court decree.
(xi) The Management Contract, the Administration
Contract and the Custodian Agreement have each been duly
authorized, executed and delivered by the Fund; the Management
Contract complies with Section 15(a) of the 1940 Act and the
Custodian Agreement complies, in all material respects, with
all applicable provisions of the 1940 Act.
(xii) The Fund is registered with the Commission
under the 1940 Act as a closed-end non-diversified management
investment company, and all required action has been taken by
the Fund under the 1933 Act, the 1940 Act and the Rules and
Regulations to make the public offering and consummate the
sale of the Shares pursuant to this Agreement; the provisions
of the Declaration of Trust and the By-laws comply as to form
in all material respects with the requirements of the 1940
Act.
(xiii) The information in the Prospectus under the
caption "Taxation", to the extent that it constitutes matters
of law or legal conclusions, provides a fair summary of such
law or conclusions.
-13-
<PAGE>
(2) The favorable opinion, dated as of Closing Time, of
William H. Woolverton, Esq., general counsel to the Adviser, in form
and substance satisfactory to counsel for the Underwriters, to the
effect that:
(i) The Adviser has been duly organized as a
corporation under the laws of the State of Delaware with
corporate power and authority to conduct its business as
described in the Prospectus.
(ii) The Adviser is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the
Advisers Act or the 1940 Act, or the rules and regulations
under such Acts, from acting under the Management Contract or
the Administration Contract for the Fund as contemplated by
the Prospectus.
(iii) This Agreement, the Management Contract and the
Administration Contract have been duly authorized, executed
and delivered by the Adviser and the Management Contract and
the Administration Contract each constitute a valid and
binding obligation of the Adviser, enforceable in accordance
with their terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or
affecting creditors' rights and to general equity principles;
and neither the execution and delivery of this Agreement, the
Management Contract or the Administration Contract nor the
performance by the Adviser of its obligations hereunder or
thereunder will, to the best of such counsel's knowledge,
conflict with, or result in a breach of, any of the terms and
provisions of, or constitute, with or without giving notice of
lapse of time or both, a default under, any agreement or
instrument to which the Adviser is a party or by which the
Adviser is bound, or any law, order, rule or regulation
applicable to the Adviser of any jurisdiction, court, federal
or state regulatory body, administrative agency or other
governmental body, stock exchange or securities association
having jurisdiction over the Adviser or its properties or
operations.
(iv) To the best of such counsel's knowledge and
information, the description of the Adviser in the
Registration Statement and the Prospectus does not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading.
(3) The favorable opinion, dated as of Closing Time, of Brown
& Wood, counsel for the Underwriters, with respect to the matters set
forth in (i), (iii) to (vi), inclusive, and (xii) of subsection (b)(1)
of this Section.
(4) In giving their opinions required by subsection (b)(1) and
(b)(3), respectively, of this Section, Ropes & Gray and Brown & Wood
shall each additionally
-14-
<PAGE>
state that nothing has come to their attention that would lead them to
believe that the Registration Statement (excluding the statement of
assets and liabilities and other financial or statistical data included
therein, as to which such counsel need express no belief), at the time
it became effective or at the Representation Date, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus (except for the statement
of assets and liabilities and other financial or statistical data
included therein as to which such counsel need express no belief), at
the Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Fund for
use in connection with the offering of the Shares which differs from
the Prospectus on file at the Commission at the time the Registration
Statement becomes effective, in which case at the time it is first
provided to the Underwriters for such use) or at Closing Time, included
an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. In giving
their opinion, Brown & Wood may rely as to matters involving the laws
of The Commonwealth of Massachusetts upon the opinion of Ropes & Gray.
Ropes & Gray, Brown & Wood and Coopers & Lybrand may rely, as to
matters of fact, upon certificates and written statements of officers
and employees of and accountants for the Fund and the Adviser.
(c) At Closing Time (i) the Registration Statement and the Prospectus
shall contain all statements which are required to be stated therein in
accordance with the 1933 Act, the 1940 Act and the Rules and Regulations and in
all material respects shall conform to the requirements of the 1933 Act, the
1940 Act and the Rules and Regulations and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and no action, suit or proceeding at law
or in equity shall be pending or, to the knowledge of the Fund or the Adviser,
threatened against the Fund or the Adviser, which would be required to be set
forth in the Prospectus other than as set forth therein, (ii) there shall not
have been, since the date hereof or since the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
material adverse change in the condition, financial or otherwise, of the Fund or
in its earnings, business affairs or business prospects, whether or not arising
in the ordinary course of business, from that set forth in the Registration
Statement and the Prospectus, (iii) the Adviser shall have the financial
resources available to it necessary for the performance of its services and
obligations as contemplated in the Registration Statement and the Prospectus and
(iv) no proceedings shall be pending or, to the knowledge of the Fund or the
Adviser, threatened against the Fund or the Adviser before or by any federal,
state or other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, financial condition or income of either the Fund or the Adviser other
than as set forth in the Registration Statement and the Prospectus; and the
Representatives shall have received, at Closing Time, a certificate of the Fund
signed by the President or Treasurer of the Fund and of the Adviser signed by
the President, a Managing Director or a Vice
-15-
<PAGE>
President of the Adviser, dated as of Closing Time, evidencing compliance with
the appropriate provisions of this subsection (c) and, in the case of the
President or the Treasurer of the Fund, stating that the representations and
warranties set forth in Section 1(a) hereof are accurate as though expressly
made as of Closing Time.
(d) At Closing Time, the Representatives shall have received a
certificate, dated as of Closing Time, of the Adviser signed by the President, a
Managing Director or a Vice President, to the effect that the representations
and warranties of the Adviser contained in Sections 1(a) and (b) are true and
correct with the same force and effect as though expressly made at and as of
Closing Time.
(e) At the time of the execution of this Agreement, the Representatives
shall have received from Coopers & Lybrand a letter dated such date, in form and
substance satisfactory to the Representatives, to the effect that (i) they are
independent public accountants as required by the 1933 Act, the 1940 Act and the
Rules and Regulations; (ii) it is their opinion that the statement of assets and
liabilities included in the Registration Statement and covered by their opinion
therein complies as to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1940 Act and the Rules and
Regulations; and (iii) they have performed specified procedures, not
constituting an audit, including a reading of the latest available interim
financial statements of the Fund, a reading of the minute books of the Fund,
inquiries of officials of the Fund responsible for financial accounting matters
and such other inquiries and procedures as may be specified in such letter, and
on the basis of such inquiries and procedures nothing came to their attention
that caused them to believe that at the date of the latest available balance
sheet read by such accountants, or at a subsequent specified date not more than
five days prior to the date of this Agreement, there was any change in the
capital shares or net assets of the Fund as compared with amounts shown on the
statements of assets and liabilities included in the Prospectus.
(f) At Closing Time, the Representatives shall have received from
Coopers & Lybrand a letter, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (e)
of this Section, except that the "specified date" referred to shall be a date
not more than five days prior to Closing Time.
(g) At Closing Time, counsel for the Underwriters shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the issuance and sale of the Shares as
herein contemplated and related proceedings, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the Fund and
the Adviser in connection with the organization and registration of the Fund
under the 1940 Act and the issuance and sale of the Shares as herein
contemplated shall be reasonably satisfactory in all material respects in form
and substance to the Representative and counsel for the Underwriters.
-16-
<PAGE>
(h) In the event the Underwriters exercise their option provided in
Section 2 hereof to purchase all or any portion of the option Shares, the
representations and warranties of the Fund and the Adviser contained herein and
the statements in any certificate furnished by the Fund and the Adviser
hereunder shall be true and correct as of each Date of Delivery, and the
Representatives shall have received:
(1) Certificates, dated the Date of Delivery, of the President
and Treasurer of the Fund and of the President or a Vice President of
the Adviser confirming that the information contained in the
certificates delivered by each of them at Closing Time pursuant to
Section 5(c) and (d), respectively, remains true as such Date of
Delivery.
(2) The favorable opinions of Ropes & Gray, counsel for the
Fund, and William H. Woolverton, Esq., counsel for the Adviser, in form
and substance satisfactory to counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Shares and otherwise to the
same effect as the opinions required by Sections 5(b)(1) and (2),
respectively.
(3) The favorable opinion of Brown & Wood, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Shares and otherwise to the same effect as the opinion required by
Section 5(b)(3).
(4) A letter from Coopers & Lybrand, in form and substance
satisfactory to the Representatives and dated such Date of Delivery,
substantially the same in scope and substance as the letter furnished
to the Representatives pursuant to Section 5(e), except that the
"specified date" in the letter furnished pursuant to this Section
5(h)(4) shall be a date not more than five days prior to such Date of
Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Representatives by notice to the Fund at any time at or prior to Closing
Time, and such termination shall be without liability of any party to any other
party except as provided in Section 4.
SECTION 6. Indemnification. (a) The Fund and the Adviser, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto) including the
information deemed to be a part of the Registration Statement pursuant
to Rule 430A(b) of the Rules and Regulations, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the
-17-
<PAGE>
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Fund and the Adviser; and
(iii) against any and all expenses whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Underwriters), reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by any
Underwriter through the Representatives expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) and provided further, the
foregoing indemnification with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares (or to the benefit of
any person controlling such Underwriter) if a copy of the Prospectus (as then
amended or supplemented if the Fund shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if such is required by law, at or prior to the written
confirmation of the sales of such Shares to such person and if indemnifying
parties be liable for the fees and expenses of more than one counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 is for any reason held to be unenforceable in accordance with its
terms, the Fund, the Adviser and the Underwriters shall contribute to the
aggregate losses, liabilities, claims, damages and expenses, as incurred, of the
nature contemplated by said indemnity agreement incurred by the Fund, the
Adviser and one or more of the Underwriters, in such proportions that the
Underwriters are responsible for that portion represented by the percentage that
the underwriting compensation payable pursuant to Section 2 hereof bears to the
initial public
-18-
<PAGE>
offering price appearing on the cover page of the Prospectus, and the Fund and
the Adviser are responsible for the balance; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section, each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as such Underwriter, and
each trustee or director of the Fund and the Adviser, respectively, each officer
of the Fund who signed the Registration Statement, and each person, if any, who
controls the Fund or the Adviser within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as the Fund and the Adviser,
respectively.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or the Pricing Agreement, or contained in certificates of officers of
the Fund or the Adviser submitted pursuant hereto or thereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of the
Fund or the Adviser and shall survive delivery of the Shares to the
Underwriters.
SECTION 9. Termination of Agreement. (a) The Representatives may
terminate this Agreement, by written notice to the Fund, at any time at or prior
to Closing Time (i) if there has been, since the date of this Agreement or since
the respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Fund or the
Adviser, whether or not arising in the ordinary course of business, or (ii) if
there has Occurred any outbreak of hostilities or other calamity or crisis the
effect of which on the financial markets of the United States is such as to make
it, in the judgment of the Representatives, impracticable to market the Shares
or to enforce contracts for the sale of Shares, or (iii) if trading in the
Shares has been suspended by the Commission or if trading generally on either
the New York Stock Exchange or the American Stock Exchange has been suspended,
or minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required, by either of said Exchanges or by
order of the Commission or any other governmental authority, or if a banking
moratorium has been declared by Federal, New York or Massachusetts authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time to purchase the Shares which it
or they are obligated to purchase under this Agreement and the Pricing Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
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<PAGE>
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
Shares, the non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the Shares,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representatives or the Fund shall have the right
to postpone Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
SECTION 11. Notice. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Underwriters shall be directed to Merrill Lynch World Headquarters, World
Financial Center, North Tower, New York, New York 10281-1209, attention of Mr.
Steven J. Goulart, Vice President; notices to the Fund or the Adviser shall be
directed to each of them at One Post Office Square, Boston, Massachusetts 02109,
attention of Mr. John R. Verani, Vice President.
SECTION 12. Parties. This Agreement and the Pricing Agreement shall
each inure to the benefit of and be binding upon the Underwriters, the Fund and
the Adviser and their respective successors. Nothing expressed or mentioned in
this Agreement or the Pricing Agreement is intended or shall be construed to
give any person, firm or corporation, other than the parties hereto and their
respective successors and the controlling persons and officers, trustees and
directors referred to in Section 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or the Pricing Agreement or any provision herein or
therein contained. This Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the parties
hereto and their respective successors, and said controlling persons and
officers, trustees and directors and their heirs and legal representatives, and
for the benefit of no other person, firm or corporation. No purchaser of Shares
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. Liability of Shareholders, Trustees and Officers. A copy of
the Agreement and Declaration of Trust of the Fund is on file with the Secretary
of State of The
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<PAGE>
Commonwealth of Massachusetts and notice is hereby given that this Agreement has
been executed on behalf of the Fund by an officer of the Fund as an officer and
not individually and the obligations of the Fund arising out of this Agreement
are not binding upon any of the trustees, officers or shareholders of the Fund
individually but are binding only upon the assets and property of the Fund.
SECTION 14. Governing Law and Time. This Agreement and the Pricing
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to the agreements made and to be performed in such
State. Specified times of day refer to New York City time.
If the foregoing is in accordance with your understanding of our
Agreement, please sign and return to the Fund and the Adviser a counterpart
hereof, whereupon this instrument along with all counterparts will become a
binding agreement among the Underwriters, the Fund and the Adviser and in
accordance with its terms.
Very truly yours,
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By: /s/ George Putnam
_______________________________________
Authorized Officer
PUTNAM INVESTMENT MANAGEMENT, INC.
By: /s/ Gordon H. Silver
_______________________________________
Authorized Officer
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<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
A.G. EDWARDS & SONS, INC.
KEMPER SECURITIES, INC.
PRUDENTIAL SECURITIES INCORPORATED
SHEARSON LEHMAN BROTHERS INC.
DAIN BOSWORTH INCORPORATED
FIRST OF MICHIGAN CORPORATION
RAYMOND JAMES & ASSOCIATES, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
RONEY & CO.
TUCKER ANTHONY INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: /s/ Ruth Doyle
___________________________________
Authorized Signatory
Investment Banking
For themselves and as Representatives of the
several Underwriters named in
Schedule A hereto.
-22-
<PAGE>
SCHEDULE A
Number of
Initial Shares
Name of Underwriter to be Purchased
------------------- ---------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................ 804,820
A.G. Edwards & Sons, Inc......................................... 804,818
Kemper Securities, Inc........................................... 804,818
Prudential Securities Incorporated............................... 804,818
Shearson Lehman Brothers Inc..................................... 804,818
Dain Bosworth Incorporated....................................... 804,818
First of Michigan Corporation.................................... 804,818
Raymond James & Associates, Inc.................................. 804,818
The Robinson-Humphrey Company, Inc............................... 804,818
Roney & Co....................................................... 804,818
Tucker Anthony Incorporated...................................... 804,818
Bear, Stearns & Co. Inc.......................................... 221,300
Alex. Brown & Sons Incorporated.................................. 221,300
Kidder, Peabody & Co. Incorporated............................... 221,300
Oppenheimer & Co., Inc........................................... 221,300
PaineWebber Incorporated......................................... 221,300
Smith Barney, Harris Upham & Co. Incorporated ................... 221,300
Advest, Inc...................................................... 150,000
Robert W. Baird & Co. Incorporated............................... 150,000
Cowen & Company.................................................. 150,000
First Albany Corporation......................................... 150,000
Gruntal & Co., Incorporated...................................... 150,000
Interstate/Johnson Lane Corporation.............................. 150,000
Janney Montgomery Scott Inc...................................... 150,000
Ladenburg, Thalmann & Co. Inc.................................... 150,000
McDonald & Company Securities, Inc............................... 150,000
Morgan Keegan & Company, Inc..................................... 150,000
Needham & Company, Inc........................................... 150,000
Piper Jaffray Inc................................................ 150,000
The Principal/Eppler, Guerin & Turner, Inc. ..................... 150,000
Ragen MacKenzie Incorporated..................................... 150,000
Rauscher Pierce Refsnes, Inc..................................... 150,000
Stephens Inc..................................................... 150,000
Stifel, Nicolaus & Company, Incorporated ........................ 150,000
Sutro & Co. Incorporated......................................... 150,000
Wheat, First Securities, Inc..................................... 150,000
The Chicago Corporation.......................................... 75,000
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<PAGE>
Crowell, Weedon & Co............................................. 75,000
Dickinson & Co................................................... 75,000
Doft & Co., Inc.................................................. 75,000
Dominick & Dominick, Incorporated................................ 75,000
Fahnestock & Co. Inc............................................. 75,000
Ferris, Baker Watts, Incorporated................................ 75,000
J.J.B. Hilliard, W.L. Lyons, Inc................................. 75,000
Johnston, Lemon & Co. Incorporated............................... 75,000
Josephthal Lyon & Ross Incorporated.............................. 75,000
The Ohio Company................................................. 75,000
Parker/Hunter Incorporated....................................... 75,000
Rodman & Renshaw, Inc............................................ 75,000
Scott & Stringfellow, Inc........................................ 75,000
Seidler Amdec Securities Inc..................................... 75,000
Wedbush Morgan Securities........................................ 75,000
Craig-Hallum, Inc................................................ 56,300
Davenport & Co. of Virginia, Inc................................. 56,300
D.A. Davidson & Co. Incorporated................................. 56,300
Hamilton Investments, Inc........................................ 56,300
Hanifen, Imhoff Inc.............................................. 56,300
Laidlaw Equities, Inc............................................ 56,300
David A. Noyes & Company......................................... 56,300
Raffensperger, Hughes & Co., Inc................................. 56,300
Southwest Securities, Inc........................................ 56,300
Branch, Cabell and Company....................................... 37,500
The Chapman Company.............................................. 37,500
JW Charles Securities, Inc....................................... 37,500
Juran & Moody, Inc............................................... 37,500
Moors & Cabot, Inc............................................... 37,500
Reich & Co., Inc................................................. 37,500
Spelman & Co., Inc............................................... 37,500
----------
Total.................................................. 15,000,000
==========
-24-
EXHIBIT 2(i)
RETIREMENT PLAN
FOR THE
TRUSTEES OF THE PUTNAM FUNDS
1. General; effective date. This Retirement Plan For The Trustees Of
The Putnam Funds is intended to provide, on the terms and conditions specified
below, cash retirement benefits to certain individuals who have served as
trustees ("Trustees") of the Funds. Except as provided at Section 12 below, the
Plan is effective with respect to retirements occurring on or after January 1,
1996.
2. Statement of Purpose. The purpose of this Plan is to assist the
Funds in attracting and retaining highly qualified individuals to serve as
Trustees of the Putnam Funds by providing a form of deferred compensation which
is competitive with compensation practices of other major investment company
complexes as well as those of major business corporations and which recognizes
the benefits to the Funds and of having Trustees with many years of experience
with the affairs of the Funds.
3. Defined terms. When used in the Plan, the following terms shall
have the meanings set forth in this Section:
- "Administrator": such committee, consisting solely of
Trustees who are not "interested persons" of the Funds
within the meaning of Section 2(a)(19) of the Investment
Company Act of 1940, as may be designated from time to time
by the Trustees to administer the Plan.
- "Service": active service as a Trustee for one or more of the
Funds, including service prior to the Effective Date. For
purposes of this definition, service for an entity that was a
Fund at the time of such service shall not be disregarded merely
because the entity later ceases to be a Fund. A Participant who
dies prior to retirement or who retires by reason of total and
permanent disability (as determined by the Administrator) shall
be deemed to have served at least one hundred twenty (120)
months of Service regardless of his or her actual period of
service.
- "Effective Date": the date specified in the second sentence of
Section 1.
- "Final Average Remuneration": the quotient obtained by
dividing (i) a Participant's total retainer and meeting fees
paid to the individual by the Funds for the last thirty-six
(36) months of the individual's service as a Trustee, by (ii)
three.
<PAGE>
- "Fund": any of the Putnam Funds, other than any such Fund that
has either (i) elected by vote of a majority of its Trustees who
are not "interested persons" of the Fund (as defined above) not
to participate in the Plan, or (ii) terminated its participation
in the Plan in accordance with Section 14(c).
- "Participant": a Trustee with at least sixty (60) months of
Service.
- "Plan": the Retirement Plan For The Trustees Of The Putnam Funds
set forth herein, as the same may from time to time be amended
and in effect.
- "Retirement": ceasing to be an active Trustee (regardless of
whether service to one or more Funds continues in a capacity
other than as a Trustee) for any reason other than (i)
termination for cause as determined by the Administrator, or
(ii) death. The terms "retire," "retires" and "retired" shall be
similarly construed.
- "Trustee": a trustee of any of the Funds.
4. Eligibility for retirement benefit. Each Participant shall receive
the normal retirement benefit specified in Section 5 below commencing in the
calendar year next following the date of retirement.
5. Form and amount of retirement benefit. The retirement benefit
payable to a Participant shall be an annual cash payment equal to fifty percent
(50%) of the Participant's Final Average Remuneration. Such retirement benefit
shall be paid on January 15 of each calendar year commencing with the year
specified in Section 4 above and continuing for the lesser of (i) a number of
years equal to the Participant's years of Service (rounded to the nearest whole
year) or (ii) the lifetime of the Participant.
6. Death benefit. The only death benefits payable under the Plan
shall be those described in this Section:
(a) If a Participant dies after retirement but before ten
(10) annual retirement benefit payments have been made, the
Participant's designated beneficiary shall be entitled to receive an
annual death benefit, in the same amount, payable on January 15 of
each year for the lesser of (i) the remainder, if any, of the period
specified in clause (i) of Section 5 above or (ii) the remainder of
such 10-year period.
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<PAGE>
(b) If a Participant dies before retirement, there shall be
paid to his or her designated beneficiary an annual death benefit
equal in amount to the annual retirement benefit specified in Section
5 above. The death benefit described in this paragraph (b) shall be
paid on January 15 of each year commencing in the calendar year next
following the Participant's death for a number of years equal to the
lesser of (i) the period specified in clause (i) of Section 5 above
or (ii) ten (10) years.
(c) The Administrator in its discretion may commute any
death benefit under this Section to an immediate lump sum payment or
may otherwise accelerate such payments, in each case applying such
reasonable discount rates as it deems appropriate.
7. Designation of beneficiary. For purposes of Section 6 above, a
Participant's designated beneficiary shall be such person or persons, including
a trust, as the Participant shall have designated in writing on a form
acceptable to and delivered to the Administrator. In the absence of an effective
beneficiary designation governing the payment of any portion of the death
benefit described in Section 6 above, payment of such portion shall be made to
the Participant's estate, which shall be deemed to be the Participant's
designated beneficiary for all purposes hereunder. If the person designated as
the beneficiary to receive any portion of the death benefit should die prior to
completion of payments to such beneficiary without the Participant having made
effective provision (by a designation delivered to the Administrator as
hereinabove prescribed) for a successor or contingent beneficiary, payment of
such portion or the remainder thereof shall be made to the decedent
beneficiary's estate.
8. Agreement not to compete, etc. Eligibility for and payment of
benefits under the Plan is conditioned on agreement by the Participant (i) to
refrain from engaging in any business activity in competition with the Funds,
and (ii) not to disclose any proprietary or otherwise confidential information
pertaining to the Funds. Any breach by an active or retired Trustee of the
agreement or conditions specified in the preceding sentence shall be grounds for
termination or reduction by the Administrator of benefits under the Plan.
9. Nature of rights. Nothing in the Plan shall be construed as
requiring the Funds, or any of them, to set aside or to segregate any assets of
any kind to meet any of its obligations hereunder or otherwise to fund the Plan.
The rights of persons claiming benefits under the Plan shall be no greater than
those of general unsecured creditors of a Fund, and no such person shall have
any right in or to any specific assets of any Fund. All rights to benefits under
the Plan shall be construed and interpreted consistent with the continued
qualification of each Fund as a registered investment company under the
Investment Company Act of 1940, as amended.
10. Rights non-assignable. No Participant, beneficiary or other
person shall have any right to assign, pledge, encumber, or otherwise alienate
or transfer any right to receive benefits or payments hereunder or any other
interest under the Plan, in whole or in part, and any attempt by any such person
to effectuate such an assignment, pledge, encumbrance, or other alienation or
transfer shall be null and void.
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<PAGE>
11. No rights to continuation of status. Nothing in the Plan shall be
construed as giving any individual a right to continue to serve as a Trustee of
the Funds, or any of them, or to receive any particular level of remuneration
for any such service.
12. Application of Plan to certain persons. This Plan supersedes in
its entirety the voluntary retirement program heretofore maintained by the Funds
and any benefits previously authorized under such program but not yet paid for
periods commencing on or after January 1, 1996. Reference is made to those
former Trustees listed on Schedule A hereto who retired prior to the effective
date of this Plan and who are currently receiving benefits under such voluntary
retirement program. In addition, reference is made to a current Trustee listed
on Schedule B hereto who previously received certain retirement benefits under
such voluntary retirement program following such Trustee's initial retirement
from the Funds. Each person listed on Schedules A or B shall be entitled to a
retirement benefit in the amount and payable in accordance with the terms of the
Plan except that, to the extent inconsistent with the generally applicable
provisions of the Plan, the specific provisions of Schedule A and B shall
control.
13. Payment of benefits. Benefits shall be paid by the Funds, in
cash, upon direction by the Administrator. The Administrator shall allocate the
obligation to make payments with respect to a Trustee under the Plan for any
calendar year among the Funds in proportion to their respective cumulative
liabilities accrued with respect to such Trustee's participation in the Plan for
financial reporting purposes or on such other reasonable basis as the
Administrator may determine.
14. Amendment and termination.
(a) Amendment. The Plan may be amended at any time by the
Administrator. No amendment shall reduce the benefits or future benefits of any
Trustee who has retired, and in the case of a participant who is still an active
Trustee no amendment shall reduce the amount such Trustee would have been
entitled to receive if he or she had ceased to serve as a Trustee immediately
prior to such amendment.
(b) Termination of the Plan as a whole. The Plan as a whole may be
terminated by the Administrator. Upon termination of the plan as a whole,
benefits in pay status shall continue to be paid. Any Participant not yet in pay
status shall continue to be entitled to a benefit equal to the benefit to which
he or she would have been entitled had retirement as a Trustee occurred
immediately prior to such Plan termination. Notwithstanding the foregoing, in
its discretion the Administrator may commute and pay as a single lump sum
payment any benefits remaining payable upon termination of the Plan as a whole,
and in determining such lump sum amounts the Administrator may apply such
reasonable discount factors and mortality assumptions as it determines in its
discretion.
(c) Termination by individual Fund. A Fund may terminate its
participation in the Plan at any time by vote of a majority of its Trustees who
are not "interested persons" of the Fund
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<PAGE>
(as defined under "Administrator" in Section 3 above), provided that upon any
such termination such Fund shall remain liable for its allocable share of the
benefits to which Participants would have been entitled is the Plan as a whole
had been terminated as of the date of such individual termination, as determined
by the Administrator in its sole discretion.
As Adopted October 4, 1996
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EXHIBIT 2(j)
CUSTODIAN AGREEMENT
AGREEMENT made as of the 3rd day of May, 1991, as amended July 13,
1992, between each of the Putnam Funds listed in Schedule A, each of such Funds
acting on its own behalf separately from all the other Funds and not jointly or
jointly and severally with any of the other Funds (each of the Funds being
hereinafter referred to as the "Fund"), and Putnam Fiduciary Trust Company (the
"Custodian").
WHEREAS, the Custodian represents to the Fund that it is eligible to
serve as a custodian for a management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), and
WHEREAS, the Fund wishes to appoint the Custodian as the Fund's
custodian.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Appointment of Custodian. The Fund hereby employs and appoints the Custodian
as custodian of its assets for the term and subject to the provisions of this
Agreement. At the direction of the Custodian, the Fund agrees to deliver to the
Sub-Custodians appointed pursuant to Section 2 below (the "Sub-Custodians")
securities, funds and other property owned by it. The Custodian shall have no
responsibility or liability for or on account of securities, funds or other
property not so delivered to the Sub-Custodians. Upon request, the Fund shall
deliver to the Custodian or to such Sub-Custodians as the Custodian may direct
such proxies, powers of attorney or other instruments as may be reasonably
necessary or desirable in connection with the performance by the Custodian or
any Sub-Custodian of their respective obligations under this Agreement or any
applicable Sub-Custodian Agreement.
2. Appointment of Sub-Custodians. The Custodian may at any time and from time to
time appoint, at its own cost and expense, as a Sub-Custodian for the Fund any
bank or trust company which meets the requirements of the 1940 Act and the rules
and regulations thereunder to act as a custodian, provided that the Fund shall
have approved in writing any such bank or trust company and the Custodian gives
prompt written notice to the Fund of any such appointment. The agreement between
the Custodian and any Sub-Custodian shall be substantially in the form of the
Sub-Custodian agreement attached hereto as Exhibit 1 (the "Sub-Custodian
Agreement") unless otherwise approved by the Fund, provided, however, that the
agreement between the Custodian and any Sub-Custodian appointed primarily for
the purpose of holding foreign securities of the Fund shall be substantially in
the form of the Sub-Custodian Agreement attached hereto as Exhibit 1(A) (the
"Foreign Sub-Custodian Agreement"; the "Sub-Custodian Agreement" and the
"Foreign Sub-Custodian Agreement" are herein referred to collectively and each
individually as the "Sub-Custodian Agreement"). All Sub-Custodians shall
be subject to the instructions of the Custodian and not the Fund. The Custodian
may, at any time in its discretion, remove any bank
<PAGE>
or trust company which has been appointed as a Sub-Custodian but shall in such
case promptly notify the Fund in writing of any such action. Securities, funds
and other property of the Fund delivered pursuant to this Agreement shall be
held exclusively by Sub-Custodians appointed pursuant to the provisions of this
Section 2.
The Sub-Custodians which the Fund has approved to date are set forth
in Schedule B hereto. Schedule B shall be amended from time to time as
Sub-Custodians are changed, added or deleted. The Fund shall be responsible for
informing the Custodian sufficiently in advance of a proposed investment which
is to be held at a location not listed on Schedule B, in order that there shall
be sufficient time for the Custodian to put the appropriate arrangements in
place with such Sub-Custodian pursuant to such Sub-Custodian Agreement.
With respect to the securities, funds or other property held by a
Sub-Custodian, the Custodian shall be liable to the Fund if and only to the
extent that such Sub-Custodian is liable to the Custodian. The Custodian shall
nevertheless be liable to the Fund for its own negligence in transmitting any
instructions received by it from the Fund and for its own negligence in
connection with the delivery of any securities, funds or other property of the
Fund to any such Sub-Custodian.
In the event that any Sub-Custodian appointed pursuant to the
provisions of this Section 2 fails to perform any of its obligations under the
terms and conditions of the applicable Sub-Custodian Agreement, the Custodian
shall use its best efforts to cause such Sub-Custodian to perform such
obligations. In the event that the Custodian is unable to cause such
Sub-Custodian to perform fully its obligations thereunder, the Custodian shall
forthwith terminate such Sub-Custodian and, if necessary or desirable, appoint
another Sub-Custodian in accordance with the provisions of this Section 2. The
Custodian may with the approval of the Fund commence any legal or equitable
action which it believes is necessary or appropriate in connection with the
failure by a Sub-Custodian to perform its obligations under the applicable
Sub-Custodian Agreement. Provided the Custodian shall not have been negligent
with respect to any such matter, such action shall be at the expense of the
Fund. The Custodian shall keep the Fund fully informed regarding such action and
the Fund may at any time upon notice to the Custodian elect to take
responsibility for prosecuting such action. In such event the Fund shall have
the right to enforce and shall be subrogated to the Custodian's rights against
any such Sub-Custodian for loss or damage caused the Fund by such Sub-Custodian.
At the written request of the Fund, the Custodian will terminate any
Sub-Custodian appointed pursuant to the provisions of this Section 2 in
accordance with the termination provisions of the applicable Sub-Custodian
Agreement. The Custodian will not amend any Sub-Custodian Agreement in any
material manner except upon the prior written approval of the Fund and shall in
any case give prompt written notice to the Fund of any amendment to the Sub-
Custodian Agreement.
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<PAGE>
3. Duties of the Custodian with Respect to Property of the Fund Held by
Sub-Custodians.
3.1 Holding Securities - The Custodian shall cause one or more
Sub-Custodians to hold and, by book-entry or otherwise, identify as belonging to
the Fund all non-cash property delivered to such Sub-Custodian.
3.2 Delivery of Securities - The Custodian shall cause Sub-Custodians
holding securities of the Fund to release and deliver securities owned by the
Fund held by the Sub-Custodian or in a Securities System account of the
Sub-Custodian only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the following
cases:
3.2.1 Upon sale of such securities for the account of the Fund
and receipt of payment therefor; provided, however, that
a Sub-Custodian may release and deliver securities prior
to the receipt of payment therefor if (i) in the
Sub-Custodian's judgment, (A) release and delivery prior
to payment is required by the terms of the instrument
evidencing the security or (B) release and delivery prior
to payment is the prevailing method of settling
securities transactions between institutional investors
in the applicable market and (ii) release and delivery
prior to payment is in accordance with generally accepted
trade practice and with any pplicable governmental
regulations and the rules of Securities Systems or other
securities depositories and clearing agencies in the
applicable market. The Custodian agrees, upon request, to
advise the Fund of all pending transactions in which
release and delivery will be made prior to the receipt of
payment therefor;
3.2.2 Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Fund;
3.2.3 In the case of a sale effected through a Securities
System, in accordance with the provisions of Section 3.12
hereof;
3.2.4 To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Fund; provided that, in any such case, the cash or other
consideration is thereafter to be delivered to the Sub-
Custodian;
3.2.5 To the issuer thereof or its agent, when such securities
are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or
other consideration is to be delivered to the
Sub-Custodian;
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<PAGE>
3.2.6 To the issuer thereof, or its agent for transfer into the
name of the Fund or into the name of any nominee or
nominees of the Sub-Custodian or into the name or nominee
name of any agent appointed pursuant to Section 3.11 or
any other name permitted pursuant to Section 3.3; or for
exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face
amount or number of units; provided that, in any such
case, the new securities are to be delivered to the
Sub-Custodian;
3.2.7 Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Sub-Custodian shall have no responsibility or liability
for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as
may arise from the Sub-Custodian's own negligence or
willful misconduct;
3.2.8 For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Sub-Custodian;
3.2.9 In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants,
rights or similar securities or the surrender of interim
receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Sub-Custodian;
3.2.10 For delivery in connection with any loans of securities
made by the Fund, but only against receipt of adequate
collateral as agreed upon from time to time by the
Custodian and the Fund, which may be in the form of cash
or obligations issued by the United States government,
its agencies or instrumentalities; except that in
connection with any loan of securities held in a
Securities System for which collateral is to credited to
the Sub-Custodian's account in another Securities
System, the Sub-Custodian will not be held liable or
responsible for delivery of the securities prior to the
receipt of such collateral.
3.2.11 For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets by
the Fund, but only against receipt of amounts borrowed;
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<PAGE>
3.2.12 Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the shareholders of the Fund in
connection with distributions in kind, as may be
described from time to time in the Fund's Declaration of
Trust and currently effective registration statement, if
any, in satisfaction of requests by Fund shareholders for
repurchase or redemption;
3.2.13 For delivery to another Sub-Custodian of the Fund; and
3.2.14 For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Trustees or of the
Executive Committee of the Fund signed by an officer of
the Fund and certified by its Clerk or an Assistant
Clerk, specifying the securities to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purposes to be proper corporate purposes,
and naming the person or persons to whom delivery of such
securities shall be made.
3.3 Registration of Securities. Securities of the Fund held
by the Sub-Custodians hereunder (other than bearer securities) shall
be registered in the name of the Fund or in the name of any nominee
of the Fund or of any nominee of the Sub-Custodians or any 17f-5
Sub-Custodian or Foreign Depository (as each of those terms is
defined in the Foreign Sub-Custodian Agreement, which nominee shall
be assigned exclusively to the Fund, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 3.12. Notwithstanding the foregoing, a
Sub-Custodian, agent, 17f-5 Sub-Custodian or Foreign Depository may
hold securities of the Fund in a nominee name which is used for its
other clients provided that such name is not used by the
Sub-Custodian, agent, 17f-5 Sub-Custodian or Foreign Depository for
its own securities and that securities of the Fund are, by book-entry
or otherwise, at all times identified as belonging to the Fund and
distinguished from other securities held for other clients using the
same nominee name. In addition, and notwithstanding the foregoing, a
Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or Foreign
Depository may hold securities of the Fund in its own name if such
registration is the prevailing method in the applicable market by
which custodians register securities of institutional clients and
provided that securities of the Fund are, by book-entry or otherwise,
at all times identified as belonging to the Fund and distinguished
from other securities held for other clients or for the Sub-Custodian
or agent thereof or 17f-5 Sub-Custodian or Foreign Depository. All
securities accepted by a Sub-Custodian under the terms of a
Sub-Custodian Agreement shall be in good delivery form.
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<PAGE>
3.4 Bank Accounts. The Custodian shall cause one or more
Sub-Custodians to open and maintain a separate bank account or accounts in the
name of the Fund or the Custodian, subject only to draft or order by the
Sub-Custodian acting pursuant to the terms of a Sub-Custodian Contract or by
the Custodian acting pursuant to this Agreement, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it from or
for the account of the Fund, other than cash maintained by the Fund in a bank
account established and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Sub-Custodian for the Fund may be
deposited by it to its credit as sub-custodian or to the Custodian's credit as
custodian in the Banking Department of the Sub-Custodian or in such other banks
or trust companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that each such
bank or trust company and the funds to be deposited with each such bank or
trust company shall be approved by vote of a majority of the Trustees of the
Fund. Such funds shall be deposited by the Sub-Custodian or the Custodian in
its capacity as sub-custodian or custodian, respectively, and shall be
withdrawable by the Sub-Custodian or the Custodian only in that capacity. The
Sub-Custodian shall be liable for actual losses incurred by the Fund
attributable to any failure on the part of the Sub-Custodian to report accurate
cash availability information with respect to the Fund's or the Custodian's
bank accounts maintained by the Sub-Custodian or any of its agents.
3.5 Payments for Shares. The Custodian shall cause one or more
Sub-Custodians to deposit into the Fund's account amounts received from the
Transfer Agent of the Fund for shares of the Fund issued by the Fund and sold by
its distributor. The Custodian will provide timely notification to the Fund of
any receipt by the Sub-Custodian from the Transfer Agent of payments for shares
of the Fund.
3.6 Availability of Federal Funds. Upon mutual agreement between the
Fund and the Custodian, the Custodian shall cause one or more Sub-Custodians,
upon the receipt of Proper Instructions, to make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian with respect to amounts received by the Sub-Custodians for the
purchase of shares of the Fund.
3.7 Collection of Income. The Custodian shall cause one or more
Sub-Custodians to collect on a timely basis all income and other payments with
respect to registered securities held hereunder, including securities held in a
Securities System, to which the Fund shall be entitled either by law or pursuant
to custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by the Sub-Custodian or agent
thereof and shall credit such income, as collected, to the Fund's account.
Without limiting the generality of the foregoing, the Custodian shall cause the
Sub-Custodian to detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held under the applicable Sub-Custodian
Agreement. Arranging for the collection of income due the Fund on securities
loaned pursuant to the provisions of Section
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<PAGE>
3.2.10 shall be the responsibility of the Fund. The Custodian will have no duty
or responsibility in connection therewith, other than to provide the Fund with
such information or data as may be necessary to assist the Fund in arranging for
the timely delivery to the Sub-Custodian of the income to which the Fund is
properly entitled.
3.8 Payment of Fund Monies. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, the
Custodian shall cause one or more Sub-Custodians to pay out monies of the Fund
in the following cases only:
3.8.1 Upon the purchase of securities for the account of the
Fund but only (a) against the delivery of such securities
to the Sub-Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad
which is qualified under the Investment Company Act of
1940, as amended, to act as a custodian and has been
designated by the Sub-Custodian as its agent for this
purpose) or any 17f-5 Sub-Custodian or any Foreign
Depository registered in the name of the Fund or in the
name of a nominee of the Sub-Custodian referred to in
Section 3.3 hereof or in proper form for transfer;
provided, however, that the Sub-Custodian may cause
monies of the Fund to be paid out prior to delivery of
such securities if (i) in the Sub-Custodian's judgment,
(A) payment prior to delivery is required by the terms of
the instrument evidencing the security or (B) payment
prior to delivery is the prevailing method of settling
securities transactions between institutional investors
in the applicable market and (ii) payment prior to
delivery is in accordance with generally accepted trade
practice and with any applicable governmental regulations
and the rules of Securities Systems or other securities
depositories and clearing agencies in the applicable
market; the Custodian agrees, upon request, to advise the
Fund of all pending transactions in which payment will be
made prior to the receipt of securities in accordance
with the provision to the foregoing sentence; (b) in the
case of a purchase effected through a Securities System,
in accordance with the conditions set forth in Section
3.13 hereof; or (c)(i) in the case of a repurchase
agreement entered into between the Fund and the
Sub-Custodian, another bank, or a broker-dealer against
delivery of the securities either in certificate form or
through an entry crediting the Sub-Custodian's account at
the Federal Reserve Bank with such securities or (ii) in
the case of a repurchase agreement entered into between
the Fund and the Sub-Custodian, against delivery of a
receipt evidencing purchase by the Fund of Securities
owned by the Sub-Custodian along with written evidence
of the agreement by the Sub-Custodian to repurchase such
securities from the Fund; or (d) for transfer to a time
deposit account of the Fund in any bank, whether domestic
or foreign, which transfer may be effected prior to
receipt of a confirmation of the deposit from the
applicable bank or a financial intermediary;
-7-
<PAGE>
3.8.2 In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 3.2
hereof;
3.8.3 For the redemption or repurchase of Shares issued by the
Fund as set forth in Section 3.10 hereof;
3.8.4 For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: interest, taxes,
management, accounting, transfer agent and legal fees,
including the Custodian's fee; and operating expenses of
the Fund whether or not such expenses are to be in whole
or part capitalized or treated as deferred expenses;
3.8.5 For the payment of any dividends or other distributions
declared to shareholders of the Fund;
3.8.6 For transfer to another Sub-Custodian of the Fund;
3.8.7 For any other proper purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Trustees or of the Executive Committee
of the Fund signed by an officer of the Fund and
certified by its Clerk or an Assistant Clerk, specifying
the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or persons
to whom such payments is to be made.
3.9 Liability for Payment in Advance of Receipt of Securities
Purchased. Except as otherwise provided in this Agreement, in any and every case
where payment for purchase of securities for the account of the Fund is made by
a Sub-Custodian in advance of receipt of the securities purchased in the absence
of specific written instructions from the Fund to so pay in advance, the
Custodian shall cause the Sub-Custodian to be absolutely liable to the Fund in
the event any loss results to the Fund from the payment by the Sub-Custodian in
advance of delivery of such securities.
3.10 Payments for Repurchase or Redemptions of Shares of the Fund.
From such funds as may be available, the Custodian shall, upon receipt Proper
Instructions, cause one or more Sub-Custodians to make funds available for
payment to a shareholder who has delivered to the Transfer Agent a request for
redemption or repurchase of shares of the Fund. In connection with the
redemption or repurchase of shares of the Fund, the Custodian is authorized,
upon receipt of Proper Instructions, to cause one or more Sub-Custodian, to wire
funds to or through a commercial bank designated by the redeeming shareholder.
In connection with the redemption or repurchase of Shares of the Fund, the
Custodian, upon receipt of Proper Instructions, shall cause one or more
Sub-Custodians to honor checks drawn on the Sub-Custodian by a shareholder
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<PAGE>
when presented to the Sub-Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time among the Fund, the
Custodian and the Sub-Custodian.
3.11 Appointment of Agents. The Custodian may permit any
Sub-Custodian at any time or times in its discretion to appoint (and may at any
time remove) any other bank or trust company which is itself qualified under the
Investment Company Act of 1940, as amended, to act as a custodian, as its agent
to carry out such of the provisions of this Section 3 as the Sub-Custodian may
from time to time direct; provided, however, that the appointment of any agent
shall not relieve the Custodian or any Sub-Custodian of its responsibilities or
liabilities hereunder and provided that any such agent shall have been approved
by vote of the Trustees of the Fund. The Custodian may also permit any
Sub-Custodian to which foreign securities of the Fund have been delivered to
direct such securities to be held by 17f-5 Sub-Custodians and to use the
facilities of Foreign Depositories, as those terms are defined in the Foreign
Sub-Custodian Agreement, in accordance with the terms of the Foreign
Sub-Custodian Agreement.
The agents which the Fund and the Custodian have approved to date are
set forth in Schedule B hereto. Schedule B shall be amended from time to time as
agents are changed, added or deleted. The Fund shall be responsible for
informing the Custodian, and the Custodian shall be responsible for informing
the appropriate Sub-Custodian, sufficiently in advance of a proposed investment
which is to be held at a location not listed on Schedule B, in order that there
shall be sufficient time for the Sub-Custodian to complete the appropriate
contractual and technical arrangements with such agent. Any Sub-Custodian
Agreement shall provide that the engagement by the Sub-Custodian of one or more
agents shall not relieve the Sub-Custodian of its responsibilities or
liabilities thereunder.
3.12 Deposit of Fund Assets in Securities Systems. The Custodian may
permit any Sub-Custodian to deposit and/or maintain securities owned by the Fund
in a clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively referred
to herein as "Securities System" in accordance with applicable rules and
regulations (including Rule 17f-4 of the 1940 Act) and subject to the following
provisions:
3.12.1 The Sub-Custodian may, either directly or through one or
more agents, keep securities of the Fund in a Securities
System provided that such securities are represented in
an account ("Account") of the Sub-Custodian in the
Securities System which shall not include any assets of
the Sub-Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3.12.2 The records of the Sub-Custodian with respect to
securities of the Fund which are maintained in a
Securities System shall identify by book-entry those
securities belonging to the Fund;
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<PAGE>
3.12.3 The Sub-Custodian shall pay for securities purchased for
the account of the Fund upon (i) receipt of advice from
the Securities System that such securities have been
transferred to the Account, and (ii) the making of an
entry on the records of the Sub-Custodian to reflect such
payment and transfer for the account of the Fund. The
Sub-Custodian shall transfer securities sold for the
account of the Fund upon (i) receipt of advice from the
Securities System that payment for such securities has
been transferred to the Account, and (ii) the making of
an entry on the records of the Sub-Custodian to reflect
such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of
transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the
Sub-Custodian or such an agent and be provided to the
Fund at its request. The Sub-Custodian shall furnish the
Fund confirmation of each transfer to or from the account
of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transactions in the
Securities System for the account of the Fund on the next
business day;
3.12.4 The Sub-Custodian shall provide the Fund with any report
obtained by the Sub-Custodian on the Securities System's
accounting system, internal accounting controls and
procedures for safeguarding securities deposited in the
Securities System;
3.12.5 The Sub-Custodian shall utilize only such Securities
Systems as are approved by the Board of Trustees of the
Fund, and included on a list maintained by the Custodian;
3.12.6 Anything to the contrary in this Agreement
notwithstanding, the Sub-Custodian shall be liable to
the Fund for any loss or damage to the Fund resulting
from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the
Sub-Custodian or any of its agents or of any of its or
their employees or from failure of the Sub-Custodian or
any such agent to enforce effectively such rights as it
may have against the Securities System; at the election
of the Fund, it shall be entitled to be subrogated to the
rights of the Sub-Custodian with respect to any claim
against the Securities System or any other person which
the Sub-Custodian may have as a consequence of any such
loss or damage if and to the extent that the Fund has not
been made whole for any such loss or damage.
3.12A Depositary Receipts. Only upon receipt of Proper Instructions,
the Sub-Custodian shall instruct a 17f-5 Sub-Custodian or an agent of the
Sub-Custodian appointed pursuant to the applicable Foreign Sub-Custodian
Agreement (an "Agent") to surrender securities to the depositary used by an
issuer of American Depositary Receipts or International Depositary
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Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the 17f-5 Sub-Custodian or Agent that the
depositary has acknowledged receipt of instructions to issue with respect to
such securities ADRs in the name of the Sub-Custodian, or a nominee of the
Sub-Custodian, for delivery to the Sub-Custodian.
Only upon receipt of Proper Instructions, the Sub-Custodian shall
surrender ADRs to the issuer thereof against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the Sub-Custodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities underlying such
ADRs to a 17f-5 Sub-Custodian or an Agent.
3.12B Foreign Exchange Transactions and Futures Contracts. Only upon
receipt of Proper Instructions, the Sub-Custodian shall enter into foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf and for the account of the Fund or shall enter
into futures contracts or options on futures contracts. Such transactions may be
undertaken by the Sub-Custodian with such banking institutions, including the
Sub-Custodian and 17f-5 Sub-Custodian(s) appointed pursuant to the applicable
Foreign Sub-Custodian Agreement, as principals, as approved and authorized by
the Fund. Foreign exchange contracts, futures contracts and options, other than
those executed with the Sub-Custodian, shall for all purposes of this Agreement
be deemed to be portfolio securities of the Fund.
3.12C Option Transactions. Only upon receipt of Proper Instructions,
the Sub-Custodian shall enter into option transactions in accordance with the
provisions of any agreement among the Fund, the Custodian and/or the
Sub-Custodian and a broker-dealer.
3.13 Ownership Certificates for Tax Purposes. The Custodian shall
cause one or more Sub-Custodians as may be appropriate to execute ownership and
other certificates and affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with respect to securities
of the Fund held by the Sub-Custodian and in connection with transfers of
securities.
3.14 Proxies. The Custodian shall, with respect to the securities
held by the Sub-Custodians, cause to be promptly executed by the registered
holder of such securities, if the securities are registered other than in the
name of the Fund or a nominee of the fund, all proxies, without indication of
the manner in which such proxies are to be voted, and shall promptly deliver to
the Fund such proxies, all proxy soliciting materials and all notices relating
to such securities.
3.15 Communications Relating to Fund Portfolio Securities. The
Custodian shall cause the Sub-Custodians to transmit promptly to the Custodian,
and the Custodian shall transmit promptly to the Fund, all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the
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<PAGE>
Sub-Custodian from issuers of the securities being held for the account of the
Fund. With respect to tender or exchange offers, the Custodian shall cause the
Sub-Custodian to transmit promptly to the Fund, all written information
received by the Sub-Custodian from issuers of the securities whose tender or
exchange is sought and from the party (or his agents) making the tender or
exchange offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian of the action the Fund desires such Sub-Custodian to take,
provided, however, neither the Custodian nor the Sub-Custodian shall be liable
to the Fund for the failure to take any such action unless such instructions are
received by the Custodian at least four business days prior to the date on which
the Sub-Custodian is to take such action or, in the case of foreign securities,
such longer period as shall have been agreed upon in writing by the Custodian
and the Sub-Custodian.
3.16 Proper Instructions. Proper Instructions as used throughout this
Agreement means a writing signed or initialed by one or more person or persons
who are authorized by the Trustees of the Fund and the Custodian. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian or Sub-Custodian, as the case may be, reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. All oral instructions shall be confirmed in writing.
Proper Instructions also include communications effected directly between
electro-mechanical or electronic devices provided that the Trustees have
approved such procedures. Notwithstanding the foregoing, no Trustee, officer,
employee or agent of the Fund shall be permitted access to any securities or
similar investments of the Fund deposited with any Sub-Custodian or any agent of
any Sub-Custodian for any reason except in accordance with the provisions of
Rule 17f-2 under the 1940 Act.
3.17 Actions Permitted Without Express Authority. The Custodian
may in its discretion, and may permit one or more Sub-Custodians in their
discretion, without express authority from the Fund to:
3.17.1 make payments to itself or others for minor expenses of
handling securities or other similar items relating to
its duties under this Agreement, or in the case of a
Sub-Custodian, under the applicable Sub-Custodian
Agreement, provided that all such payments shall be
accounted for to the Fund;
3.17.2 surrender securities in temporary form for securities in
definitive form;
3.17.3 endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
3.17.4 in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the
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<PAGE>
securities and property of the Fund except as otherwise
directed by the Trustees of the Fund.
3.18 Evidence of Authority. The Custodian shall be protected in
acting upon any instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been properly
executed by or on behalf of the Fund.
3.19 Investment Limitations. In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, the Custodian may assume, unless and until
notified in writing to the contrary, that Proper Instructions received by it are
not in conflict with or in any way contrary to any provisions of the Fund's
Declaration of Trust or By-Laws (or comparable documents) or votes or
proceedings of the shareholders or Trustees of the Fund. The Custodian shall in
no event be liable to the Fund and shall be indemnified by the Fund for any
violation of any investment limitations to which the Fund is subject or other
limitations with respect to the Fund's powers to expend funds, encumber
securities, borrow or take similar actions affecting its portfolio.
4. Performance Standards. The Custodian shall use its best efforts to perform
its duties hereunder in accordance with the standards set forth in Schedule C
hereto. Schedule C may be amended from time to time as agreed to by the
Custodian and the Trustees of the Fund.
5. Records. The Custodian shall create and maintain all records relating to the
Custodian's activities and obligations under this Agreement and cause all
Sub-Custodians to create and maintain all records relating to the
Sub-Custodian's activities and obligations under the appropriate Sub-Custodian
Agreement in such manner as will meet the obligations of the Fund under the 1940
Act, with particular attention to Sections 17(f) and 31 thereof and Rules 17f-2,
31a-1 and 31a-2 thereunder, applicable federal and state tax laws, and any other
law or administrative rules or procedures which may be applicable to the Fund.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian or during the regular business hours
of the Sub-Custodian, as the case may be, be open for inspection by duly
authorized officers, employees or agents of the Custodian and Fund and employees
and agents of the Securities and Exchange Commission. At the Fund's request, the
Custodian shall supply the Fund and cause one or more Sub-Custodians to supply
the Custodian with a tabulation of securities owned by the Fund and held under
this Agreement. When requested to do so by the Fund and for such compensation as
shall be agreed upon, the Custodian shall include and cause one or more
Sub-Custodians to include certificate numbers in such tabulations.
6. Opinion and Reports of Fund's Independent Accountants. The Custodian shall
take all reasonable actions, as the Fund may from time to time request, to
furnish such information with respect to its activities hereunder as the Fund's
independent public accountants may request in connection with the accountant's
verification of the Fund's securities and similar investments as required by
Rule 17f-2 under the 1940 Act, the preparation of the Fund's registration
statement
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<PAGE>
and amendments thereto, the Fund's reports to the Securities and Exchange
Commission, and with respect to any other requirements of such Commission.
The Custodian shall also direct any Sub-Custodian to take all
reasonable actions, as the Fund may from time to time request, to furnish such
information with respect to its activities under the applicable Sub-Custodian
Agreement as the Fund's independent public accountant may request in connection
with the accountant's verification of the Fund's securities and similar
investments as required by Rule 17f-2 under the 1940 Act, the preparation of the
Fund's registration statement and amendments thereto, the Fund's reports to the
Securities and Exchange Commission, and with respect to any other requirements
of such Commission.
7. Reports of Custodian's and Sub-Custodians' Independent Accountants. The
Custodian shall provide the Fund, at such times as the Fund may reasonably
require, with reports by its independent public accountant on its accounting
system, internal accounting controls and procedures for safeguarding securities,
including securities deposited and/or maintained in Securities Systems, relating
to services provided by the Custodian under this Agreement. The Custodian shall
also cause one or more of the Sub-Custodians to provide the Fund, at such time
as the Fund may reasonably require, with reports by independent public
accountants on their accounting systems, internal accounting controls and
procedures for safeguarding securities, including securities deposited and/or
maintained in Securities Systems, relating to services provided by those
Sub-Custodians under their respective Sub-Custody Agreements. Such reports,
which shall be of sufficient scope and in sufficient detail as may reasonably be
required by the Fund, shall provide reasonable assurance that any material
inadequacies would be disclosed by such examinations, and, if there is no such
inadequacies, shall so state.
8. Compensation. The Custodian shall be entitled to reasonable compensation for
its services and expenses as custodian, as agreed upon from time to time between
the Fund and the Custodian. Such expenses shall not include, however, the fees
paid by the Custodian to any Sub-Custodian.
9. Responsibility of Custodian. The Custodian shall exercise reasonable care and
diligence in carrying out the provisions of this Agreement and shall not be
liable to the Fund for any action taken or omitted by it in good faith without
negligence. So long as and to the extent that it is in the exercise of
reasonable care, neither the Custodian nor any Sub-Custodian shall be
responsible for the title, validity or genuineness of any property or evidence
of title thereto received by it or delivered by it pursuant to this Agreement
and shall be held harmless in acting upon any notice, request, consent,
certificate or other instrument reasonably believed by it to be genuine and, if
in writing, reasonably believed by it to be signed by the proper party or
parties. It shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. Notwithstanding
the foregoing, the responsibility of the Custodian or a Sub-Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund. It is also
understood that
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<PAGE>
the Custodian shall not be liable for any loss resulting from a Sovereign Risk.
A "Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution; or any
other similar act or event beyond the Custodian's control.
If the Fund requires the Custodian which in turn may require a
Sub-Custodian to take any action with respect to securities, which action
involves the payment of money or which action may, in the opinion of the
Custodian or the Sub-Custodian result in the Custodian or its nominee or a
Sub-Custodian or its nominee being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian or the Custodian requiring any Sub-Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against it or its
nominee or any Sub-Custodian or its nominee in connection with the performance
of this Agreement, or any Sub-Custodian Agreement except, as to the Custodian,
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, and as to a Sub-Custodian, such as may
arise from such Sub-Custodian's or its nominee's own negligent action,
negligent failure to act or willful misconduct. The negligent action, negligent
failure to act or willful misconduct of the Custodian shall not diminish the
Fund's obligation to indemnify the Custodian in the amount, but only in the
amount, of any indemnity required to be paid to a Sub-Custodian under its
Sub-Custodian Agreement. The Custodian may assign this indemnity from the Fund
directly to, and for the benefit of, any Sub-Custodian. The Custodian is
authorized, and may authorize any Sub-Custodian, to charge any account of the
Fund for such items and such fees. To secure any such authorized charges and any
advances of cash or securities made by the Custodian or any Sub-Custodian to or
for the benefit of the Fund for any purpose which results in the Fund incurring
an overdraft at the end of any business day or for extraordinary or emergency
purposes during any business day, the Fund (except a Fund specified in Schedule
D to this Agreement) hereby grants to the Custodian a security interest in and
pledges to the Custodian securities up to a maximum of 10% of the value of the
Fund's net assets for the purpose of securing payment of any such advances and
hereby authorizes the Custodian on behalf of the Fund to grant to any
Sub-Custodian a security interest in and pledge of securities held for the Fund
(including those which may be held in a Securities System) up to a maximum of
10% of the value of the net assets held by such Sub-Custodian. The specific
securities subject to such security interest may be designated in writing from
time to time by the Fund or its investment adviser. In the absence of any
designation of securities subject to such security interest, the Custodian or
the Sub-Custodian, as the case may be, may designate securities held by it.
Should the Fund fail to repay promptly any authorized charges or advances of
cash or securities, the Custodian or the Sub-Custodian shall be entitled to use
such
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available cash and to dispose of pledged securities and property as is necessary
to repay any such authorized charges or advances and to exercise its rights as a
secured party under the U.C.C. The Fund agrees that a Sub-Custodian shall have
the right to proceed directly against the Fund and not solely as subrogee to the
Custodian with respect to any indemnity hereunder assigned to a Sub-Custodian,
and in that regard, the Fund agrees that it shall not assert against any Sub-
Custodian proceeding against it any defense or right of set-off the Fund may
have against the Custodian arising out of the negligent action, negligent
failure to act or willful misconduct of the Custodian, and hereby waives all
rights it may have to object to the right of a Sub-Custodian to maintain an
action against it.
10. Successor Custodian. If a successor custodian shall be appointed by the
Trustees of the Fund, the Custodian shall, upon termination, cause to be
delivered to such successor custodian, duly endorsed and in the form for
transfer, all securities, funds and other properties then held by the
Sub-Custodians and all instruments held by the Sub-Custodians relative thereto
and cause the transfer to an account of the successor custodian all of the
Fund's securities held in any Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the
Trustees of the Fund, cause to be delivered at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Trustees shall have been delivered to the
Custodian on or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank or trust company,
which meets the requirements of the 1940 Act and the rules and regulations
thereunder, such securities, funds and other properties. Thereafter, such bank
or trust company shall be the successor of the Custodian under this Agreement.
In the event that such securities, funds and other properties remain
in the possession of the Custodian or any Sub-Custodian after the date of
termination hereof owing to failure of the Fund to procure the certified copy of
the vote referred to or of the Trustees to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services during such
period as the Sub-Custodians retain possession of such securities, funds and
other properties and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect.
11. Effective Period, Termination and Amendment. This Agreement shall become
effective as of its execution, shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30) days after the date
of such delivery or mailing; provided either party may at any time immediately
terminate this Agreement in the event of the appointment of a conservator or
receiver for the other party or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction. No provision of this Agreement may be amended or terminated except
by a
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<PAGE>
statement in writing signed by the party against which enforcement of the
amendment or termination is sought.
Upon termination of the Agreement, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian and through the Custodian any
Sub-Custodian for its costs, expenses and disbursements.
12. Interpretation. This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof. In
connection with the operation of this Agreement, the Custodian and the Fund may
from time to time agree in writing on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. No interpretive or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.
13. Governing Law. This instrument is executed and delivered in The Commonwealth
of Massachusetts and shall be governed by and construed according to the
internal laws of said Commonwealth, without regard to principles of conflicts of
law.
14. Notices. Notices and other writings delivered or mailed postage prepaid to
the Fund addressed to the Fund attention: John Hughes, or to such other person
or address as the Fund may have designated to the Custodian in writing, or to
the Custodian at One Post Office Square, Boston, Massachusetts 02109 attention:
George Crane, or to such other address as the Custodian may have designated to
the Fund in writing, shall be deemed to have been properly delivered or given
hereunder to the respective addressee.
15. Binding Obligation. This Agreement shall be binding on and shall inure to
the benefit of the Fund and the Custodian and their respective successors and
assigns, provided that neither party hereto may assign this Agreement or any of
its rights or obligations hereunder without the prior written consent of the
other party.
16. Declaration of Trust. A copy of the Declaration of Trust of each of the
Funds is on file with the Secretary of The Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Trustees of each of the Funds as Trustees and not individually and that the
obligations of this instrument are not binding on any of the Trustees or
officers or shareholders individually, but are binding only on the assets and
property of each Fund with respect to its obligations hereunder.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf as of the day and year first above written.
THE PUTNAM FUNDS LISTED
IN SCHEDULE A
/s/ John D. Hughes
By ----------------------------
Vice President and Treasurer
PUTNAM FIDUCIARY TRUST COMPANY
/s/ Robert F. Lucey
By ----------------------------
President
Putnam Investments, Inc. ("Putnam"), the sole owner of the Custodian,
agrees that Putnam shall be the primary obligor with respect to compensation due
the Sub-Custodians pursuant to the Sub-Custodian Agreements in connection with
the Sub-Custodians' performance of their responsibilities thereunder and agrees
to take all actions necessary and appropriate to assure that the Sub-Custodians
shall be compensated in the amounts and on the schedules agreed to by the
Custodian and the Sub-Custodians pursuant to those Agreements.
PUTNAM INVESTMENTS, INC.
/s/ Douglas B. Jamieson
By -----------------------------
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EXHIBIT 1
MASTER SUB-CUSTODIAN AGREEMENT
AGREEMENT made this day of , 199 , between
Putnam Fiduciary Trust Company, a Massachusetts-chartered trust company (the
"Custodian"), and , a (the "Sub-Custodian").
WHEREAS, the Sub-Custodian represents to the Custodian that it is
eligible to serve as a custodian for a management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
WHEREAS, the Custodian has entered into a Custodian Agreement between
it and each of the Putnam Funds listed in Schedule A, each of such Funds acting
on its own behalf separately from all the other Funds and not jointly or jointly
and severally with any of the other Funds (each of the Funds being hereinafter
referred to as the "Fund"), and
WHEREAS, the Custodian and the Fund desire to utilize sub-custodians
for the purpose of holding cash and securities of the Fund, and
WHEREAS, the Custodian wishes to appoint the Sub-Custodian as the
Fund's Sub-Custodian,
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Appointment of Custodian. The Custodian hereby employs and
appoints the Sub-Custodian as a Sub-Custodian for the Fund for the term and
subject to the provisions of this Agreement. Upon request, the Custodian shall
deliver to the Sub-Custodian such proxies, powers of attorney or other
instruments as may be reasonably necessary or desirable in connection with the
performance by the Sub-Custodian of its obligations under this Agreement on
behalf of the Fund.
2. Duties of the Sub-Custodian with Respect to Property of the Fund
Held by It. The Custodian may from time to time deposit securities or cash owned
by the Fund with the Sub-Custodian. The Sub-Custodian shall have no
responsibility or liability for or on account of securities, funds or other
property of the Fund not so delivered to it. The Sub-Custodian shall hold and
dispose of the securities hereafter held by or deposited with the Sub-Custodian
as follows:
2.1 Holding Securities. The Sub-Custodian shall hold and physically
segregate for the account of the Fund all non-cash property, including all
securities owned by the Funds, other than securities which are maintained
pursuant to Section 2.13 in a Securities System. All such
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securities are to be held or disposed of for, and subject at all times to the
instructions of, the Custodian pursuant to the terms of this Agreement. The
Sub-Custodian shall maintain adequate records identifying the securities as
being held by it as Sub-Custodian of the Fund.
2.2 Delivery of Securities. The Sub-Custodian shall release and
deliver securities of the Fund held by it hereunder (or in a Securities System
account of the Sub-Custodian) only upon receipt of Proper Instructions (as
defined in Section 2.17), which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the
Fund and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section 2.13 hereof;
4) To the depository agent in connection with tender or
other similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be delivered to
the Sub-Custodian;
6) To the issuer thereof, or its agent, for transfer into
the name of the Fund or into the name of any nominee or nominees of the
Sub-Custodian or into the name or nominee name of any agent appointed pursuant
to Section 2.12; or for exchange for a different number of bonds, certificates
or other evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to be delivered
to the Sub-Custodian;
7) Upon the sale of such securities for the account of
the Fund, to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided that, in any
such case, the Sub-Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving payment
for such securities except as may arise from the Sub-Custodian's own negligence
or willful misconduct;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Sub-Custodian;
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9) In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Sub-Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Sub-Custodian, which may
be in the form of cash or obligations issued by the United States government,
its agencies or instrumentalities;
11) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;
12) Upon receipt of instructions from the transfer agent
for the Fund (the "Transfer Agent"), for delivery to such Transfer Agent or to
the shareholders of the Fund in connection with distributions in kind, as may be
described from time to time in the Fund's Declaration of Trust and currently
effective registration statement, if any, in satisfaction of requests by
shareholders for repurchase or redemption;
13) For delivery to another Sub-Custodian of the Fund; and
14) For any other proper purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a resolution of the
Trustees or of the Executive Committee of the Fund signed by an officer of the
Fund and certified by its Clerk or an Assistant Clerk, specifying the securities
to be delivered, setting forth the purpose for which such delivery is to be
made, declaring such purposes to be proper corporate purposes, and naming the
person or persons to whom delivery of such securities is to be made.
2.3 Registration of Securities. Securities of the Fund held by the
Sub-Custodian hereunder (other than bearer securities) shall be registered in
the name of the Fund or in the name of any nominee of the Fund or of any nominee
of the Sub-Custodian, which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee to be
used in common with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.12. Notwithstanding the foregoing, a
Sub-Custodian or agent thereof may hold securities of the Fund in a nominee name
which is used for its other clients provided such name is not used by the
Sub-Custodian or agent for its own securities and that securities of the Fund
are physically segregated at all times from other securities held for other
clients using the same nominee name. All securities accepted by the
Sub-Custodian under the terms of this Agreement shall be in "street name" or
other good delivery form.
2.4 Bank Accounts. The Sub-Custodian shall open and maintain a
separate bank account or accounts in the name of the Fund, subject only to draft
or order by the Sub-Custodian acting pursuant to the terms of this Agreement,
and shall hold in such account or accounts, subject to the provisions hereof,
all cash received for the account of the Funds, other than cash maintained by
the Fund in a bank account established and used in accordance with Rule 17f-3
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under the 1940 Act. Funds held by the Sub-Custodian for the Fund shall be
deposited by it to its credit as Sub-Custodian of the Fund in the Banking
Department of the Sub-Custodian or other banks. Such funds shall be deposited
by the Sub-Custodian in its capacity as Sub-Custodian and shall be withdrawable
by the Sub-Custodian only in that capacity. The Sub-Custodian shall be liable
for losses incurred by the Fund attributable to any failure on the part of the
Sub-Custodian to report accurate cash availability information with respect to
the Fund's bank accounts maintained by the Sub-Custodian or any of its agents,
provided that such liability shall be determined solely on a cost-of-funds
basis.
2.5 Payments for Shares. The Sub-Custodian shall receive from any
distributor of the Fund's shares or from the Transfer Agent of the Fund and
deposit into the Fund's account such payments as are received for shares of the
Fund issued or sold from time to time by the Fund. The Sub-Custodian will
provide timely notification to the Custodian, and the Transfer Agent of any
receipt by it of payments for shares of the Fund.
2.6 Investment and Availability of Federal Funds. Upon mutual
agreement between the Custodian and the Sub-Custodian, the Sub-Custodian shall,
upon the receipt of Proper Instructions,
1) invest in such instruments as may be set forth in such
instructions on the same day as received all federal funds received after a time
agreed upon between the Sub-Custodian and the Custodian; and
2) make federal funds available to the Fund as of specified times
agreed upon from time to time by the Custodian and the Sub-Custodian in the
amount of checks, when cleared within the Federal Reserve System, received in
payment for shares of the Fund which are deposited into the Fund's account or
accounts.
2.7 Collection of Income. The Sub-Custodian shall collect on a timely
basis all income and other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held hereunder and shall credit such
income, as collected, to the Fund's account. Without limiting the generality of
the foregoing, the Sub-Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they become
due and shall collect interest when due on securities held hereunder. Arranging
for the collection of income due the Fund on securities loaned pursuant to the
provisions of Section 2.2(10) shall be the responsibility of the Custodian. The
Sub-Custodian will have no duty or responsibility in connection therewith, other
than to provide the Custodian with such information or data as may be necessary
to assist the Custodian in arranging for the timely delivery to the
Sub-Custodian of the income to which the Fund is properly entitled.
2.8 Payment of Fund Monies. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties,
the Sub-Custodian shall cause monies of a Fund to be paid out in the following
cases only:
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1) Upon the purchase of securities for the account of the
Fund but only (a) against the delivery of such securities to the Sub-Custodian
(or any bank, banking firm or trust company doing business in the United States
or abroad which is qualified under the 1940 Act, as amended, to act as a
custodian and has been designated by the Sub-Custodian as its agent for this
purpose) registered in the name of the Fund or in the name of a nominee referred
to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with the conditions
set forth in Section 2.13 hereof; or (c) in the case of repurchase agreements
entered into between the Fund and the Sub-Custodian, or another bank, (i)
against delivery of the securities either in certificate form or through an
entry crediting the Sub-Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt evidencing purchase by
the Fund of securities owned by the Sub-Custodian along with written evidence
of the agreement by the Sub-Custodian to repurchase such securities from the
Fund;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of shares issued by the
Fund as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, custodian and Sub-Custodian,
transfer agent and legal fees, including the Custodian's fee; and operating
expenses of the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to
the governing documents of the Fund;
6) For transfer to another Sub-Custodian of the Fund; and
7) For any other proper purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a resolution of the
Trustees or of the Executive Committee of the Fund signed by an officer of the
Fund and certified by its Clerk or an Assistant Clerk, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of securities for
the account of a Fund is made by the Sub-Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from the
Custodian to so pay in advance, the Sub-Custodian shall be absolutely liable to
the Fund and the Custodian in the event any loss results to the Fund or the
Custodian from the failure of the Sub-Custodian to make such payment against
delivery of such securities, except that in the case of repurchase agreements
entered into by the Fund with a bank which is a member of the Federal Reserve
System, the Sub-Custodian may transfer funds to the account of
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such bank prior to the receipt of written evidence that the securities subject
to such a repurchase agreement have been transferred by book-entry into a
segregated non-proprietary account of the Sub-Custodian maintained with any
Federal Reserve Bank or of the safe-keeping receipt, provided that such
securities have in fact been so transferred by book-entry.
2.10 Payments for Repurchases or Redemptions of Shares of the Fund.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and By-Laws and any applicable votes of
the Trustees of the Fund pursuant thereto, the Sub-Custodian shall, upon receipt
of instructions from the Custodian, make funds available for payment to
shareholders of the Fund who have delivered to the Transfer Agent a request for
redemption or repurchase of their shares. In connection with the redemption or
repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper
Instructions, is authorized to wire funds to or through a commercial bank
designated by the redeeming shareholders. In connection with the redemption or
repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper
Instructions, shall honor checks drawn on the Sub-Custodian by a shareholder,
when presented to the Sub-Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time among the Fund, the
Custodian and the Sub-Custodian.
2.11 Variances. The Sub-Custodian may accept securities or cash
delivered in settlement of trades notwithstanding variances between the amount
of securities or cash so delivered and the amount specified in the instructions
furnished to it by the Custodian, provided that the variance in any particular
transaction does not exceed (i) $25 in the case of transactions of $1,000,000 or
less, and (ii) $50 in the case of transactions exceeding $1,000,000. The Sub-
Custodian shall maintain a record of any such variances and notify the Custodian
of such variances in periodic transaction reports submitted to the Custodian.
The Sub-Custodian will not advise any party with whom the Fund effects
securities transactions of the existence of these variance provisions without
the consent of the Fund and the Custodian.
2.12 Appointment of Agents. Without limiting its own responsibility
for its obligations assumed hereunder, the Sub-Custodian may at any time and
from time to time engage, at its own cost and expense, as an agent to act for
the Fund on the Sub-Custodian's behalf with respect to any such obligations any
bank or trust company which meets the requirements of the 1940 Act, and the
rules and regulations thereunder, to perform services delegated to the
Sub-Custodian hereunder, provided that the Fund shall have approved in writing
any such bank or trust company and the Sub-Custodian shall give prompt written
notice to the Custodian and the Fund of any such engagement. All agents of the
Sub-Custodian shall be subject to the instructions of the Sub-Custodian and not
the Custodian. The Sub-Custodian may, at any time in its discretion, and shall
at the Custodian's direction, remove any bank or trust company which has been
appointed as an agent, and shall in either case promptly notify the Custodian
and the Fund in writing of the completion of any such action.
The agents which the Fund has approved to date are set forth in
Schedule B hereto. Schedule B shall be amended from time to time as approved
agents are changed, added or deleted. The Custodian shall be responsible for
informing the Sub-Custodian sufficiently in advance of a proposed investment
which is to be held at a location not listed on Schedule B, in order that there
shall be sufficient time for the Fund to give the approval required by the
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preceding paragraph and for the Sub-Custodian to complete the appropriate
contractual and technical arrangements with such agent. The engagement by the
Sub-Custodian of one or more agents to carry out such of the provisions of this
Section 2 shall not relieve the Sub-Custodian of its responsibilities or
liabilities hereunder.
2.13 Deposit of Fund Assets in Securities Systems. The Sub-Custodian
may deposit and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of the Treasury
(collectively referred to herein as "Securities System") in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission rules
and regulations (including Rule 17f-4 of the 1940 Act), and subject to the
following provisions:
1) The Sub-Custodian may keep securities of the Fund in a
Securities System provided that such securities are represented in an account
("Account") of the Sub-Custodian in the Securities System which shall not
include any assets other than assets held as a fiduciary, custodian or otherwise
for customers;
2) The records of the Sub-Custodian with respect to
securities of the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Sub-Custodian shall pay for securities purchased for
the account of the Fund upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and (ii) the making
of an entry on the records of the Sub-Custodian to reflect such payment and
transfer for the account of the Fund. The Sub-Custodian shall transfer
securities sold for the account of the Fund upon (a) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account, and (b) the making of an entry on the records of the Sub-Custodian to
reflect such transfer and payment for the account of the Fund. Copies of all
advices from the Securities System of transfers of securities for the account of
the Fund shall identify the Fund, be maintained for the Fund by the
Sub-Custodian and be provided to the Fund or the Custodian at the Custodian's
request. The Sub-Custodian shall furnish the Custodian confirmation of each
transfer to or from the account of the Fund in the form of a written advice or
notice and shall furnish to the Custodian copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the account of
the Fund on the next business day;
4) The Sub-Custodian shall provide the Custodian with any
report obtained by the Sub-Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding securities
deposited in the Securities System;
5) The Sub-Custodian shall have received the initial or
annual certificate, as the case may be, required by Section 2.10 hereof;
6) Anything to the contrary in this Agreement
notwithstanding, the Sub-Custodian shall be liable to the Fund and the
Custodian for any loss or damage to the Fund or the
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Custodian resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Sub-Custodian or any of its agents
or of any of its or their employees or from failure of the Sub-Custodian or any
such agent to enforce effectively such rights as it may have against the
Securities System; at the election of the Custodian, it shall be entitled to be
subrogated to the rights of the Sub-Custodian with respect to any claim against
the Securities System or any other person which the Sub-Custodian may have as a
consequence of any such loss or damage if and to the extent that the Fund and
the Custodian have not been made whole for any such loss or damage.
2.14 Ownership Certificates for Tax Purposes. The Sub-Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to securities held by it hereunder and in connection with transfers of
securities.
2.15 Proxies. The Sub-Custodian shall, with respect to the securities
held hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of a
Fund, all proxies, without indication of the manner in which such proxies are to
be voted, and shall promptly deliver to the Custodian such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.16 Communications Relating to Fund Portfolio Securities. The
Sub-Custodian shall transmit promptly to the Custodian all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Sub-Custodian
from issuers of the securities being held for the account of the Fund. With
respect to tender or exchange offers, the Sub-Custodian shall transmit promptly
to the Custodian all written information received by the Sub-Custodian from
issuers of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other similar
transactions, the Custodian shall notify the Sub-Custodian of the action the
Fund desires the Sub-Custodian to take; provided, however, that the
Sub-Custodian shall not be liable to the Fund or the Custodian for the failure
to take any such action unless such instructions are received by the
Sub-Custodian at least two business days prior to the date on which the
Sub-Custodian is to take such action.
2.17 Proper Instructions. Proper Instructions as used throughout this
Agreement means a writing signed or initialed by one or more persons who are
authorized by the Trustees of the Fund and by vote of the Board of Directors of
the Custodian. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered Proper
Instructions if the Sub-Custodian reasonably believes them to have been given by
a person authorized to give such instructions with respect to the transaction
involved. The Custodian shall cause all oral instructions to be confirmed in
writing. Upon receipt of a certificate of the Clerk or an Assistant Clerk as to
the authorization by the Trustees of the Funds accompanied by a detailed
description of procedures approved by the Trustees, Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices, provided that the Trustees, the Custodian and the
Sub-Custodian are satisfied that such procedures afford
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adequate safeguards for the Fund's assets. Notwithstanding the foregoing, no
Trustee, officer, employee or agent of the Fund shall be permitted access to
any securities or similar investments of the Fund deposited with the
Sub-Custodian or any agent for any reason except in accordance with the
provisions of Rule 17f-2 under the 1940 Act.
2.18 Actions Permitted without Express Authority. The Sub-Custodian
may in its discretion, without express authority from the Custodian:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund
and the Custodian;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund held by the Sub-Custodian
hereunder except as otherwise directed by the Custodian or the Trustees of the
Fund.
2.19 Evidence of Authority. The Sub-Custodian shall be protected in
acting upon any instruction, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to have been
properly executed by or on behalf of the Fund or the Custodian as custodian of
the Fund. The Sub-Custodian may receive and accept a certified copy of a vote of
the Trustees of the Fund or the Board of Directors of the Custodian, as
conclusive evidence (a) of the authority of any person to act in accordance with
such vote or (b) of any determination or of any action by the Trustees pursuant
to the Declaration of Trust and By-Laws and the Board of Directors of the
Custodian, as the case may be as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Sub-Custodian of
written notice to the contrary.
3. Performance Standards; Protection of the Fund. The Sub-Custodian
shall use its best efforts to perform its duties hereunder in accordance with
the standards set forth in Schedule C hereto. Schedule C may be amended from
time to time as agreed to by the Custodian and the Trustees of the Fund.
4. Records. The Sub-Custodian shall cooperate with and supply
necessary information to the entity or entities appointed by the Trustees of the
Fund to keep the books of account of the Funds or, if directed in writing to do
so by the Custodian, shall itself keep such books of account. The Sub-Custodian
shall create and maintain all records relating to its activities and obligations
under this Agreement in such manner as will meet the obligations of the
Custodian under its Custodian Agreement with the Fund under the 1940 Act, with
particular attention to Sections 17(f) and 31 thereof and Rules 17f-2, 31a-1 and
31a-2 thereunder, applicable federal and state tax laws, and any other law or
administrative rules or procedures
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which may be applicable to the Fund or the Custodian. All such records shall be
the property of the Fund and shall at all times during the regular business
hours of the Sub-Custodian be open for inspection by duly authorized officers,
employees or agents of the Custodian and the Fund and employees and agents of
the Securities and Exchange Commission. The Sub-Custodian shall, at the
Custodian's request, supply the Custodian with a tabulation of securities owned
by the Fund and held under this Agreement and shall, when requested to do so by
the Custodian and for such compensation as shall be agreed upon between the
Custodian and Sub-Custodian, include certificate numbers in such tabulations.
5. Opinion and Reports of the Fund's Independent Accountants. The
Sub-Custodian shall take all reasonable actions, as the Custodian may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent public accountants with respect to its activities hereunder in
connection with the preparation of the Fund's registration statements and
amendments thereto, the Fund's reports to the Securities and Exchange Commission
and with respect to any other requirements of such Commission.
6. Reports of Sub-Custodian's Independent Accountants. The
Sub-Custodian shall provide the Custodian, at such times as the Custodian may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Sub-Custodian under this
Agreement; such reports, which shall be of sufficient scope and in sufficient
detail as may reasonably be required by the Custodian, shall provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, shall so state.
7. Compensation. The Sub-Custodian shall be entitled to reasonable
compensation for its services and expenses as Sub-Custodian, as agreed upon from
time to time between the Custodian and the Sub-Custodian.
8. Responsibility of Sub-Custodian. The Sub-Custodian shall exercise
reasonable care and diligence in carrying out the provisions of this Agreement
and shall not be liable to the Fund or the Custodian for any action taken or
omitted by it in good faith without negligence. So long as and to the extent
that it is in the exercise of reasonable care, the Sub-Custodian shall not be
responsible for the title, validity or genuineness of any property or evidence
of title thereto received by it or delivered by it pursuant to this Agreement
and shall be held harmless in acting upon any notice, request, consent,
certificate or other instrument reasonably believed by it to be genuine and to
be signed by the proper party or parties. It shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Fund) on all matters,
and shall be without liability for any action reasonably taken or omitted
pursuant to such advice. Notwithstanding the foregoing, the responsibility of
the Sub-Custodian with respect to redemptions effected by check shall be in
accordance with a separate agreement entered into between the Custodian and the
Sub-Custodian.
The Sub-Custodian shall protect the Fund and the Custodian from
direct losses to the Fund resulting from any act or failure to act of the
Sub-Custodian in violation of its duties hereunder or of law and shall maintain
customary errors and omissions and fidelity insurance
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policies in an amount not less than $25 million to cover losses to the Fund
resulting from any such act or failure to act.
If the Custodian requires the Sub-Custodian to take any action with
respect to securities, which action involves the payment of money or which
action may, in the opinion of the Sub-Custodian, result in the Sub-Custodian's
being liable for the payment of money or incurring liability of some other form,
the Custodian, as a prerequisite to requiring the Sub-Custodian to take such
action, shall provide indemnity to the Sub-Custodian in an amount and form
satisfactory to it.
The Custodian agrees to indemnify and hold harmless the Sub-Custodian
from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against it or its
nominee in connection with the performance of this Agreement, except such as may
arise from its own negligent action, negligent failure to act or willful
misconduct. To secure any such authorized charges and any advances of cash or
securities made by the Sub-Custodian to or for the benefit of the Fund for any
purpose which results in the Fund's incurring an overdraft at the end of any
business day or for extraordinary or emergency purposes during any business day,
the Custodian on behalf of the Fund, unless prohibited from doing so by one or
more of the Fund's fundamental investment restrictions, hereby represents that
it has obtained from the Fund authorization to apply available cash in any
account maintained by the Sub-Custodian on behalf of the Fund and a security
interest in and pledge to it of securities held for the Fund by the
Sub-Custodian, in an amount not to exceed the amount not prohibited by such
restrictions, for the purposes of securing payment of any such advances, and
that the Fund has agreed, from time to time, to designate in writing, or to
cause its investment adviser to designate in writing, the specific securities
subject to such security interest and pledge. The Custodian hereby assigns the
benefits of such security interest and pledge to the Sub-Custodian, and agrees
that, should the Fund or the Custodian fail to repay promptly any advances of
cash or securities, the Sub-Custodian shall be entitled to use such available
cash and to dispose of such pledged securities as is necessary to repay any such
advances.
9. Successor Sub-Custodian. If a successor Sub-Custodian shall be
appointed by the Custodian, the Sub-Custodian shall, upon termination, cause to
be delivered to such successor Sub-Custodian, duly endorsed and in the form for
transfer, all securities then held by it, shall cause the transfer to an account
of the successor Sub-Custodian all of the Fund's securities held in a Securities
System and shall cause to be delivered to such successor Sub-Custodian all funds
and other property held by it or any of its agents.
If no such successor Sub-Custodian shall be appointed, the
Sub-Custodian shall, in like manner, upon receipt of a certified copy of a vote
of the Trustees of the Fund, cause to be delivered at the office of the
Sub-Custodian and transfer such securities, funds and other properties in
accordance with such vote.
In the event that no written order designating a successor
Sub-Custodian or certified copy of a vote of the Trustees shall have been
delivered to the Sub-Custodian on or before the date when such termination shall
become effective, then the Sub-Custodian shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business
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in Boston, Massachusetts, of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report, of not
less than $25,000,000, all securities, funds and other properties held by the
Sub-Custodian and its agents and all instruments held by the Sub-Custodian and
its agents relative thereto and all other property held by it and its agents
under this Agreement and to cause to be transferred to an account of such
successor Sub-Custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Sub-Custodian under this Agreement.
In the event that securities, funds and other properties remain in
the possession of the Sub-Custodian after the date of termination hereof owing
to failure of the Custodian to obtain the certified copy of vote referred to or
of the Trustees to appoint a successor Sub-Custodian, the Sub-Custodian shall be
entitled to fair compensation for its services during such period as the
Sub-Custodian retains possession of such securities, funds and other properties
and the provisions of this Agreement relating to the duties and obligations of
the Sub-Custodian shall remain in full force and effect.
Upon termination, the Sub-Custodian shall, upon receipt of a
certified copy of a vote of the Trustees of the Fund, cause to be delivered to
any other Sub-Custodian designated in such vote such assets, securities and
other property of the Fund as are designated in such vote, or pursuant to Proper
Instructions, cause such assets, securities and other property of the Fund as
are designated by the Custodian to be delivered to one or more of the
sub-custodians designated on Schedule D hereto, as from time to time amended.
10. Effective Period; Termination and Amendment. This Agreement shall
become effective as of its execution, shall continue in full force and effect
until terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid, to the other party,
such termination to take effect not sooner than thirty (30) days after the date
of mailing; provided, however, that the Sub-Custodian shall not act under
Section 2.13 hereof in the absence of receipt of an initial certificate of the
Clerk or an Assistant Clerk that the Trustees of the Fund have approved the
initial use of a particular Securities System and the receipt of an annual
certificate of the Clerk or an Assistant Clerk that the Trustees have reviewed
the use by the Fund of such Securities System, as required in each case by Rule
17f-4 under the Investment Company Act of 1940; and provided, further, however,
that the Custodian shall not amend or terminate this Agreement in contravention
of any applicable federal or state regulations or any provision of the
Declarations of Trust or By-Laws of the Fund; and provided, further, that the
Custodian may at any time, by action of its Board of Directors, or the Trustees
of the Fund, as the case may be, immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the Sub-Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of this Agreement, the Custodian shall pay to the
Sub-Custodian such compensation as may be due as of the date of such termination
and shall likewise reimburse the Sub-Custodian for its reimbursable costs,
expenses and disbursements.
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11. Amendment and Interpretation. This Agreement constitutes the
entire understanding and agreement of the parties hereto with respect to the
subject matter hereof. No provision of this Agreement may be amended or
terminated except by a statement in writing signed by the party against which
enforcement of the amendment or termination is sought.
In connection with the operation of this Agreement, the Sub-Custodian
and the Custodian may from time to time agree in writing on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Agreement.
12. Governing Law. This Agreement is executed and delivered in The
Commonwealth of Massachusetts and shall be governed by and construed according
to the laws of said Commonwealth.
13. Notices. Notices and other writings delivered or mailed postage
prepaid to the Custodian addressed to the Custodian attention: , or to such
other person or address as the Custodian may have designated to the
Sub-Custodian in writing, or to the Sub-Custodian at , or to such other
address as the Sub-Custodian may have designated to the Custodian in writing,
shall be deemed to have been properly delivered or given hereunder to the
respective addressee.
14. Binding Obligation. This Agreement shall be binding on and shall
inure to the benefit of the Custodian and the Sub-Custodian and their respective
successors and assigns, provided that neither party hereto may assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party.
15. Prior Agreements. This Agreement supersedes and terminates, as of
the date hereof, all prior contracts between the Fund or the Custodian and the
Sub-Custodian relating to the custody of the Fund's assets.
16. Declaration of Trust. A copy of the Agreement and Declaration of
Trust of the Fund is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that the obligations of or arising out
of this instrument are not binding upon any of the Trustees or beneficiaries
individually but binding only upon the assets and property of the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 199 .
PUTNAM FIDUCIARY TRUST COMPANY
By ---------------------------
(SUB-CUSTODIAN)
By ---------------------------
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EXHIBIT 1(A)
MASTER FOREIGN SUB-CUSTODIAN AGREEMENT
AGREEMENT made this day of , 199 , between Putnam
Fiduciary Trust Company, a Massachusetts-chartered trust company (the
"Custodian"), and , (the "Sub-Custodian").
WHEREAS, the Sub-Custodian represents to the Custodian that it is
eligible to serve as a custodian for a management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
WHEREAS, the Custodian has entered into a Custodian Agreement between
it and each of the Putnam Funds listed in Schedule A to this Agreement, each of
such Funds acting on its own behalf separately from all the other Funds and not
jointly or jointly and severally with any of the other Funds (each of the Funds
being hereinafter referred to as the "Fund"), and
WHEREAS, the Custodian and the Fund desire to utilize sub-custodians
for the purpose of holding cash and securities of the Fund, and
WHEREAS, the Custodian wishes to appoint the Sub-Custodian as the
Fund's Sub-Custodian,
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Appointment of Sub-Custodian. The Custodian hereby employs and appoints the
Sub-Custodian as a sub-custodian for safekeeping of securities and other assets
of the Fund for the term and subject to the provisions of this Agreement. Upon
request, the Custodian shall deliver to the Sub-Custodian such proxies, powers
of attorney or other instruments as may be reasonably necessary or desirable in
connection with the performance by the Sub-Custodian of its obligations under
this Agreement on behalf of the Fund.
2. Duties of the Sub-Custodian with Respect to Property of the Fund Held by It.
The Custodian may from time to time deposit or direct the deposit of securities
or cash owned by the Fund with the Sub-Custodian. The Sub-Custodian shall have
no responsibility or liability for or on account of securities, funds or other
property of the Fund not so delivered to it. Except for securities and funds
held by 17f-5 Sub-Custodians (as defined in Section 2.11(b)) the Sub-Custodian
shall hold and dispose of the securities or cash hereafter held by or deposited
with the Sub-Custodian as follows:
2.1. Holding Securities. The Sub-Custodian shall hold and, by
book-entry or otherwise, identify as belonging to the Fund all non-cash property
which has been delivered to the Sub-Custodian. All such securities are to be
held or disposed of for, and subject at all times to
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the instructions of, the Custodian pursuant to the terms of this Agreement. The
Sub-Custodian shall maintain adequate records identifying the securities as
being held by it as sub-custodian of the Fund.
2.2. Delivery of Securities. The Sub-Custodian shall release and
deliver securities of the Fund held by it hereunder (or in a Securities System
account of the Sub-Custodian) only upon receipt of Proper Instructions (as
defined in Section 2.19), which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor, provided, however, that the Sub-Custodian may
release and deliver securities prior to the receipt of payment therefor if (i)
in the Sub-Custodian's judgment, (A) release and delivery prior to payment is
required by the terms of the instrument evidencing the security or (B) release
and delivery prior to payment is the prevailing method of settling securities
transactions between institutional investors in the applicable market and (ii)
release and delivery prior to payment is in accordance with generally accepted
trade practice and with any applicable governmental regulations and the rules of
Securities Systems or other securities depositories and clearing agencies in the
applicable market. The Sub-Custodian agrees, upon request, to advise the
Custodian of all pending transactions in which release and delivery will be made
prior to the receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for such securities; provided that, in any such case, the cash or
other consideration is thereafter to be delivered to the Sub-Custodian;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is thereafter to be delivered to the
Sub-Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees of the
Sub-Custodian or into the name or nominee name of any agent appointed pursuant
to Section 2.11 or any other name permitted pursuant to Section 2.3; or for
exchange for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units; provided that,
in any such case, the new securities are thereafter to be delivered to the
Sub-Custodian;
7) Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that, in any such case, the
Sub-Custodian shall have no responsibility or liability for any loss arising
from the delivery
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of such securities prior to receiving payment for such securities except as may
arise from the Sub-Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, thereafter
are to be delivered to the Sub-Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for definitive
securities; provided that, in any such case, the now securities and cash, if
any, are thereafter to be delivered to the Sub-Custodian;
10) For delivery in connection with any loans of securities
made by the Fund, but only against receipt of collateral the adequacy and timing
of receipt of which shall be as agreed upon from time to time in writing by the
Custodian and the Sub-Custodian, which may be in the form of cash or obligations
issued by the United States government, its agencies or instrumentalities;
11) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but only against receipt
of amounts borrowed;
12) Upon receipt of instructions from the transfer agent for
the Fund (the "Transfer Agent"), for delivery to such Transfer Agent or to the
shareholders of the Fund in connection with distributions in kind, in
satisfaction of requests by shareholders for repurchase or redemption;
13) For delivery to the Custodian or another sub-custodian of
the Fund; and
14) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the
Trustees or of the Executive Committee of the Fund signed by an officer of the
Fund and certified by its Clerk or an Assistant Clerk, specifying the
securities to be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purposes to be proper corporate purposes, and
naming the person or persons to whom delivery of such securities is to be made.
2.3. Registration of Securities. Securities of the Fund held by the
Sub-Custodian hereunder (other than bearer securities) shall be registered in
the name of the Fund or in the name of any nominee of the Fund or of any nominee
of the Sub-Custodian or any 17f-5 Sub-Custodian or Foreign Depository (as each
of those terms is defined in Section 2.11(b)), which nominee shall be assigned
exclusively to the Fund, unless the Fund has authorized in writing the
appointment of a nominee to be used in common with other registered investment
companies having the same investment adviser as the Fund, or in the name or
nominee name of any agent appointed pursuant to Section 2.11(a). Notwithstanding
the foregoing, the Sub-Custodian or agent thereof or any 17f-5 Sub-Custodian or
Foreign Depository may hold securities of the Fund in a nominee name which is
used for its other clients provided that such name is not used by the
Sub-Custodian, agent, 17f-5 Sub-Custodian or Foreign Depository for its own
securities and that securities of the Fund are, by book-entry or otherwise, at
all times identified as belonging to the Fund and
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distinguished from other securities held for other clients using the same
nominee name. In addition, and notwithstanding the foregoing, the Sub-Custodian
or agent thereof or 17f-5 Sub-Custodian or Foreign Depository may hold
securities of the Fund in its own name if such registration is the prevailing
method in the applicable market by which custodians register securities of
institutional clients and provided that securities of the Fund are, by
book-entry or otherwise, at all times identified as belonging to the Fund and
distinguished from other securities held for other clients or for the
Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or Foreign Depository. All
securities accepted by the Sub-Custodian under the terms of this Agreement shall
be in good delivery form.
2.4. Bank Accounts. The Sub-Custodian shall open and maintain a
separate bank account or accounts in the name of the Fund or of the Custodian
for the benefit of the Fund, subject only to draft or order by the Sub-Custodian
acting pursuant to the terms of this Agreement or by the Custodian acting
pursuant to the Custodian Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, to the Sub-Custodian's credit as sub-custodian
of the Fund or the Custodian's credit as custodian for the Fund, cash received
for the account of the Fund other than cash maintained by the Fund in a bank
account established and used in accordance with Rule 17f-3 under the 1940 Act or
cash held as deposits with 17f-5 Sub-Custodians in accordance with the following
paragraph. The responsibilities of the Sub-Custodian for cash, including
foreign currency, of the Fund accepted on the Sub-Custodian's books as a deposit
shall be that of a U.S. bank for a similar deposit.
The Sub-Custodian may open a bank account on the books of a 17f-5
Sub-Custodian in the name of the Fund or of the Sub-Custodian as a sub-custodian
for the Fund, and may deposit cash, including foreign currency, of the Fund in
such account, and such funds shall be withdrawable only pursuant to draft or
order of the Sub-Custodian. The records for such account will be maintained by
the Sub-Custodian but such account shall not constitute a deposit liability of
the Sub-Custodian. The responsibilities of the Sub-Custodian for deposits
maintained in such account shall be the same as and no greater than the Sub-
Custodian's responsibility in respect of other portfolio securities of the Fund.
The Sub-Custodian shall be liable for actual losses incurred by the
Fund attributable to any failure on the part of the Sub-Custodian to report
accurate cash availability information with respect to the bank accounts
referred to in this Section 2.4.
2.5. Payments for Shares. The Sub-Custodian shall maintain custody of
amounts received from the Transfer Agent of the Fund for shares of the Fund
issued by the Fund and sold by its distributor and deposit such amounts into the
Fund's account. The Sub-Custodian will provide timely notification to the
Custodian and the Transfer Agent of any receipt by it of payments for shares of
the Fund.
2.6. Availability of Federal Funds. Upon mutual agreement between the
Custodian and the Sub-Custodian, the Sub-Custodian shall, upon the receipt of
Proper Instructions, make federal funds available to the Custodian for the
account of the Fund as of specified times agreed upon from time to time by the
Custodian and the Sub-Custodian with respect to amounts received by the
Sub-Custodian for the purchase of shares of the Fund.
2.7. Collection of Income. The Sub-Custodian shall collect on a
timely basis all income and other payments with respect to registered securities
held hereunder, including securities held in a Securities System, to which the
Fund shall be entitled either by law or pursuant to custom in the securities
business,
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and shall collect on a timely basis all income and other payments with respect
to bearer securities if, on the date of payment by the issuer, such securities
are held hereunder and shall credit such income, as collected, to the Fund's
account. Without limiting the generality of the foregoing, the Sub-Custodian
shall detach and present for payment all coupons and other income items
requiring presentation as and when they become due and shall collect interest
when due on securities held hereunder. Arranging for the collection of income
due the Fund on securities loaned pursuant to the provisions of Section 2.2(10)
shall be the responsibility of the Custodian. The Sub-Custodian will have no
duty or responsibility in connection therewith, other than to provide the
Custodian with such information or data as may be necessary to assist the
Custodian in arranging for the timely delivery to the Sub-Custodian of the
income to which the Fund is properly entitled.
2.8. Payment of Fund Monies. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, the
Sub-Custodian shall cause monies of the Fund to be paid out in the following
cases only:
1) Upon the purchase of securities for the account of the Fund
but only (a) against the delivery of such securities to the Sub-Custodian (or
any bank, banking firm or trust company doing business in the United States or
abroad which is qualified under the 1940 Act, as amended, to act as a custodian
and has been designated by the Sub-Custodian as its agent for this purpose) or
any 17f-5 Sub-Custodian or any Foreign Depository (as each of those terms is
defined in Section 2.11(b)) registered in the name of the Fund or in the name of
a nominee referred to in Section 2.3 hereof or in proper form for transfer,
provided, however, that the Sub-Custodian may cause monies of the Fund to be
paid out prior to delivery of such securities if (i) in the Sub-Custodian's
judgment, (A) payment prior to delivery is required by the terms of the
instrument evidencing the security or (B) payment prior to delivery is the
prevailing method of settling securities transactions between institutional
investors in the applicable market and (ii) payment prior to delivery is in
accordance with generally accepted trade practice and with any applicable
governmental regulations and the rules of Securities Systems or other securities
depositories and clearing agencies in the applicable market. The Sub-Custodian
agrees, upon request, to advise the Custodian of all pending transactions in
which payment will be made prior to the receipt of securities in accordance with
the proviso to the foregoing sentence; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set forth in
Section 2.12 hereof; or (c) (i) in the case of a repurchase agreement entered
into between the Fund and the Sub-Custodian, another bank or a broker-dealer,
against delivery of the securities either in certificate form or through an
entry crediting the Sub-Custodian's or its agent's non-proprietary account at
any Federal Reserve Bank with such securities or (ii) in the case of a
repurchase agreement entered into between the Fund and the Sub-Custodian,
against delivery of a receipt evidencing purchase by the Fund of securities
owned by the Sub-Custodian along with written evidence of the agreement by the
Sub-Custodian to repurchase such securities from the Fund; or (d) for transfer
to a time deposit account of the Fund in any bank, whether domestic or foreign,
which transfer may be effected prior to receipt of a confirmation of the deposit
from the applicable bank or a financial intermediary;
2) In connection with conversion, exchange or surrender or
tender or exercise of securities owned by the Fund as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of shares issued by the
Fund as set forth in Section 2.10 hereof;
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4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the account of the
Fund: interest, taxes, management, accounting, custodian and sub-custodian,
transfer agent and legal fees, including the Custodian's fee; and operating
expenses of the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends or other distributions
declared to shareholders of the Fund;
6) For transfer to the Custodian or another sub-custodian of
the Fund; and
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the
Trustees or of the Executive Committee of the Fund signed by an officer of the
Fund and certified by its Clerk or Assistant Clerk, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
2.9. Liability for Payment in Advance of Receipt of Securities
Purchased. Except as otherwise provided in this Agreement, in any and every case
where payment for purchase of securities for the account of the Fund is made by
the Sub-Custodian in advance of receipt of the securities purchased in the
absence of Proper Instructions from the Custodian to so pay in advance, the
Sub-Custodian shall be absolutely liable to the Fund and the Custodian in the
event any loss results to the Fund or the Custodian from the payment by the
Sub-Custodian in advance of delivery of such securities.
2.10. Payments for Repurchases or Redemptions of Shares of the Fund.
From such funds as may be available, the Sub-custodian shall, upon receipt of
Proper Instructions, make funds available for payment to a shareholder of the
Fund who has delivered to the Transfer Agent a request for redemption or
repurchase of shares of the Fund. In connection with the redemption or
repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper
Instructions, is authorized to wire funds to or through a commercial bank
designated by the redeeming shareholder. In connection with the redemption or
repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper
Instructions, shall honor checks drawn on the Sub-Custodian by a shareholder,
when presented to the Sub-Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time among the Fund, the
Custodian and the Sub-Custodian.
2.11. Appointment of Agents and Sub-Custodians Pursuant to Rule
17f-5.
(a) Agents. Without limiting its own responsibility for its
obligations assumed hereunder, the Sub-Custodian may at any time and from time
to time engage, at its own cost and expense, as an agent to act for the Fund on
the Sub-Custodian's behalf with respect to any such obligations any bank or
trust company which meets the requirements of the 1940 Act, and the rules and
regulations thereunder, to perform services delegated to the Sub-Custodian
hereunder, provided that the Fund and the Custodian shall have approved in
writing any such bank or trust company. All agents of the Sub-Custodian shall be
subject to the instructions of the Sub-Custodian and not the Custodian. The
Sub-Custodian may, at any time in its discretion, and shall at the Custodian's
direction, remove any bank or trust company which has been
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appointed as an agent, and shall in either case promptly notify the Custodian
and the Fund in writing of the completion of any such action.
The agents which the Fund has approved to date are set forth in
Schedule B hereto. Schedule B shall be amended from time to time as approved
agents are changed, added or deleted. The Custodian shall be responsible for
informing the Sub-Custodian sufficiently in advance of a proposed investment
which is to be held at a location not listed on Schedule B, in order that there
shall be sufficient time for the Fund to give the approval required by the
preceding paragraph and for the Sub-Custodian to complete the appropriate
contractual and technical arrangements with such agent. The engagement by the
Sub-Custodian of one or more agents shall not relieve the Sub-Custodian of its
responsibilities or liabilities hereunder.
(b) 17f-5 Sub-Custodians. Securities, funds and other property
of the Fund may be held by sub-custodians appointed pursuant to the provisions
of this Section 2.11 (each, a "17f-5 Sub-Custodian"). The Sub-Custodian may, at
any time and from time to time, appoint any bank or trust company (that meets
the requirements of a custodian or a foreign custodian under the Investment
Company Act of 1940 and the rules and regulations thereunder, including without
limitation Rule 17f-5 thereunder, or that has received an order of the
Securities and Exchange Commission ("SEC") exempting it from any of such
requirements that it does not meet) to act as a 17f-5 Sub-Custodian for the
Fund, provided that the Fund shall have approved in writing (1) any such bank or
trust company and the sub-custodian agreement to be entered into between such
bank or trust company and the Sub-Custodian, and (2) the 17f-5 Sub-Custodian's
offices or branches at which the 17f-5 Sub-Custodian is authorized to hold
securities, cash and other property of the Fund. Upon such approval by the Fund,
the Sub-Custodian is authorized on behalf of the Fund to notify each 17f-5 Sub-
Custodian of its appointment as such. The Sub-Custodian may, at any time in its
discretion, remove any bank or trust company that has been appointed as a 17f-5
Sub-Custodian.
Those 17f-5 Sub-Custodians and their offices or branches which the
Fund has approved to date are set forth on Schedule C hereto. Such Schedule C
shall be amended from time to time as 17f-5 Sub-Custodians, branches or offices
are changed, added or deleted. The Custodian shall be responsible for informing
the Sub-Custodian sufficiently in advance of a proposed investment which is to
be held at a location not listed on Schedule C, in order that there shall be
sufficient time for the Fund to give the approval required by the preceding
paragraph and for the Sub-Custodian to put the appropriate arrangements in place
with such 17f-5 Sub-Custodian pursuant to such sub-custodian agreement.
With respect to the securities and funds held by a 17f-5
Sub-Custodian, either directly or indirectly, including demand and interest
bearing deposits, currencies or other deposits and foreign exchange contracts,
the Sub-Custodian shall be liable to the Custodian and the Fund if and only to
the extent that such 17f-5 Sub-Custodian is liable to the Sub-Custodian and the
Sub-Custodian recovers under the applicable sub-custodian agreement, provided,
however, that the foregoing limitation shall not apply if such 17f-5
Sub-Custodian's liability to the Sub-Custodian is limited because the applicable
sub-custodian agreement does not contain provisions substantially similar to the
provisions of Section 2 (but not including Section 2.12) of this Agreement. The
Sub-Custodian shall also be liable to the Custodian and the Fund for its own
negligence in transmitting any instructions received by it from the Fund or the
Custodian and for its own negligence in connection with the delivery of any
securities or funds held by it to any such 17f-5 Sub-Custodian.
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The Custodian or the Fund may authorize the Sub-Custodian or one or
more of the 17f-5 Sub-Custodians to use the facilities of one or more foreign
securities depositories or clearing agencies (each, a "Foreign Depository") that
is permitted to be used by registered investment companies by a Rule or Rules of
the SEC or that has received an order of the SEC exempting it from any of such
requirements that it does not meet. The records of the Sub-Custodian or a 17f-5
Sub-Custodian employing a Foreign Depository or clearing agency shall identify
those securities belonging to the Fund which are maintained in such a Foreign
Depository. The engagement by the Sub-Custodian of one or more Foreign
Depositories shall not relieve the Sub-Custodian of its responsibilities or
liabilities hereunder. The Foreign Depositories which the Fund has approved to
date are set forth in Schedule C hereto. Schedule C shall be amended from time
to time as approved Foreign Depositories are changed, added or deleted. The
Custodian shall be responsible for informing the Sub-Custodian sufficiently in
advance of a proposed investment which is to be held at a location not listed on
Schedule C, in order that there shall be sufficient time for the Fund to give
the approval required by the preceding paragraph and for the Sub-Custodian to
complete the appropriate contractual and technical arrangements with such
Foreign Depository.
In the event that any 17f-5 Sub-Custodian appointed pursuant to the
provisions of this Section 2.11 fails to perform any of its obligations under
the terms and conditions of the applicable sub-custodian agreement, the
Sub-Custodian shall use its best efforts to cause such 17f-5 Sub-Custodian to
perform such obligations. In the event that the Sub-Custodian is unable to cause
such 17f-5 Sub-Custodian to perform fully its obligations thereunder, the
Sub-Custodian shall forthwith upon the Custodian's request terminate such 17f-5
Sub-Custodian as a sub-custodian for the Fund and, if necessary or desirable,
appoint another 17f-5 Sub-Custodian in accordance with the provisions of this
Section 2.11. At the election of the Custodian, it shall have the right to
enforce and shall be subrogated to the Sub-Custodian's rights against any such
17f-5 Sub-Custodian for loss or damage caused the Fund by such 17f-5
Sub-Custodian.
At the written request of the Fund, the Sub-Custodian will terminate
as a sub-custodian for the Fund any 17f-5 Sub-Custodian appointed pursuant to
the provisions of this Section 2.11 in accordance with the termination
provisions under the applicable sub-custodian agreement. The Sub-Custodian will
not amend any sub-custodian agreement or agree to change or permit any changes
thereunder except upon the prior written approval of the Fund.
In the event the Sub-Custodian makes any payment to a 17f-5
Sub-Custodian under the indemnification provisions of any sub-custodian
agreement, no more than thirty days after written notice to the Custodian of the
Sub-Custodian's having made such payment, the Custodian will reimburse the Sub-
Custodian the amount of such payment except in respect of any negligence or
misconduct of the Sub-Custodian.
2.12. Deposit of Fund Assets in Securities Systems. The Sub-Custodian
may deposit and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of the Treasury or by a
federal agency (collectively referred to herein as "Securities System") in
accordance with applicable rules and regulations (including Rule 17f-4 of the
1940 Act), and subject to the following provisions:
1) The Sub-Custodian may, either directly or through one or
more agents, keep securities of the Fund in a Securities System provided that
such securities are represented in an account ("Account")
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of the Sub-Custodian or such an agent in the Securities System which shall not
include any assets other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Sub-Custodian with respect to securities
of the Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund;
3) The Sub-Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Sub-Custodian to reflect such payment and transfer
for the account of the Fund. The Sub-Custodian shall transfer securities sold
for the account of the Fund upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Sub-Custodian to reflect such
transfer and payment for the account of the Fund. Copies of all advices from the
Securities System of transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Sub-Custodian or such an
agent and be provided to the Fund or the Custodian at the Custodian's request.
The Sub-Custodian shall furnish the Custodian confirmation of each transfer to
or from the account of the Fund in the form of a written advice or notice and
shall furnish to the Custodian copies of daily transaction statements reflecting
each day's transactions in the Securities System for the account of the Fund on
the next business day;
4) The Sub-Custodian shall provide the Custodian with any
report obtained by the Sub-Custodian on the Securities System's accounting
system, internal accounting controls and procedures for safeguarding securities
deposited in the Securities System;
5) The Sub-Custodian shall utilize only such Securities Systems
as are set forth in a list provided by the Custodian of Securities Systems
approved for use by the Board of Trustees of the Fund, which list will be
amended from time to time by the Custodian as may be necessary to reflect any
subsequent action taken by the Trustees of the Fund;
6) Anything to the contrary in this Agreement notwithstanding,
the Sub-Custodian shall be liable to the Fund and the Custodian for any loss or
damage to the Fund or the Custodian resulting from use of the Securities System
by reason of any negligence, misfeasance or misconduct of the Sub-Custodian or
any of its agents or of any of its or their employees or from failure of the
Sub-Custodian or any such agent or employee to enforce effectively such rights
as it may have against the Securities System. At the election of the Custodian,
it shall be entitled to be subrogated to the rights of the Sub-Custodian with
respect to any claim against the Securities System or any other person which the
Sub-Custodian may have as a consequence of any such loss or damage if and to the
extent that the Fund and the Custodian have not been made whole for any such
loss or damage.
2.13. Depositary Receipts. Only upon receipt of Proper Instructions,
the Sub-Custodian shall instruct a 17f-5 Sub-Custodian appointed pursuant to
Section 2.11(b) hereof or an agent of the Sub-Custodian appointed pursuant to
Section 2.11(a) hereof (an "Agent") to surrender securities to the depositary
used by an issuer of American Depositary Receipts or International Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the 17f-5 Sub-Custodian or Agent that the
depositary has acknowledged receipt of instructions to issue with respect to
such securities ADRs in
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the name of the Sub-Custodian, or a nominee of the Sub-Custodian, for delivery
to the Sub-Custodian in Boston, Massachusetts, or at such other place as the
Sub-Custodian may from time to time designate.
Only upon receipt of Proper Instructions, the Sub-Custodian shall
surrender ADRs to the issuer thereof against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the Sub-Custodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities underlying such
ADRs to a 17f-5 Sub-Custodian or an Agent.
2.14. Foreign Exchange Transactions and Futures Contracts. Only upon
receipt of Proper Instructions, the Sub-Custodian shall enter into foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf and for the account of the Fund or shall enter
into futures contracts or options on futures contracts. Such transactions may be
undertaken by the Sub-Custodian with such banking institutions, including the
Sub-Custodian and 17f-5 Sub-Custodian(s) appointed pursuant to Section 2.11(b),
as principals, as approved and authorized by the Fund. In connection with such
transaction, the Sub-Custodian is authorized to make free outgoing payments of
cash in the form of U.S. Dollars or foreign currency without receiving
confirmation of a foreign exchange contract, futures contract or option thereon
or confirmation that the countervalue currency completing the foreign exchange
contract or futures contract has been delivered or received or that the option
has been delivered or received. Foreign exchange contracts, futures contracts
and options, other than those executed with the Sub-Custodian as principal,
shall for all purposes of this Agreement be deemed to be portfolio securities of
the Fund.
2.15. Option Transactions. Only upon receipt of Proper Instructions,
the Sub-Custodian shall enter into option transactions in accordance with the
provisions of any agreement among the Fund, the Custodian, and/or the
Sub-Custodian and a broker-dealer.
2.16. Ownership Certificates for Tax Purposes. The Sub-Custodian
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to securities held by it hereunder and in connection with transfers
of securities.
2.17. Proxies. The Sub-Custodian shall, with respect to the
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered other than in the
name of the Fund, all proxies that are received by the Sub-Custodian, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Custodian such proxies, all proxy soliciting materials
and all notices relating to such securities.
2.18. Communications Relating to Fund Portfolio Securities. The
Sub-Custodian shall transmit promptly to the Custodian all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Sub-Custodian
from issuers of the securities being held for the account of the Fund. With
respect to tender or exchange offers, the Sub-Custodian shall transmit promptly
to the Custodian all written information received by the Sub-Custodian from
issuers of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other similar
transactions, the Custodian shall notify the Sub-Custodian of the action the
Fund desires the Sub-Custodian to take; provided, however, that the
Sub-Custodian shall not be liable to the Fund or the Custodian for the failure
to take any such action unless Proper Instructions are
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received by the Sub-Custodian at least two business days prior to the date on
which the Sub-Custodian is to take such action, or in the case of foreign
securities, such longer periods as shall have been agreed upon in writing by
the Custodian and the Sub-Custodian, which may be in the form of written
operating procedures or standards.
2.19. Proper Instructions. Proper Instructions as used throughout
this Agreement means a writing signed or initialed by one or more persons who
are authorized by the Trustees of the Fund and by the Custodian. Each such
writing shall set forth the specific transaction or type of transaction
involved. Oral instructions will be considered Proper Instructions if the
Sub-Custodian reasonably believes them to have been given by a person authorized
to give such instructions with respect to the transaction involved. The
Custodian shall cause all oral instructions to be confirmed in writing. Proper
Instructions shall also include communications effected directly between the
Custodian and Sub-Custodian by electro-mechanical or electronic devices,
provided that the Custodian and the Sub-Custodian have approved such procedures.
Notwithstanding the foregoing, no Trustee, officer, employee or agent of the
Fund shall be permitted access to any securities or similar investments of the
Fund deposited with the Sub-Custodian or any agent for any reason except in
accordance with the provisions of Rule 17f-2 under the 1940 Act.
2.20. Actions Permitted without Express Authority. The Sub-Custodian
may in its discretion, without express authority from the Custodian:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the
Custodian;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund held by the Sub-Custodian
hereunder except as otherwise directed by the Custodian.
2.21. Evidence of Authority. The Sub-Custodian shall be protected in
acting upon any instruction, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to have been
properly executed by or on behalf of the Fund or the Custodian as custodian of
the Fund.
2.22. Performance Standards. The Sub-Custodian shall use its best
efforts to perform its duties hereunder in accordance with such standards as are
agreed upon from time to time by the Custodian and the Sub-Custodian.
3. Records. The Sub-Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Trustees of the Fund to
keep the books of account of the Fund or, if directed in writing to do so by the
Custodian, shall itself keep such books of account. The Sub-Custodian shall
create
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and maintain all records relating to its activities and obligations under
this Agreement in such manner as will meet the obligations of the Fund under the
1940 Act, with particular attention to Sections 17(f) and 31 thereof and Rules
17f-2, 31a-1 and 31a-2 thereunder; the Sub-Custodian shall also create and
maintain such records as are required by applicable federal and state tax laws,
and any other law or administrative rules or procedures which may be applicable
to the Fund or the Custodian, such laws, rules or procedures to be specified by
the Custodian from time to time. All such records shall be the property of the
Fund and shall at all times during the regular business hours of the
Sub-Custodian be open for inspection by duly authorized officers, employees or
agents of the Custodian and the Fund and employees and agents of the Securities
and Exchange Commission. The Sub-Custodian shall, at the Custodian's request,
supply the Custodian with a tabulation of securities owned by the Fund and held
under this Agreement and shall, when requested to do so by the Custodian and for
such compensation as shall be agreed upon between the Custodian and
Sub-Custodian, include certificate numbers in such tabulations.
4. Opinion and Reports of the Fund's Independent Accountant. The Sub-Custodian
shall take all reasonable actions, as the Custodian may from time to time
request, to furnish such information with respect to its activities hereunder as
the Fund's independent public accountant may request in connection with the
accountant's verification of the Fund's securities and similar investments as
required by Rule 17f-2 under the 1940 Act, the preparation of the Fund's
registration statement and amendments thereto, the Fund's reports to the
Securities and Exchange Commission and with respect to any other requirements of
such Commission.
5. Reports of Sub-Custodian's Independent Accountant. The Sub-Custodian shall
provide the Custodian, at such times as the Custodian may reasonably require,
with reports by an independent public accountant on the accounting system,
internal accounting controls and procedures for safeguarding securities,
including securities deposited and/or maintained in a Securities System,
relating to the services provided by the Sub-Custodian under this Agreement;
such reports, which shall be of sufficient scope and in sufficient detail as may
reasonably be required by the Custodian, shall provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and if there
are no such inadequacies, shall so state.
6. Compensation. The Sub-Custodian shall be entitled to reasonable compensation
for its services and expenses as sub-custodian, as agreed upon from time to time
between the Custodian and the Sub-Custodian.
7. Responsibility of Sub-Custodian. The Sub-Custodian shall exercise reasonable
care and diligence in carrying out the provisions of this Agreement and shall
not be liable to the Fund or the Custodian for any action taken or omitted by it
in good faith without negligence or willful misconduct. So long as and to the
extent that it is in the exercise of reasonable care, the Sub-Custodian shall
not be responsible for the title, validity or genuineness of any property or
evidence of title thereto received by it or delivered by it pursuant to this
Agreement and shall be held harmless in acting upon any notice, request,
consent, certificate or other instrument reasonably believed by it to be genuine
and, if in writing, reasonably believed to be signed by the proper party or
parties. It shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund) on all matters and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. Notwithstanding
the foregoing, the responsibility of the Sub-Custodian with respect to
redemptions effected by check shall be in accordance with a separate agreement
entered into between the Custodian and the Sub-Custodian. It is also understood
that the Sub-Custodian shall not be liable for any loss resulting from a
Sovereign Risk. A "Sovereign Risk" shall mean nationalization, expropriation,
devaluation, revaluation, confiscation, seizure, cancellation, destruction or
similar action by
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any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution; or any
other similar act or event beyond the Sub-Custodian's control.
The Sub-Custodian shall protect the Fund and the Custodian from
losses to the Fund resulting from any act or failure to act of the Sub-Custodian
in violation of its duties hereunder or of any law applicable to the
Sub-Custodian's duties hereunder.
If the Custodian requires the Sub-Custodian to take any action with
respect to securities, which action involves the payment of money or which
action may, in the opinion of the Sub-Custodian, result in the Sub-Custodian's
being liable for the payment of money or incurring liability of some other form,
the Custodian, as a prerequisite to requiring the Sub-Custodian to take such
action, shall provide indemnity to the Sub-Custodian in an amount and form
satisfactory to the Sub-Custodian.
The Custodian agrees to indemnify and hold harmless the Sub-Custodian
from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) (collectively, "Authorized Charges")
incurred or assessed against it or its nominee in connection with the
performance of this Agreement, except such as may arise from its own negligent
action, negligent failure to act or willful misconduct. The Sub-Custodian is
authorized to charge any account of the Fund for such items and such fees. To
secure any such Authorized Charges and any advances of cash or securities made
by the Sub-Custodian to or for the benefit of the Fund for any purpose which
results in the Fund's incurring an overdraft at the end of any business day or
for extraordinary or emergency purposes during any business day, the Custodian
on behalf of the Fund hereby represents that it has obtained from the Fund
authorization to apply available cash in any account maintained by the
Sub-Custodian on behalf of the Fund and a security interest in and pledge to the
Sub-Custodian of securities of the Fund held by the Sub-Custodian (including
those which may be held in a Securities System) up to a maximum of 10% of the
value of the net assets held by the Sub-Custodian for the purposes of securing
payment of any Authorized Charges and any advances of cash or securities, and
that the Fund has agreed, from time to time, to designate in writing, or to
cause its investment adviser to, or permit the Custodian to, designate in
writing, the securities subject to such security interest and pledge with such
specificity and detail as the Sub-Custodian may reasonably request (and in the
absence of such designation to permit the Sub-Custodian so to designate
securities). The Custodian hereby grants on behalf of the Fund a security
interest and pledge to the Sub-Custodian, as aforesaid, in securities and
available cash, as security for any Authorized Charges and any advances of cash
or securities and agrees that, should the Fund or the Custodian fail to repay
promptly any Authorized Charges and any advances of cash or securities, the
Sub-Custodian shall be entitled to use such available cash and to dispose of
such pledged securities as is necessary to repay any such Authorized Charges or
any advances of cash or securities and to exercise the rights of a secured party
under the Uniform Commercial Code.
The Custodian agrees not to amend the third paragraph of Section 9 of
the Custodian Agreement unless it provides the Sub-Custodian with at least
thirty (30) days' prior written notice of the substance of any proposed
amendments, provided that the foregoing shall not be construed to in any way to
provide that the Sub-Custodian's consent shall be required to make such an
amendment effective or that the Sub-Custodian's failure to give such consent
shall in any way affect its obligations under this Agreement.
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8. Successor Sub-Custodian. If a successor sub-custodian shall be appointed by
the Custodian, the Sub-Custodian shall, upon termination and upon receipt of
Proper Instructions, cause to be delivered to such successor sub-custodian, duly
endorsed and in the form for transfer, all securities, funds and other property
of the Fund then held by it and all instruments held by the Sub-Custodian
related thereto and cause the transfer to an account of the successor
sub-custodian all of the Fund's securities held in any Securities Systems.
If no such successor sub-custodian shall be appointed, the
Sub-Custodian shall, in like manner, upon receipt of a certified copy of a vote
of the Trustees of the Fund, cause to be transferred such securities, funds and
other property in accordance with such vote.
In the event that no written order designating a successor
sub-custodian or certified copy of a vote of the Trustees shall have been
delivered to the Sub-Custodian on or before the date when such termination shall
become effective, then the SubCustodian shall have the right to deliver to a
bank or trust company, which meets the requirements of the 1940 Act and the
rules and regulations thereunder, all securities, funds and other properties of
the Fund. Thereafter, such bank or trust company shall be the successor of the
Sub-Custodian under this Agreement.
In the event that securities, funds and other property remain in the
possession of the Sub-Custodian after the date of termination hereof owing to
failure of the Custodian to obtain a certified copy of the Trustees appointing a
successor subcustodian, the Sub-Custodian shall be entitled to fair compensation
for its services during such period as the SubCustodian retains possession of
such securities, funds and other property and the provisions of this Agreement
relating to the duties and obligations of the Sub-Custodian shall remain in full
force and affect.
9. Effective Period; Termination and Amendment. This Agreement shall become
effective as of its execution, shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid, to the other party,
such termination to take effect not sooner than thirty (30) days after the date
of mailing; provided, that either party may at any time immediately terminate
this Agreement in the event of the appointment of a conservator or receiver for
the other party or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction. No provision
of this Agreement may be amended or terminated except by a statement in writing
signed by the party against which enforcement of the amendment or termination is
sought.
Upon termination of this Agreement, the Custodian shall pay to the
Sub-Custodian such compensation as may be due as of the date of such termination
and shall likewise reimburse the Sub-Custodian for its reimbursable costs,
expenses and disbursements. The provisions of Section 7, including, until any
Authorized Charges and any advances of cash or securities referred to therein
are repaid, all liens and security interests created pursuant thereto, and all
rights to indemnification, shall survive any termination of this Agreement.
10. Interpretation. This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof. In
connection with the operation of this Agreement, the Sub-Custodian and the
Custodian may from time to time agree in writing on such provisions interpretive
of
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<PAGE>
or in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. No interpretive or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.
11. Governing Law. This Agreement is executed and delivered in The Commonwealth
of Massachusetts and shall be governed by and construed according to the
internal laws of said Commonwealth, without regard to principles of conflicts of
law.
12. Notices. Notices and other writings delivered or mailed postage prepaid to
the Custodian addressed to the Custodian attention: George H. Crane, Senior Vice
President, The Putnam Companies, 99 High Street, Boston, MA 02109 or to such
other person or address as the Custodian may have designated to the Sub
Custodian in writing, or to the Sub-Custodian attention: or to such other
address as the SubCustodian may have designated to the Custodian in writing,
shall be deemed to have been properly delivered or given hereunder to the
respective addressee.
13. Binding Obligation. This Agreement shall be binding on and shall inure to
the benefit of the Custodian and the SubCustodian and their respective
successors and assigns, provided that neither party hereto may assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party.
14. Prior Agreements. This Agreement supersedes and terminates, as of the date
hereof, all prior contracts between the Fund or the Custodian and the
Sub-Custodian relating to the custody of the Fund's assets.
15. Declaration of Trust. A copy of the Declaration of Trust of the Fund is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that the obligations of or arising out of this instrument are not
binding upon any of the Trustees or beneficiaries individually but binding only
upon the assets and property of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 199 .
PUTNAM FIDUCIARY TRUST COMPANY
By _____________________________
Name:
Title:
(Sub-Custodian)
By _____________________________
Name:
Title:
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<PAGE>
The Sub-Custodian and Putnam Investments, Inc. ("Putnam"), the sole owner
of the Custodian, agree that Putnam shall be the primary obligor with respect to
compensation due the Sub-Custodian pursuant to Section 6 of this Agreement in
connection with the Sub-Custodian's performance of its responsibilities
hereunder. The Custodian and Putnam agree to take all actions necessary and
appropriate to assure that the Sub-Custodian shall be compensatedin the amounts
and on the schedule agreed to by the Custodian and the Sub-Custodian pursuant to
Section 6.
PUTNAM INVESTMENTS, INC.
By: ______________________________
Name:
Title:
PUTNAM FIDUCIARY TRUST COMPANY
By: _______________________________
Name:
Title:
(Sub-Custodian)
By: _______________________________
Name:
Title:
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EXHIBIT 2(k)(1)
CLOSED-END FUND
INVESTOR SERVICING AGREEMENT
AGREEMENT made as of the 1st day of July, 1991, between each of the
closed-end Putnam Funds listed in Appendix A hereto (as the same may from time
to time be amended to add one or more additional closed-end Putnam Funds or to
delete one or more of such Funds), each of such Funds acting severally on its
own behalf and not jointly with any of such other Funds (each of such Funds
being hereinafter referred to as the "Fund"), and The Putnam Management Company,
Inc. (the "Manager"), a Delaware corporation, and Putnam Fiduciary Trust Company
(the "Agent"), a Massachusetts trust company.
W I T N E S S E T H:
WHEREAS, the Fund is a closed-end investment company registered under
the Investment Company Act of 1940; and
WHEREAS, the Fund desires to engage the Manager and the Agent to
provide all services required by the Fund in connection with the establishment,
maintenance and recording of shareholder accounts, including without limitation
all related tax and other reporting requirements, and the administration of any
dividend reinvestment and/or cash purchase plans from time to time offered in
connection with the Fund's shares; and
WHEREAS, the Agent, an affiliate of the Manager, provides similar
services for the open-end investment companies in the Putnam family of funds and
is willing to provide such services to the Funds on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties hereto agree as follows:
1. APPOINTMENT.
The Fund hereby appoints the Agent as its "Investor Servicing Agent"
on the terms and conditions set forth herein. In such capacity the Agent shall
act as transfer agent, registrar and distribution disbursing agent for the Fund
and shall act as agent for the Fund in connection with the administration of any
dividend reinvestment and/or cash share purchase plans from time to time made
available to shareholders. The Agent hereby accepts such appointment and agrees
to perform the respective duties and functions of such offices in accordance
with the terms of this Agreement and in a manner generally consistent with the
practices and standards customarily followed by other high quality investor
servicing agents for registered investment companies.
Notwithstanding such appointment, however, the parties agree that the
Manager may, upon thirty (30) days prior written notice to the Fund, assume such
appointment and perform
<PAGE>
such duties and functions itself. Pending any such assumption, however, the
Manager hereby guarantees the performance of the Agent hereunder and shall be
fully responsible to the Fund, financially and otherwise, for the performance by
the Agent of its agreements contained herein.
2. GENERAL AUTHORITY AND DUTIES.
By its acceptance of the foregoing appointment, the Agent shall be
responsible for performing all functions and duties which, in the reasonable
judgment of the Fund, are necessary or desirable in connection with the
establishment, maintenance and recording of the Fund's shareholder accounts and
the conduct of its relations with shareholders with respect to their accounts.
Without limiting the generality of the foregoing, the Agent shall be
responsible:
(a) as transfer agent, for performing all functions customarily
performed by transfer agents for closed-end registered investment
companies, including without limitation all functions necessary or
desirable to establish and maintain accounts evidencing the ownership
of securities issued by the Fund and, to the extent applicable, the
issuance of certificates representing such securities, the recording
of all transactions pertaining to such accounts, and effecting the
issuance and redemption of securities is sued by the Fund;
(b) as registrar, for performing all functions customarily performed
by registrars for closed-end registered investment companies;
(c) as distribution disbursing agent, for performing all functions
customarily performed by distribution disbursing agents for
closed-end registered investment companies, including without
limitation all functions necessary or desirable to effect the payment
to shareholders of distributions declared from time to time by the
Trustees of the Fund;
(d) as agent for the Fund, performing all administrative and
bookkeeping functions necessary or desirable to maintain any dividend
reinvestment and/or cash share purchase plans from time to time made
available to shareholders to facilitate the purchase of shares of the
Fund, including without limitation the supervision of any independent
bank or brokerage firm engaged by the Fund to act as agent for the
shareholders of the Fund in connection with such plans, if and to the
extent required by the federal securities laws.
In performing its duties hereunder, in addition to the provisions set
forth herein, the Agent shall comply with the terms of the Declaration of Trust,
the Bylaws, the Registration Statement filed with the Securities and Exchange
Commission, and with the terms of votes adopted from time to time by the
Trustees and shareholders of the Fund, relating to the subject matters of this
Agreement, all as the same may be amended from time to time.
3. STANDARD OF SERVICE; COMPLIANCE WITH LAWS.
-2-
<PAGE>
The Agent will use its best efforts to provide high quality services
to the Fund's shareholders and in so doing will seek to take advantage of such
innovations and technological improvements as may be appropriate or desirable
with a view to improving the quality and, where possible, reducing the cost of
its services to the Fund. In performing its duties hereunder, the Agent shall
comply with the provisions of all applicable laws and regulations and shall
comply with the requirements of any governmental authority having jurisdiction
over the Agent or the Fund with respect to the duties of the Agent hereunder and
the requirements of any national securities exchange on which shares of the Fund
are listed for trading.
4. COMPENSATION.
The Fund shall pay to the Agent, for its services rendered and its
costs incurred in connection with the performance of its duties hereunder, such
compensation and reimbursements as may from time to time be approved by vote of
the Trustees of the Fund.
5. DUTY OF CARE; INDEMNIFICATION.
The Agent will at all times act in good faith and exercise reasonable
care in performing its duties hereunder. The Agent will not be liable or
responsible for delays or errors resulting from circumstances beyond its
control, including acts of civil or military authorities, national emergencies,
labor difficulties, fire, mechanical breakdown beyond its control, flood or
catastrophe, acts of God, insurrection, war, riots or failure beyond its control
of transportation, communication or power supply.
The Agent may rely on certifications of the Clerk, the President, the
Vice Chairman, the Executive Vice President, the Senior Vice President or the
Treasurer of the Fund as to any action taken by the shareholders or trustees of
the Fund, and upon instructions not inconsistent with this Agreement received
from the President, Vice Chairman, the Executive Vice President, the Senior Vice
President or the Treasurer of the Fund. If any officer of the Fund shall no
longer be vested with authority to sign for the Fund, written notice thereof
shall forthwith be given to the Agent by the Fund and, until receipt of such
notice by it, the Agent shall be entitled to recognize and act in good faith
upon certificates or other instruments bearing the signatures or facsimile
signatures of such officers. The Agent may request advice of counsel for the
Fund, at the expense of the Fund, with respect to the performance of its duties
hereunder.
The Fund will indemnify and hold the Agent harmless from any and all
losses, claims, damages, liabilities and expenses (including reasonable fees and
expenses of counsel) arising out of (i) any action taken by the Agent in good
faith consistent with the exercise of reasonable care in accordance with such
certifications, instructions or advice, (ii) any action taken by the Agent in
good faith consistent with the exercise of reasonable care in reliance upon any
instrument or certificate for securities believed by it (a) to be genuine, and
(b) to be executed by any person or persons authorized to execute the same;
provided, however, that the Agent shall not be so indemnified in the event of
its failure to obtain a proper signature guarantee to
-3-
<PAGE>
the extent the same is required by the Declaration of Trust, Bylaws, or
Registration Statement of the Fund or a vote of the Trustees of the Fund, and
such requirement has not been waived by vote of the Trustees of the Fund, or
(iii) any other action taken by the Agent in good faith consistent with the
exercise of reasonable care in connection with the performance of its duties
hereunder.
In the event that the Agent proposes to assert the right to be
indemnified under this Section 5 in connection with any action, suit or
proceeding against it, the Agent shall promptly after receipt of notice of
commencement of such action, suit or proceeding notify the Fund of the same,
enclosing a copy of all papers served. In such event, the Fund shall be entitled
to participate in such action, suit or proceeding, and, to the extent that it
shall wish, to assume the defense thereof, and after notice from the Fund to the
Agent of its election so to assume the defense thereof the Fund shall not be
liable to the Agent for any legal or other expenses. The parties shall cooperate
with each other in the defense of any such action, suit or proceeding. In no
event shall the Fund be liable for any settlement of any action or claim
effected without its consent.
6. MAINTENANCE OF RECORDS.
The Agent will maintain and preserve all records relating to its
duties under this Agreement in compliance with the requirements of applicable
statutes, rules and regulations, including without limitation Rule 31a-1 under
the Investment Company Act of 1940, and with the requirements of any national
securities exchange on which shares of the Fund are listed for trading. Such
records shall be the property of the Fund and shall at all times be available
for inspection and use by the officers and agents of the Fund. The Agent shall
furnish to the Fund such information pertaining to the shareholder accounts of
the Fund and the performance of its duties hereunder as the Fund may from time
to time request. The Agent shall notify the Fund promptly of any request or
demand by any third party to inspect the records of the Fund maintained by it
and will act upon the instructions of the Fund in permitting or refusing such
inspection.
7. FUND ACCOUNTS.
All moneys of the Fund from time to time made available for the
payment of distributions to shareholders, or otherwise coming into the
possession or control of the Agent or its officers, shall be deposited and held
in one or more accounts maintained by the Agent solely for the benefit of the
Funds.
8. INSURANCE.
The Agent will at all times maintain in effect insurance coverage,
including without limitation Errors and Omissions, Fidelity Bond and Electronic
Data Processing coverages, at levels of coverage consistent with those
customarily maintained by other high quality investor
-4-
<PAGE>
servicing agents for registered investment companies and with such guidelines as
the Trustees of the Fund may from time to time adopt.
9. EMPLOYEES.
The Agent shall be responsible for the employment, control and
conduct of its agents and employees and for injury to such agents or employees
or to others caused by such agents or employees. The Agent shall assume full
responsibility for its agents and employees under applicable statutes and agrees
to pay all applicable employer taxes thereunder with respect to such agents and
employees, and such agents and employees shall in no event be considered to be
agents or employees of the Fund.
10. EFFECTIVE DATE; TERMINATION.
This Agreement shall take effect on July 1, 1991 and shall continue
indefinitely thereafter until terminated by not less than ninety (90) days prior
written notice given by the Fund to the Agent, or by not less than six months
prior written notice given by the Agent to the Fund.
In the event that in connection with any such termination a successor
to any of the Agent's duties or responsibilities hereunder is designated by the
Fund by written notice to the Agent, the Agent will cooperate fully in the
transfer of such duties and responsibilities, including provision for assistance
by the Agent's personnel in the establishment of books, records and other data
by such successor. The Fund will reimburse the Agent for all expenses incurred
by the Agent in connection with such transfer.
11. MISCELLANEOUS.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of The Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions of this
Agreement or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
A copy of the Declaration of Trust (including any amendments thereto)
of the Fund is on file with the Secretary of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on behalf of the
Trustees of the Fund as Trustees and not individually and that the obligations
of or arising out of this instrument are not binding upon any of the Trustees or
officers or shareholders individually, but binding only upon the assets and
property of the Fund.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date and year first above
written.
THE PUTNAM FUNDS, listed
on Appendix A
/s/Charles E. Porter
By --------------------------
Charles E. Porter
Executive Vice President
PUTNAM FIDUCIARY TRUST COMPANY
/s/John R. Verani
By ---------------------------
John R. Verani
President
THE PUTNAM MANAGEMENT COMPANY, INC.
/s/Gordon H. Silver
By ----------------------------
Gordon H. Silver
Senior Managing Director
-6-
<PAGE>
Appendix A
List of Closed-End Putnam
Funds Executing Investor
Servicing Agreement dated
as of April , 1995
Putnam High Income Convertible and Bond Fund
Putnam Master Income Trust
Putnam Premier Income Trust
Putnam Master Intermediate Income Trust
Putnam Intermediate Government Income Trust
Putnam Managed Municipal Income Trust
Putnam High Yield Municipal Trust
Putnam Dividend Income Fund
Putnam Investment Grade Municipal Trust
Putnam Tax-Free Health Care Fund
Putnam Investment Grade Municipal Trust II
Putnam California Investment Grade Municipal Trust
Putnam New York Investment Grade Municipal Trust
Putnam Managed High Yield Trust
Putnam Municipal Opportunities Trust
Putnam Investment Grade Intermediate Municipal Trust
Putnam Investment Grade Municipal Trust III
Putnam Convertible Opportunities and Income Trust
-7-
EXHIBIT 2(l)(2)
[R&G Draft]
April __, 1997
Putnam Municipal Opportunities Trust
One Post Office Square
Boston, MA 02109
Ladies and Gentlemen:
This opinion is rendered to you in connection with the Registration
Statement on Form N-2, as amended through the date hereof (the "Registration
Statement"), filed with the Securities and Exchange Commission under the
Securities Act of 1933 and the Investment Company Act of 1940, both as amended,
for the registration by Putnam Municipal Opportunities Trust (the "Trust") of
1,620 shares of Series B and 1,620 shares of Series C of its Remarketed
Preferred Shares, liquidation preference $25,000 per share plus accumulated and
unpaid dividends ("RP"). The shares of RP are being offered by Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter" or "Merrill Lynch").
Merrill Lynch will serve as the remarketing agent (the "Remarketing Agent") for
the shares of RP. We have acted as counsel to the Trust in connection with the
issuance and sale of the shares of RP.
This opinion is based upon the following representations made to us by the
Trust:
o The Trust will not take any position, and the Trust has no reason to
believe that holders of shares of RP will take any position, that is
inconsistent with the treatment either of shares of RP as equity or of
distributions out of earnings and profits with respect to shares of RP
as dividends (other than distributions upon liquidation of the Trust
and certain distributions in redemption of shares of RP) for any and
all tax, financial accounting, regulatory, or other purposes.
o The Trust has no present plan or intention to redeem or purchase
shares of RP. Although in certain circumstances in the future (such
as, for example, in the case of certain changes in the relative levels
of long-term and short-term interest rates) the Trust may redeem or
purchase shares of RP, the Trust does not, based on information
currently available to it, expect that circumstances will arise that
will require it, either as a legal or an economic matter, to redeem or
purchase shares of RP.
<PAGE>
Putnam Municipal -2- April __, 1997
Opportunities Trust
o There is no express or implied agreement between the Trust and any
holder(s) of shares of RP that the Trust will guarantee or otherwise
arrange to ensure that such holder(s) of shares of RP will be able to
sell its (their) shares of RP.
o There is no express or implied agreement, between the Trust and the
Remarketing Agent or between the Trust and any other party, that the
Remarketing Agent or such other party will guarantee or otherwise
arrange to ensure that any holder(s) of shares of RP will be able to
sell its (their) shares of RP.
o The Trust is not aware that there is any agreement, either express or
implied, between any holder(s) of shares of RP and the Remarketing
Agent that the Remarketing Agent will guarantee or otherwise arrange
to ensure that such holder(s) of shares of RP will be able to sell its
(their) shares of RP. In addition, the Trust is not aware of any
arrangement, either express or implied, between any holder(s) of
shares of RP and any party other than the Trust or the Remarketing
Agent pursuant to which such other party will guarantee or otherwise
arrange to ensure that such holder(s) of shares of RP will be able to
sell its (their) shares of RP.
o The Trust has no reason to believe that, if during any Remarketing it
appeared that the Remarketing Agent would be unable to sell all of the
shares of RP tendered to it in such Remarketing absent the purchase of
shares of RP by the Trust and/or the Remarketing Agent, the Trust
and/or the Remarketing Agent would necessarily purchase a number of
shares of RP sufficient to ensure that all shares of RP tendered in
that Remarketing would be sold in such Remarketing.
o The Trust has no reason to believe that, in the event that the
Applicable Dividend Rate is at any time either the Maximum Dividend
Rate or the Non- Payment Period Rate, (i) the Trust will necessarily
be required, either as a legal or economic matter, to redeem or
purchase shares of RP or (ii) the Remarketing Agent will be required,
either as a legal or economic matter, to purchase shares of RP.
Moreover, the holders of shares of RP have not received, and will not
receive, any guarantee from the Trust that they ultimately will be
able to sell their shares for a price equal to the liquidation value
of such shares.
Based on our examination of the Registration Statement and the Trust's
Bylaws and Agreement and Declaration of Trust, as well as all other exhibits to
the Registration Statement, each of which we have assumed to be true and
complete, on the representations stated above,(1) on the results of inquiries
into other facts and circumstances deemed relevant by us, on our assumption
that all documents examined by us are true and complete, that all documents
submitted to us as photocopies faithfully reproduce the originals thereof, that
such originals are authentic and were, to the extent required, duly executed,
and that all statements set forth in such documents are accurate, on the
assumption that the Trust will be operated in accordance with the documents
reviewed by us and representations received by us, and on the Internal Revenue
Code of 1986, as amended, regulations thereunder, Internal Revenue Service
rulings and pronouncements, court decisions and other applicable law as of the
date hereof, we are of the opinion that for Federal income tax purposes the
shares of RP will constitute equity in the Trust.
All terms not otherwise defined in this letter have the same meaning as in
the prospectus that is part of the Registration Statement.
Very truly yours,
Ropes & Gray
SAJ/JLY/njg:CYCOPIN1.PF
- --------------
(1) Our opinion assumes the truth of all representations made. To the
extent any such representations are inaccurate, the Trust's Bylaws will control
in determining the rights and obligations of the Trust and its shareholders, but
the inaccuracy will affect your ability to rely on our opinion.
<PAGE>
[R&G Draft]
April ___, 1997
Putnam Municipal Opportunities Trust
One Post Office Square
Boston, MA 02109
Ladies and Gentlemen:
This opinion is rendered to you in connection with the Registration
Statement on Form N-2, as amended through the date hereof (the "Registration
Statement"), filed with the Securities and Exchange Commission under the
Securities Act of 1933 and the Investment Company Act of 1940, both as amended,
for the registration by Putnam Municipal Opportunities Trust (the "Trust") of
1620 shares of Series B and 1620 shares of Series C of its Remarketed Preferred
Shares, liquidation preference $25,000 per share plus accumulated and unpaid
dividends (collectively, "RP").(1) The shares of RP are being offered through
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter" or Merrill
Lynch"). Merrill Lynch will serve as the remarketing agent (the "Remarketing
Agent") for the shares of RP. We have acted as counsel to the Trust in
connection with the issuance and sale of the shares of RP. In rendering this
opinion, we have assumed that the shares of RP constitute equity for federal
income tax purposes, which issue is covered in our separate opinion of even date
herewith.
Facts
- -----
We have examined the Prospectus and Bylaws and other documents contained in
the Registration Statement as they relate to the rights of the three series of
RP. The salient features of the shares of RP, as they pertain to the issue of
whether dividends paid with respect to each series of RP will qualify for the
dividends-paid deduction, are discussed below. Capitalized terms not defined
herein have the meanings assigned in the Registration Statement.
Each series of RP will have customary preferred share terms, consistent
with the requirements imposed by the 1940 Act. Each series of RP will have
preference over the common shares in respect of dividend payments and payments
in the event of the Trust's liquidation. Each series of RP will be limited in
its ability to share in the increase, if any, in the value of the Trust's
assets, because each share will be entitled only to dividends at the rates
determined pursuant
- --------
(1) The Trust has outstanding 16,157,097 shares of common stock traded on
the New York Stock Exchange under the symbol "PMO," and 800 shares of Remarketed
Preferred Shares, Series A (together with the RP, the "Preferred Shares"),
liquidation preference $50,000 per share, which were issued on August 3, 1993.
4125889.05
<PAGE>
Putnam Municipal -2- April __, 1997
Opportunities Trust
to the remarketing procedure described in the Registration Statement and a
liquidation preference equal to the initial sales price of the share plus all
accrued and unpaid dividends.(2)
The Trust has represented to us that there is a business purpose for having
three different series of RP. Specifically, the Underwriters believe that
markets currently exist for both shares of RP with a short Dividend Period (e.g.
7 days) and shares of RP with a somewhat longer Dividend Period (e.g. 28 days).
The Trust believes that by selling shares in both such markets, it can take
advantage of the different markets of investors that might be interested in
investments with a yield based on rates determined by reference to both a 7- and
a 28-day period. Also, the Trust believes that by selling two series of RP with
a Dividend Period of 7 days, it can take advantage of the demand for such shares
without saturating the existing market of interested investors and/or causing
the dividend rates for such shares to be higher than they would be if they were
to be marketed as two separate series. In the future, because the Trust will
have three series of RP and because the Trust will be able to specify the length
of the Dividend Period for each series prior to each Remarketing for such
series, the Trust will be able to respond to changes in the relative rates
payable on preferred stocks of various maturities, and thus continue to manage
its cost of leverage, by altering the lengths of the Dividend Periods of its
three series of RP.
The three different series of RP will vary in a number of material
respects. First, the dividends payable to shareholders of one series generally
will be based on markets different from those of the other series. More
specifically, at least initially, the Dividend Periods for two of the three
series will be of different lengths. The Initial Dividend Period for Series A RP
is 28 days, while the Initial Dividend Period for Series B and Series C RP will
be 7 days. Also, Series B and Series C RP will initially be offered on different
days. Thereafter, it is possible that from time to time the Dividend Period for
Series B and/or Series C RP will be of a length equal to that for Series A RP.
However, the Trust has represented that in circumstances in which the next
Remarketing Date for Series A RP will be the same as the next Remarketing Date
for each of either Series B or Series C RP, the Trust will not permit the
Dividend Periods for the two series of RP to be of the same length except in
circumstances in which such Dividend Periods for the two series are both 28 days
in length solely because the Dividend Period for one or both series either (i)
commences during a Non-Payment Period or (ii) is a Dividend Period for which the
Applicable Dividend Rate is the Maximum Dividend Rate. The Trust has further
represented that the Dividend Periods for each of Series A, Series B and Series
C RP will never be co-extensive unless the Trust has received a tax opinion that
having such co-extensive periods will not affect this tax opinion. Thus, the
Applicable Dividend Rates for Series A, B and C RP generally will be set for
Dividend Periods of different lengths and/or will be determined at
- --------
(2) In certain circumstances, the Board of Trustees in consultation with
the Remarketing Agent may also provide in its discretion for a call premium to
be paid upon the optional redemption of such shares.
<PAGE>
Putnam Municipal -3- April __, 1997
Opportunities Trust
different times. Consequently, holders of each series generally will be affected
differently by market conditions and market fluctuations. (For example, the
initial Applicable Dividend Rate for Series B shares will be [ ]% and for Series
C shares will be [ ]%.)
Notwithstanding the fact that the Applicable Dividend Rates for the three
series of shares may differ, the Trust has represented that each outstanding
share within each series of RP will receive the same dividends as every other
outstanding share within the same series.
One consequence of the fact that the Dividend Periods and Applicable
Dividend Rates for the three series of RP may differ is that the price that a
holder of a share of one series could expect to receive in a sale of its share
between Remarketing Dates may be higher or lower than the price that a holder of
a share of the other series could expect to receive.
The holders of shares of one series will have no right to convert or
exchange those shares for shares of any other series. Thus, for example, if a
holder of Series A shares desired to receive dividends under the terms of Series
B shares, the holder would have to purchase shares of Series B.
Separate Remarketings will be conducted for each series of RP. Each share
of RP will be subject to tender and dividend reset only during the Remarketing
for the series of which it is a part, which Remarketing will occur at the end of
each Dividend Period applicable to such share. Thus, on any given date, holders
of shares of Series A, Series B and Series C RP, respectively, generally will
have a different period of time remaining until the next Remarketing Date for
their shares. In the event that the next Remarketing Date for each of either
Series B or Series C RP and Series A RP will be on the same date, the length of
the Dividend Periods for the two series will differ unless, as noted above, the
Dividend Periods for the two series are both 28 days in length solely because
the Dividend Period for one or both series either (i) commences during a
Non-Payment Period or (ii) is a Dividend Period for which the Applicable
Dividend Rate is the Maximum Dividend Rate. The Trust has further represented
that the Dividend Periods for each of Series A, Series B and Series C RP will
never be co-extensive unless the Trust has received a tax opinion that having
such co-extensive periods will not affect this tax opinion. Accordingly, the
opportunity for a holder of shares of RP to tender its shares generally will
differ depending on the series of which its shares are a part.
One consequence of the fact that separate Remarketings will be conducted
for each series of RP will be that even if the Remarketing Agent is able to sell
all shares tendered in a Remarketing for one series of shares at a price equal
to their liquidation preference of $25,000, the Remarketing Agent will not
necessarily also be able to sell, at a price equal to their liquidation
preference of $25,000, all shares of the other series tendered to it in the
Remarketing for such other series.
<PAGE>
Putnam Municipal -4- April __, 1997
Opportunities Trust
The opportunity for a holder of shares of RP to redeem its shares differs
depending on the series of which such shares are a part. Shares of RP will be
subject to redemption at the option of the Trust (to the extent permitted by the
laws of the Commonwealth of Massachusetts and the 1940 Act), and the Trust may
exercise such option as to one or both series of shares and as to some or all of
the shares of each series. Any redemption of shares of a series of RP will take
place on the next succeeding scheduled dividend payment date for such series.(3)
The amount payable upon redemption or liquidation of a share will also
depend upon the series of which the share is a part. More specifically, the
amount payable on redemption or liquidation will in general equal the initial
sales price of the share of RP (i.e., $25,000) plus any accumulated and unpaid
dividends thereon, plus, in the case of an optional redemption, the premium, if
any, resulting from the designation of a premium call period for the series of
which the share is a part. As noted above, the Applicable Dividend Rates for the
three series may vary due to the terms and market conditions particular to each
series on their respective Remarketing Dates. Accordingly, since the amount of
accumulated and unpaid dividends will at the time of redemption or liquidation
of a share of RP depend on the series of which such share is part, and since, in
the case of an optional redemption, one series of shares may be entitled to a
premium while the other may not, shares of different series of the RP would in
general be expected to have varying redemption and liquidation prices.
Holders of shares of one series of RP will have voting rights that differ
from those of the holders of any other series. The Bylaws of the Trust provide
that, to the extent permitted under the 1940 Act, any action which may adversely
affect a series of RP differently than the other series of RP must be approved
by a majority of the outstanding shares of the potentially affected series. If
the three series may be materially adversely affected in a substantially similar
manner, the three series will vote together, and the action must be approved by
a majority of the shares of the three series combined.(4) The Trust has
represented that in accordance with these provisions it will not, without the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of RP:
- --------
(3) In certain circumstances in which certain asset coverage requirements
are not met, there may be mandatory redemptions of shares of RP.
(4) The holders of RP will vote together, separately from the common
shareholders, in certain additional circumstances. For example, the holders of
the shares of RP (together with holders of other preferred shares, if any) will
be entitled to vote to elect two Trustees of the Trust and to approve or
disapprove changes to the Trust's investment restrictions. In addition, a
majority vote of the holders of shares of the three series of RP, voting
together, separately from the common shareholders, will be required before the
Trust may (i) authorize, create or issue, or increase or decrease the authorized
or issued amount of, any class or series of shares of beneficial interest
ranking prior to or on a parity with the RP with respect to payment of dividends
or the distribution of assets on liquidation, or increase or decrease the number
of authorized preferred shares (although the Trust may, to the extent of the
amount of Preferred Shares authorized from time to time, issue additional shares
of RP or other series of Preferred Shares on a parity with the RP with respect
to payment of dividends and the distribution of assets on liquidation (including
Preferred Shares with different dividend rates and periods) without such vote or
consent); (ii) amend, alter or repeal the provisions of the Agreement and
Declaration of Trust and the Bylaws, whether by merger, consolidation or
otherwise, so as to affect materially and adversely any preference, right or
power of such shares of RP or the Holders thereof; or (iii) take any other
action (including without limitation bankruptcy proceedings) which under the
1940 Act requires such approval by the holders; provided that (i) the issuance
of not more than the 6,000 shares of Preferred Shares presently authorized and
(ii) the creation and issuance of series of preferred shares ranking junior to
the RP with respect to payment of dividends and the distribution of assets on
liquidation, will not be deemed to affect such preferences, rights or powers
unless such issuance would, at the time thereof, cause the Trust not to satisfy
the 1940 Act RP Asset Coverage or the RP Basic Maintenance Amount.
No series of RP will have any voting rights relating to (i) changes in
certain definitions of terms pertaining to the various asset coverage
requirements and the Applicable Dividend Rate during a Non-Payment Period, (ii)
the amendment, alteration or repeal of certain provisions concerning S&P's and
Moody's restrictions on the Fund's investments in futures contracts, options and
forward commitments, and (iii) the amendment, alteration or repeal of certain
other restrictions and notice requirements imposed by S&P and Moody's, provided
that the Trustees receive written confirmation from S&P and/or Moody's, as
appropriate, that any such change, amendment, alteration, or repeal would not
impair the ratings of any series of RP assigned by S&P and/or Moody's. The Trust
has represented to us that limitations on voting rights of such a nature are not
unusual for floating rate preferred shares such as the RP.
Except as described above and in the text of this opinion, holders of
shares of RP and common shares will generally vote together on Trust matters.
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Putnam Municipal -5- April __, 1997
Opportunities Trust
(a) authorize, create, issue, or increase or decrease the authorized or
issued amount of, any class or series of shares of beneficial interest
ranking prior to or on a parity with the RP with respect to payment of
dividends or the distribution of assets on liquidation in a manner
that could materially adversely affect the holders of such series of
RP (except the Trust may, subject to the limitations of the Bylaws and
Agreement and Declaration of Trust, issue additional shares of RP or
other Preferred Shares, up to the 6,000 shares of Preferred Shares
currently authorized, and the Trust may, in certain circumstances,
redeem shares of RP);
(b) take any action that would increase or decrease the aggregate number
of authorized Preferred Shares, or increase or decrease the number of
issued shares of Preferred Shares in a manner that could materially
adversely affect the holders of RP (except that the Trust may, subject
to the limitations of the Bylaws and Agreement and Declaration of
Trust, issue additional shares of RP or other Preferred Shares, up to
the 6,000 shares of Preferred Shares currently authorized, and the
Trust may, in certain circumstances, redeem shares of RP);
(c) take any action that would effect an exchange, reclassification, or
cancellation of all or part of the shares of such series and that
would materially adversely affect such series (other than through
exercise of the Trust's redemption rights and obligations);
(d) take any action pursuant to which the shares of such series would be
exchanged for the shares of another association taxable as a
corporation or corporation pursuant to a plan of share exchange if
there were any potentially material adverse effect to the shareholders
of such series that was materially different from the effect on
shareholders of any other series;
(e) take any action that would effect an exchange, or create a right of
exchange, of all or part of the shares of another class or series for
shares of such series and that would materially adversely affect such
series;
(f) take any action that would change the rights, powers or preferences of
the shares of such series in a manner that would materially adversely
affect such series;
(g) take any action that would change the shares of such series, whether
with or without par value, into the same or a different number of
shares, either with or without par value, of the same or another class
or series and that would materially adversely affect such series; or
(h) take any action that would cancel or otherwise affect dividends or
distributions on the shares of such series when such dividends or
distributions have accrued but have not been declared.
Summary of Applicable Law
- -------------------------
In order to satisfy the distribution requirement of section 852(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and to eliminate its
liability to pay corporate income tax for a given taxable year, a regulated
investment company must be able to claim a "dividends-paid deduction" for such
year, which deduction permits the regulated investment company to deduct from
its taxable income the amount of income distributed to shareholders as one or
more
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Putnam Municipal -6- April __, 1997
Opportunities Trust
dividends in or with respect to such year. However, allowance of the
dividends-paid deduction for a regulated investment company is subject to
certain conditions. Specifically, Code section 561(b) provides that the rules of
Code section 562 shall be applicable to a determination of whether a dividend
qualifies for the dividends-paid deduction. The only portion of Code section 562
that presents any issue in the context of this opinion is Code section 562(c),
which provides that the amount of any distribution shall not be considered as a
dividend for purposes of computing the dividends-paid deduction unless such
distribution is pro rata, with no preference to any share of stock as compared
with other shares of the same class, and with no preference to one class of
stock as compared with another class except to the extent the former is entitled
(without reference to waivers of their rights by shareholders) to such
preference.
Section 1.562-2(a) of the Treasury Regulations provides in part that a
corporation will not be entitled to a dividends-paid deduction for any
distribution (i.e., dividend) upon a class of stock if there is distributed to
any shareholder of such class (in proportion to the number of shares held by
him) more or less than his pro rata part of the distribution as compared with
the distribution made to any other shareholder of the same class (a
"preferential dividend"). The regulation further provides that a corporation
will not be entitled to a dividends-paid deduction in the case of any
distribution upon a class of stock if there is distributed upon such class of
stock more or less than the amount to which it is entitled as compared with any
other class of stock (also a "preferential dividend"), and that a preferential
dividend exists if any rights to preference inherent in any class of stock are
violated. Under Code section 562(c) and the regulations thereunder, the
disallowance, where any preferential dividend is deemed to have been paid,
extends to the entire amount of the distribution and not merely to a part of
such distribution.
The term "class," as used in Code section 562(c), is not defined in the
Code, applicable Treasury regulations or the legislative history of section
562(c). However, the legislative history, together with the applicable Treasury
regulations, provides guidance as to what should be considered a class.
The preferential dividend rule, which is now found in Code section 562(c),
and which requires, among other things, that distributions to shareholders
within a class be pro rata, was first introduced to the Internal Revenue Code in
1936 (see section 27(g) of the Revenue Act of 1936, Pub. L. No. 740, ch. 690, 49
Stat. 1648, 1665) to eliminate a tax avoidance scheme. In some states it was
possible for a corporation to pay a dividend to a class of shareholders other
than on a pro rata basis. Corporations eligible for the dividends-paid credit
(the predecessor of the dividends-paid deduction in Code section 561) could,
within the limits of state law, treat shareholders in the same class
differently. They could pay persons in low tax brackets or with small
stockholdings their dividends, but arrange to accrue dividends of other
shareholders who would rather have their money stay in the corporation and be
taxed at a lower corporate rate. These other shareholders could thus defer the
payment of taxes on dividends due to them until such time as the dividends were
actually distributed to them (at which time the corporation
<PAGE>
Putnam Municipal -7- April __, 1997
Opportunities Trust
would claim a dividends-paid credit). The scheme proved to be an effective way
for some shareholders to avoid taxes until the predecessor of section 562(c) was
introduced to disallow a dividends-paid credit for non-pro rata distributions.
Revenue Act of 1936: Hearing on H.R. 12395 before the Senate Comm. on Finance on
April 25, 1936, 74th Cong., 2d Sess. 62 (1936).
The current regulations under Code section 562 confirm that the pro rata
rule was enacted to make certain that corporations could not claim a
dividends-paid deduction for any distribution to a class that was not allocated
pro rata among members of such class even if it was allowable under state law.
Section 1.562-2(b), Example (i), of the Treasury regulations.
The term "preferential dividend" was first employed in the 1938 Code. The
House Ways and Means Committee Report to the 1938 Code clarified that the
provision applied to preferences within a class, as well as to preferences
between classes (other than those preferences inherent in the rights of stock of
such class):
Subsection (h) of the bill, relating to "preferential dividends", has
the same purpose as Section 27(g) of the existing law which disallows a
dividends-paid credit for a distribution which is preferential. No
dividends-paid credit should be allowed in the case of a distribution not
in conformity with the rights of shareholders generally inherent in their
stock holdings, whether the preferential distribution reflects an act of
injustice to shareholders or a device acquiesced in by shareholders, rigged
with a view to tax avoidance. The preference which prevents the allowance
of a dividends-paid credit may be one in favor of one class of stock as
well as one in favor of some shares of stock within one class. The
provision has been expanded in this bill so as to leave no uncertainty as
to its purpose in this respect. On the other hand, the words 'equal in
amount', being regarded by the committee as surplusage in existing law and
apparently being productive of some confusion, have been eliminated in the
new provision in the interest of clarity. The committee believes that no
distribution which treats shareholders with substantial impartiality and in
a manner consistent with their rights under their stock-holding interest,
should be regarded as preferential by reason of minor differences in
valuations of property distributed.
H.R. Rep. No. 1860, 75th Cong., 3rd Sess. 23 (1938), reprinted in 1939-1 C.B.
(Part 2) 728, 744. See also New York Stocks, Inc. v. Commissioner, 164 F.2d 75
(2d Cir. 1947); United Artists Theatre Circuit, Inc. v. Commissioner, 1 T.C. 424
(1943), acq. 1943 C.B. 23. There was, however, no indication of when two classes
of shares would be considered separate and distinct for tax purposes, or under
what circumstances a class would legitimately be entitled to a distribution
different from that made to another class.
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Putnam Municipal -8- April __, 1997
Opportunities Trust
The legislative history of, and the regulations under, Code section 562(c)
are clear that each shareholder within a class, as that term is used in Code
section 562(c), has certain inherent rights. Each shareholder within a class has
the right to receive the same distribution on each of his shares belonging to
the class as every other shareholder within the class. In addition, the class
has the right not to receive less than that to which it is entitled when
compared to other classes. A "class" for purposes of section 562(c) is thus a
group of shareholders whose rights are so closely aligned and so different from
other shareholders' rights as to warrant a conclusion that members of the group
should all be treated the same and should be protected against the infringement
of shareholders outside the group with respect to distributions. Section
1.562-2(b), Example (3), of the Treasury regulations indicates that cumulative
preferred and common stock may form two classes for these purposes. Among those
characteristics that cause cumulative preferred shareholders to be viewed as a
class separate from common shareholders would be their right to certain
preferences on distributions, on redemption, and on liquidation, and their right
to vote to protect those preferences.
In order to determine whether the dividends to be paid by the Trust to the
holders of its three series of RP will constitute preferential dividends under
section 562(c) of the Code, the primary inquiry is whether shares of such series
belong to different "classes" for purposes of applying that section. If they are
separate "classes" of shares, the fact that the Applicable Dividend Rate for one
series differs from that of the other series should not, by itself, cause the
dividends paid on the different series to be preferential. In the case of the
Trust, each series of preferred shares will be respected under applicable state
law as having certain rights specific to it and its holders. Under applicable
state law, each separate series of RP could have been designated as a separate
class of shares. As noted above, each series of RP and the holders thereof will
have separate and distinguishable dividend rights, redemption rights and
liquidation rights. These separate rights and preferences are intended to be
protected by the general right of the holders of any series of RP to vote
separately on any modifications to the Trust's Agreement and Declaration of
Trust and Bylaws or on any reorganization or any other action that could have a
material adverse effect on their particular series that is different from the
effect on the other series. We have examined applicable Massachusetts law, the
Investment Company Act of 1940 and such other authority as we have deemed
appropriate, and have concluded that the dividend, liquidation, redemption and
voting rights of each series of RP are effective in all material respects as a
matter of law. Under these circumstances, the three series of preferred shares
should be regarded as separate classes for purposes of section 562(c) of the
Code.(5)
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(5) We note, moreover, that even if each separate series were not a
separate class for federal income tax purposes, distributions on a series in
accordance with the terms thereof would be in accordance with the rights and
preferences of each shareholder and thus, consistent with the legislative
history described above, might well not constitute preferential dividends in any
event.
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Putnam Municipal -9- April __, 1997
Opportunities Trust
The legislative history to the predecessor of section 562, quoted above,
confirms the conclusion that in each instance Series A, Series B and Series C RP
should be regarded as different classes of stock for purposes of section 562(c)
of the Code. Specifically, the legislative history to the predecessor of section
562 notes that the former dividends-paid credit should not be allowed "in the
case of a distribution not in conformity with the rights of shareholders
generally inherent in their stock holdings," and thus indicates that separate
rights inherent in stock holdings that are supported by state law can form the
basis of different classes of stock susceptible to different treatment without
running afoul of the preferential dividend rule.
Since the Trust has represented that each outstanding share within each
series of RP will receive the same dividends as every other outstanding share
within the same series and since each series should be regarded as a separate
class for purposes of Code section 562(c), the requirement of Code section
562(c) that there be no preference as to any shares of stock as compared with
other shares of the same class will be satisfied. In addition, the requirement
of Code section 562(c) that there be no preference to one class of stock as
compared with another class, except to the extent that the former is entitled to
such preference, will also be satisfied since all distributions will be "in
conformity with the rights of shareholders generally inherent in their stock
holdings" (see the legislative history to the predecessor of Code section 562(c)
and Rev. Rul. 74-177, 1974-1 C.B. 165, which explicitly allows a regulated
investment company to have preferred and common shares without generating
preferential dividend problems, modified by Rev. Rul. 89-81, 1989-1 C.B. 226, in
certain other respects; see also Rev. Rul. 69-610, 1969-2 C.B. 149, to the
effect that an unincorporated trust that issues two classes of shares of
beneficial interest may continue to qualify as a real estate investment trust
under Code section 856).(6)
Finally, we note that Rev. Rul. 70-597, 1970-2 C.B. 146 and Rev. Rul.
74-177, supra, both as modified by Rev. Rul. 89-81, and Rev. Rul. 89-81, supra,
all indicate that the payment of dividends on one class of shares that differ in
amount, on a per share basis, from dividends paid on another class of shares,
does not of itself give rise to preferential dividends within the meaning of
Section 562(c) of the Code.
Opinion
- -------
Based on our examination of the Registration Statement, and the Trust's
Bylaws and Agreement and Declaration of Trust, as well as all other Exhibits to
the Registration Statement,
- --------
(6) Indeed, under Treas. Reg. ss. 1.562-2(a), if the Fund were to pay
identical dividends on each series of RP without regard to the different
distribution rights described in the Fund's Agreement and Declaration of Trust
and Bylaws, the Fund would probably be viewed as paying preferential dividends
on the three series (which, as is noted in the text, should constitute three
separate classes for this purpose).
<PAGE>
Putnam Municipal -10- April __, 1997
Opportunities Trust
on the representations described above(7), on the results of inquiries into
other facts and circumstances deemed relevant to us, on our assumption that all
documents examined by us are true and complete, that all documents submitted to
us as photocopies faithfully reproduce the originals thereof, that such
originals are authentic and were, to the extent required, duly executed, and
that all statements set forth in such documents are accurate, on our assumption
that the shares of RP constitute equity for federal income tax purposes, on the
assumption that the Trust will be operated in accordance with the documents
reviewed by us and representations received by us, and on the Code, Treasury
regulations thereunder, Internal Revenue Service rulings and pronouncements,
court decisions, and other applicable law as of the date hereof, we are of the
opinion that the dividends paid by the Trust with respect to its three series of
RP will not constitute preferential dividends within the meaning of section
562(c) of the Code, and will therefore qualify for the dividends-paid deduction
of section 561 of the Code.
Very truly yours,
Ropes & Gray
JLY/ng:
- --------
(7) Our opinion assumes the truth of all representations made. To the
extent any such representations are inaccurate, the Trust's Bylaws will control
in determining the rights and obligations of the Trust and its shareholders, but
the inaccuracy will affect your ability to rely on our opinion.
EXHIBIT 2(n)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Preliminary Prospectus of our report dated
June 18, 1996, on our audit of the financial statements and financial highlights
of Putnam Municipal Opportunities Trust contained in the Preliminary Prospectus.
We also consent to the reference to our firm under the heading "Experts" in the
Preliminary Prospectus.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 17, 1997
EXHIBIT 2(p)
May 13, 1993
Putnam Municipal Opportunities Trust
One Post Office Square
Boston, MA 02109
Gentlemen:
In connection with your sale to us today of 7,092.199 shares of
beneficial interest (the "Shares") in Putnam Municipal Opportunities Trust (the
"Fund"), we understand that: (i) the Shares have not been registered under the
Securities Act of 1933, as amended; (ii) your sale of the Shares to us is in
reliance on the sale's being exempt under Section 4(2) of the Act as not
involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment and for our own account as the sole
beneficial owner hereof, and not with a view to or in connection with any resale
or distribution of any or all of the Shares or of any interest therein. We
hereby agree that we will not sell, assign or transfer the Shares or any
interest therein except upon repurchase or redemption by the Fund unless and
until the Shares have been registered under the Securities Act of 1933, as
amended, or you have received an opinion of your counsel indicating to your
satisfaction that such sale, assignment or transfer will not violate the
provisions of the Securities Act of 1933, as amended, or any rules and
regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal,
shall be construed under the laws of Massachusetts, and is delivered at Boston,
Massachusetts, as of the date written above.
Very truly yours,
PUTNAM INVESTMENTS, INC.
By: /s/ Lawrence J. Lasser
-----------------------------
Lawrence J. Lasser, President
