As filed with the Securities and Exchange Commission on June 2, 1997
Securities Act File No. 333-25453
Investment Company Act File No. 811-7626
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-2
(Check appropriate box or boxes)
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6 [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 LLP Ropes & Gray
One World Trade Center One International Place
New York, New York 10048 Boston, Massachusetts 02110
---------------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered Per Unit Offering Price Registration Fee
- ------------------------------ ------------ --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Remarketed Preferred Shares,
Series B and Series C ...... 3,240 $25,000 $81,000,000 $24,545.45*
</TABLE>
* Previously paid
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<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
- -------- ------------------------------ ----------------------
<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 Prospectus Summary; Dividends and Distributions;
Securities 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 Not Applicable
Information
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 Description of Shares; Description of RP; Principal
Holders of Securities Holders of Securities
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
</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.
<PAGE>
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sales of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
[/RED HERRING]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 2, 1997
PROSPECTUS
==========
$81,000,000
Putnam Municipal Opportunities Trust
Remarketed Preferred[RegTM] Shares ["RP[RegTM]"]
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 June , 1997. The Initial Dividend Payment Date for the Series B
RP will be June , 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 June , 1997. The Initial Dividend
Payment Date for the Series C RP will be June , 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.
---------------------
This Prospectus sets forth in concise form information that a prospective
investor ought to know before investing. Investors are advised to read this
Prospectus carefully and to retain it for future reference.
(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.
================================================================================
Price to Sales Proceeds to
Public(1) Load(2) Fund(1)(3)
- --------------------------------------------------------------------------------
Per Share ...... $25,000 $ $
- --------------------------------------------------------------------------------
Total ......... $81,000,000 $ $
================================================================================
(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
$368,045.
---------------------
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 June , 1997.
[RegTM]Registered trademark of Merrill Lynch & Co., Inc.
Merrill Lynch & Co.
The date of this Prospectus is June , 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 April 30, 1997, it
had net assets of $260,007,830, including $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.
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."
2
<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 79 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 April 30, 1997,
the Fund had net assets of $260,007,830. 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."
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.
3
<PAGE>
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 $139 billion in assets under management in nearly 8 million
shareholder accounts as of March 31, 1997, including approximately $18 billion
invested generally in Municipal Bonds. Putnam currently employs seven portfolio
managers dedicated to the Municipal Bond market, supported by 29 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 $179 billion
in assets as of March 31, 1997. 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 June , 1997 will be % and the Applicable Dividend Rate on
the Series C RP for the Initial Dividend Period ending June , 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
June , 1997 for the Series B RP and June , 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 Tuesday for the
Series B RP and each succeeding Friday 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
4
<PAGE>
they are acting as agent in accordance with 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"). As provided in the Bylaws, the Dividend Periods
for the Series A RP, Series B RP, and Series C RP will not be co-extensive.
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
5
<PAGE>
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 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 Monday for Series B RP and a
Thursday for Series C RP) and the Settlement Date (normally a Tuesday for the
Series B RP and a Friday 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 June , 1997 and the
first Remarketing Date for the Series C RP will be June , 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,
6
<PAGE>
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-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--
7
<PAGE>
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
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 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, 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
8
<PAGE>
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 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.
10
<PAGE>
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.
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 obligations (including shares of
RP) does not exceed two percent of the average adjusted basis of the
shareholder's trade or business assets (in the case of most corporations) or
portfolio investments (in the case of individuals). 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 and certain
other information identified below, 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, beginning of
period ............................................. $ 13.50 $ 13.23 $ 13.57 $ 14.07(d)
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, end of period ... $ 13.75 $ 13.50 $ 13.23 $ 13.57
Market value of common shares, end of period ...... $ 13.875 $ 13.625 $ 12.250 $ 12.625
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 April 30, 1997, the Fund had net
assets of $260,007,830. 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 $139
billion in assets in nearly 8 million shareholder accounts as of March 31, 1997,
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 $179 billion in assets as of March 31, 1997.
Putnam performs a detailed credit analysis on all of the Municipal Bonds in
which a fund invests. Putnam currently employs 7 portfolio managers dedicated to
the Municipal Bond market, supported by 29 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 $79,821,955, 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; 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 $ 40,000,000 $ 121,000,000
Common Shares, without par value, unlimited
shares authorized; 16,157,092 shares issued and
outstanding 226,378,559 225,200,514
Undistributed net investment income 140,090 140,090
Net unrealized appreciation of investments 4,961,811 4,961,811
Accumulated net realized loss on investments (9,217,828) (9,217,828)
------------- -------------
Net assets $ 262,262,632 $ 342,084,587
============= =============
</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 investment in the security will assist in meeting the Fund's
investment objective. See "Risk Factors--Lower-rated Municipal Bonds" and
Appendix C.
14
<PAGE>
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-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.
15
<PAGE>
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.
16
<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 $342,084,587
---------------------------- = ------------ = 282.71%
Senior securities $121,000,000
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 281%.
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.
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
18
<PAGE>
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.
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,
19
<PAGE>
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, Freeport
McMoRan, Inc., Freeport Copper and Gold, Inc., McMoRan Oil and Gas Inc., General
Mills, Inc., Houghton Mifflin Company, and Marsh & McLennan Companies, 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). (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.
* Trustees who are or may be deemed to be "interested persons" (as defined in
the Investment Company Act of 1940) of the Fund, Putnam Management or Putnam
Mutual Funds.
20
<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., 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.
* Trustees who are or may be deemed to be "interested persons" (as defined in
the Investment Company Act of 1940) of the Fund, Putnam Management or Putnam
Mutual Funds.
21
<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.
------------
In connection with the election of the Fund's Trustees, holders of
Preferred Shares including RP (along with the holders of any other preferred
shares of the Fund), voting as a separate class, are entitled to elect two of
the Fund's Trustees, and the remaining Trustees will be elected by holders of
Common Shares and Preferred Shares voting together as a single class. Messrs.
Hill and Patterson are the Trustees elected by holders of Preferred Shares. See
"Description of RP--Voting Rights" and "Description of Shares."
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
Trustee/Year from the Fund(1) Fund expenses(2) upon retirement(3) Putnam Funds(4)
------------ ---------------- ---------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/1994 $798 $162.25 $85,646 $ 172,291(5)
Hans H. Estin/1972 794 559.30 85,646 171,291
John A. Hill/1985 792 208.92 85,646 170,791(5)
Ronald J. Jackson/1996 (6) 721 17.57 85,646 94,807(5)
Elizabeth T. Kennan/1992 793 374.91 85,646 171,291
Lawrence J. Lasser/1992 792 281.18 85,646 169,791
Robert E. Patterson/1984 814 167.37 85,646 182,291
Donald S. Perkins/1982 798 608.79 85,646 170,291
William F. Pounds/1971 (7) 853 564.03 98,146 197,291
George Putnam/1957 798 642.13 85,646 171,291
George Putnam, III/1984 798 110.14 85,646 171,291
A.J.C. Smith/1986 783 373.71 85,646 169,791
W. Nicholas Thorndike/1992 808 538.64 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.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice Chairman of the Putnam
Funds.
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.
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<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
Except as set forth in the following table, no person or "group" (as
defined by regulation of the Commission) was known to the Fund to be the
beneficial or record owner of 5% or more of the Common Shares as of April 30,
1997.
Name and Address Amount of Record Ownership Percent
- ---------------- -------------------------- -------
Cede & Co.
7 Hanover Square
New York, NY 10004 14,626,648 90.5%
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 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.
Name and Address Amount of Record Ownership Percent
- ---------------- -------------------------- -------
Cede & Co.
7 Hanover Square
New York, NY 10004 800 100%
As of April 30, 1997, the 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.
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:
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<PAGE>
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
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
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<PAGE>
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 amounts of $523,393, $508,236 and $486,761, respectively, during fiscal
1996, 1995 and 1994. In addition, the Fund reimbursed Putnam in the amounts of
$8,421, $12,000 and $12,001, respectively, for administrative services during
fiscal 1996, 1995 and 1994, including $7,377, $11,361 and 11,609, respectively,
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.
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.
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<PAGE>
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 $18,789
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 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% $0
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
27
<PAGE>
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 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 Bankers Trust
Company. 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 Monday for Series B RP and
a Thursday for Series C RP) and the Settlement Date (normally a Tuesday for
Series B RP and a Friday for Series C RP).
If, for example, in the case of Series B RP, Monday or Tuesday of a
particular week is not a Business Day, the normal remarketing schedule will be
adjusted as follows: (i) if Monday is not a Business Day, Friday shall be
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<PAGE>
the Remarketing Date and Tuesday shall be the Settlement Date; and (ii) if
Tuesday is not a Business Day, Monday shall be the Remarketing Date and
Wednesday 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 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
29
<PAGE>
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 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.
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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 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.
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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.
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.
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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 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.
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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
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).
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"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: as follows:
Applicable Applicable
Percentage Percentage
Ratings 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.
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
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<PAGE>
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.
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
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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 June , 1997 for Series B RP and June , 1997 for Series C RP. Dividends
for the Initial Dividend Period for RP will be paid when, as and if declared, on
June , 1997 for Series B RP and June , 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, as provided in the Bylaws, the Dividend Periods
for the Series A RP, Series B RP and Series C RP will not be co-extensive.
Further, 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 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. As provided in the Bylaws, the
Dividend Periods for the Series A RP, Series B RP and Series C RP will not be
co-extensive. 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
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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 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
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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 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.
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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 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)
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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 281% 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 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
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<PAGE>
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
any 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.
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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
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 is scheduled to 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.
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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 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.
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
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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.
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 note, bond, contract, instrument, certificate, or undertaking
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<PAGE>
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 solely by reason of
being or having been a shareholder. 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.
------------
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.
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)
-------------- ---------- ----------- ---------------
Common Shares ............ Unlimited -0- 16,157,092
Remarketed Preferred Shares,
Series A ............... 6,000 -0- 800
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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."
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.
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<PAGE>
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) 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
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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 (in the case of most corporations) or
portfolio investments (in the case of individuals). 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.
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.
49
<PAGE>
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 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
50
<PAGE>
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
June , 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."
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."
51
<PAGE>
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 Bankers Trust Company.
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
have 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)
<TABLE>
<S> <C>
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>
<TABLE>
<CAPTION>
Municipal Bonds and Notes (97.3%)*
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. ), 8s, 9/1/28 BBB $5,556,250
Arizona (1.2%)
- ------------------------------------------------------------------------------------------------
2,860,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(Westminster Village ), 77/8s, 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), 77/8s, 12/1/13 Baa 2,110,000
5,000,000 San Bernardino Cnty. COP (Med. Ctr. Fin. ), Ser. A,
MBIA, 61/2s, 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, 55/8s, 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, 83/4s, 11/15/23 Baa 11,115,600
3,160,000 MBIA, 81/2s, 11/15/23 Aaa 3,673,500
2,000,000 Ser. D, 73/4s, 11/15/21 Baa 2,215,000
----------
17,004,100
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
53
<PAGE>
Municipal Bonds and Notes
Principal Amount Ratings** Value
- ------------------------------------------------------------------------------------------------
Illinois (continued)
- ------------------------------------------------------------------------------------------------
$10,000,000 IL Hsg. Dev. Auth. Multi-Fam. Rev. Bonds,
Ser. 91A, 81/4s, 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, 71/2s, 2/1/20 Baa 3,655,000
1,300,000 Ser. B, 71/4s, 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. ), 71/2s, 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
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, 77/8s,
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, 43/4s, 12/1/21 Aaa 2,140,625
----------
12,870,488
Michigan (1.7%)
- ------------------------------------------------------------------------------------------------
1,700,000 Dickinson Cnty., Hosp. Rev. Bonds (Memorial
Hosp. Syst.), 81/8s, 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
54
<PAGE>
Municipal Bonds and Notes
Principal Amount Ratings** Value
- ------------------------------------------------------------------------------------------------
Mississippi (1.0%)
- ------------------------------------------------------------------------------------------------
$2,500,000 Claiborne Cnty., Poll. Control Rev. Bonds (Middle
South Energy, Inc.), Ser. B, 81/4s, 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, 71/2s, 9/1/32 Baa 2,942,500
3,000,000 Ser. A, 61/2/s, 12/1/33 Baa 3,003,750
----------
5,946,250
New Jersey (9.8%)
- ------------------------------------------------------------------------------------------------
9,000,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 77/8s, 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.), 71/4s, 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, 55/8s, 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, 55/8s,
8/15/26 Aaa 4,912,500
7,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp.), Ser. B, 83/8s,
11/1/11 Aaa 7,883,750
55
<PAGE>
Municipal Bonds and Notes
Principal Amount Ratings** Value
- ------------------------------------------------------------------------------------------------
Pennsylvania (continued)
- ------------------------------------------------------------------------------------------------
$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
Texas (11.7%)
- ------------------------------------------------------------------------------------------------
5,500,000 Alliance Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 71/2s, 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, 77/8s, 3/1/21 Baa 4,961,250
2,420,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst.), 87/8s, 6/1/21 Ba 2,528,900
3,535,000 Port Corpus Christi, Indl. Dev. Corp. Rev. Bonds
(Valero Refining & Marketing Co.), Ser. A,
101/4s, 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.
56
<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.
57
<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 outstanding at $50,000
per share) (Note 4) ......................................................... $ 40,000,000
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
TO CAPITAL SHARES OUTSTANDING ............................................. $ 262,262,632
=============
COMPUTATION OF NET ASSET VALUE:
Remarketed preferred shares ................................................ $ 40,000,000
Cumulative undeclared dividends on remarketed preferred shares ............... 22,291
-------------
Net assets allocated to remarketed preferred shares--liquidation preference $ 40,022,291
-------------
Net assets available to common shares ....................................... $ 222,240,341
=============
Net asset value per common share ($222,240,341 divided by 16,157,092 shares) $ 13.75
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<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.
59
<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
at beginning and end of period .............................. 800 800
</TABLE>
- ------------
+ Unaudited
The accompanying notes are an integral part of these financial statements.
60
<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,
beginning of period .............................. $ 13.50 $ 13.23 $ 13.57 $ 14.07(d)
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, end of period ... $ 13.75 $ 13.50 $ 13.23 $ 13.57
Market value of common shares, end of period ...... $ 13.875 $ 13.625 $ 12.250 $ 12.625
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. (Note 2)
(f) Remarketed Preferred Shares, Series A, were issued on August 3, 1993.
(g) Adjustments of the original offering costs to reflect actual costs incurred.
61
<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
62
<PAGE>
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 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
63
<PAGE>
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
<TABLE>
<S> <C>
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>
<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), 77/8s, 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.), 77/8s, 12/1/13 BBB 2,087,500
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin. Project),
Ser. A, MBIA, 61/2s, 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,
55/8s, 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 Oas, Cmnty. Fac. Dist. Special Tax
Rev. Bonds (No. 94-1), 67/8s, 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 83/4s, 11/15/23 Baa 11,151,000
3,160,000 MBIA, 81/2s, 11/15/23 AAA 3,669,550
----------
14,820,550
66
<PAGE>
Municipal Bonds and Notes
Principal Amount Ratings** Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Connecticut (2.1%)
- ------------------------------------------------------------------------------------------------
CT State G.O. Bonds, Ser. A
$2,000,000 5.3 s, 5/15/10 AA $1,952,500
3,500,000 5.2 s, 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, 77/8s, 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, 81/4s, 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, 71/2s, 2/1/20 Baa 3,595,500
1,300,000 Ser. B, 71/4s, 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), 71/2s, 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
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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,
77/8s, 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, 43/4s, 12/1/21 AAA 2,090,625
----------
13,681,231
Michigan (1.7%)
- ------------------------------------------------------------------------------------------------
1,700,000 Dickinson Cnty., Hosp. Rev. Bonds (Memorial
Hosp. Syst.), 81/8s, 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, 81/4s, 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, 71/2s, 9/1/32 Baa 2,897,813
6,000,000 Ser. A, 61/2s, 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), 77/8s, 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.), 71/4s, 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, 55/8s, 7/1/16 Baa 2,353,125
----------
7,275,125
68
<PAGE>
Municipal Bonds and Notes
Principal Amount Ratings** Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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), 75/8s, 5/1/25 Ba 3,067,500
7,000,000 Montgomery Cnty., Higher Edl. & Hlth. Auth.
Hosp. Rev. Bonds (UTD Hosp. Project), Ser. B,
83/8s, 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), 71/2s, 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, 77/8s, 3/1/21 Baa 4,938,750
2,450,000 Jefferson Cnty., Hlth. Fac. Dev. Corp. Hosp. Rev.
Bonds (Baptist Healthcare Syst. Project), 87/8s,
6/1/21 Ba 2,517,375
3,535,000 Port Corpus Christi, Indl. Dev. Corp. Rev. Bonds
(Valero Refining & Marketing Co.), Ser. A,
101/4s, 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
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
<TABLE>
<CAPTION>
Unrated securities
Rated securities of comparable quality,
as a percentage of as a percentage of
Rating fund's net assets fund's net assets
- --------------------------------------------------------------------------------
<S> <C> <C>
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%
</TABLE>
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
<TABLE>
<S> <C>
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
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
STATEMENT OF OPERATIONS
Year ended April 30, 1996
<TABLE>
<S> <C>
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
</TABLE>
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.
76
<PAGE>
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 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.
77
<PAGE>
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.
78
<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 Amended and Restated Bylaws of the Fund.
"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.
"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 18 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 29 of this
Prospectus.
79
<PAGE>
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.
"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 Bankers Trust Company, 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.
80
<PAGE>
"Paying Agent Agreement" has the meaning set forth on page 28 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 37
of this Prospectus.
"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.
81
<PAGE>
"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.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" has the meaning
set forth on page 34 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.
<TABLE>
<S> <C>
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 have been tendered and
(next following sold in a Remarketing are delivered against payment through the Securities
Business Day) Depository.
</TABLE>
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 hereby.
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 has obtained confirmation
from the Pricing Service that the Market Value
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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 $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;
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(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
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<PAGE>
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 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
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that the 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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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.
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.
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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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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 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
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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. Over-the-counter
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("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 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.
D-3
<PAGE>
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 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.
D-4
<PAGE>
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.
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
D-5
<PAGE>
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 Nos.
----------
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 ........................ 26
Determination of Net Asset Value ............ 27
Remarketing ................................. 28
Description of RP ........................... 36
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 .................................... 79
Appendix A .................................... A-1
Appendix B .................................... B-1
Appendix C .................................... C-1
Appendix D .................................... D-1
$81,000,00
Putnam Municipal
Opportunities Trust
Remarketed Preferred[RegTM] Shares
RP[RegTM]
1620 Shares, Series B
1620 Shares, Series C
--------------------------------------
P R O S P E C T U S
--------------------------------------
Merrill Lynch & Co.
June , 1997
[RegTM] 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--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. 333-25453 and
811-7626).
(b) (1) Amended and Restated Bylaws--filed herewith as
Exhibit 2(b)(1).
(c) Inapplicable
(d) (1) Form of Certificate representing common shares of beneficial
interest--filed herewith as Exhibit 2(d)(1).
(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) Form of Certificate representing Remarketed Preferred
Shares, Series B ("RPB")--filed herewith as Exhibit 2(d)(3).
(4) Form of Certificate representing Remarketed Preferred
Shares, Series C ("RPC")--filed herewith as Exhibit 2(d)(4).
(5) Portions of Agreement and Declaration of Trust dated April
1, 1993, Relating to Shareholders' Rights--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. 333-25453 and 811-7626).
(6) Portions of Amended and Restated Bylaws Relating to
Shareholders' Rights--filed herewith as Exhibit 2(d)(6).
(e) (1) Terms and Conditions of Dividend Reinvestment
Plan--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.
333-25453 and 811-7626).
(2) Dividend Reinvestment Plan Agency Agreement with Putnam
Fiduciary Trust Company and The First National Bank of
Boston, dated October 15, 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. 333-25453 and 811-7626).
<PAGE>
(f) Inapplicable
(g) Management Agreement with Putnam Investment Management, Inc.
dated May 7, 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. 333-25453
and 811- 7626).
(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--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. 333-25453 and 811-7626).
(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).
(3) Form of Purchase Agreement as to the offering of RPB and RPC
with Merrill Lynch--filed herewith as Exhibit 2(h)(3).
(4) Form of Merrill Lynch Standard Dealer Agreement--filed
herewith as Exhibit 2(h)(4).
(i) Retirement Plan for Trustees of the Putnam Funds, adopted October
4, 1996--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. 333-25453
and 811-7626).
(j) Custodian Agreement, as amended, with Putnam Fiduciary Trust
Company, dated July 13, 1992-- 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. 333-25453 and 811- 7626).
(k) (1) Investor Servicing Agreement with Putnam Management Company,
Inc. and Putnam Fiduciary Trust Company, dated July 1,
1991-- 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.
333-25453 and 811-7626).
(2) Administrative Services Contract with Putnam Investment
Management, Inc.--filed herewith as Exhibit 2(k)(2).
(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) Form of Paying Agent Agreement as to RPB and RPC with
Bankers Trust Company--filed herewith as Exhibit 2(k)(4).
(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) Form of Remarketing Agreement as to RPB and RPC with Merrill
Lynch--filed herewith as Exhibit 2(k)(6).
(l) (1) Opinion and Consent of Ropes & Gray--filed herewith as
Exhibit 2(l)(1).
(2) Forms of Opinions of Ropes & Gray as to tax
matters--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.
333-25453 and 811-7626).
<PAGE>
(m) Inapplicable
(n) Consent of Independent Accountants, dated May 27, 1997--filed
herewith as Exhibit 2(n).
(o) Inapplicable
(p) Initial Capital Agreement, dated May 13, 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. 333-25453 and 811-7626).
(q) Inapplicable
(r) Financial Data Schedule--filed herewith as Exhibit 27.
Item 25. Marketing Arrangements
Reference is made to the Form of Purchase Agreement for the RPB and RPC,
filed herewith as Exhibit 2(h)(3).
Item 26. Other Expenses of Issuance and Distribution
Securities and Exchange Commission fee $ 24,545
Rating Agencies' Fees 40,500
Printing 56,000
Accounting fees and expenses 20,000
Legal fees 225,000
Blue Sky fees 2,000
--------
Total $368,045
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 1,271
Remarketed Preferred Shares, Series A 1
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 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
<PAGE>
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.
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, filed herewith, which contains
provisions for the indemnification by the Underwriter 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.
<PAGE>
<TABLE>
<CAPTION>
Name Non-Putnam business and other connections
- ---- -----------------------------------------
<S> <C>
Robert W. Burke
Senior Managing Director ............ Member-Executive Committee, The Ridge Club,
Country Club Road, Sandwich, MA 02563
Member-Advisory Board, Cathedral High School,
74 Union Park St., So. Boston, MA 02118
Irene M. Esteves
Managing Director .................. Prior to January, 1997,
Vice President, Miller Brewing Co.,
3939 West Highland Blvd. Milwaukee, WI. 53201
Ian C. Ferguson
Senior Managing Director ............ Prior to April, 1996,
Chief Executive Officer, HSBC Asset Management, Ltd.,
6 Bevis Marks, London, England
Thomas R. Haslett
Managing Director .................. Prior to December, 1996,
Managing Director and Senior Portfolio Manager,
Montgomery Asset Management, LTD,
101 California St., San Francisco, CA 94111
Jerome J. Jacobs
Managing Director .................. Prior to September, 1996,
Head of Municipal Bond Group, Vanguard Group
Investments,
100 Vanguard Blvd., Malbern, PA 19482
Mary E. Kearney
Managing Director .................. Trustee, Massachusetts Eye and Ear Infirmary,
243 Charles St., Boston, MA 02114
Prior to February, 1995, Partner, Price
Waterhouse,
160 Federal St., Boston, MA 02110
Lawrence J. Lasser
President, Director and
Chief Executive officer ............ Director, Marsh & McLennan Companies, Inc.,
1221 Avenue of the Americas, New York, NY 10020
Board Member, Artery Business Committee,
One Beacon Street, Boston, MA 02108
Board of Managers, Investment and Finance
Committees, Beth Israel Hospital,
330 Brookline Avenue, Boston, MA 02215
Board of Governors, Executive Committee,
Investment Company Institute,
1401 H. St., N.W., Suite 1200, Washington, DC 20005
Board of Overseers, Museum of Fine Arts,
465 Huntington Ave., Boston, MA 02115
\
Board Member, Trust for City Hall Plaza,
Three Center Plaza, Boston, MA 02108
Board Member, The Vault Coordinating
Committee,
c/o John Hancock Mutual Life Insurance
Company, Law Sector, T-55, P.O. Box 111,
Boston, MA 02117
<PAGE>
Kevin Maloney
Managing Director ............... Trustee Town of Hanover, NH, Trustee of Trust Funds,
Hanover, NH 03755
President and Board Member, Hampshire Cooperative
Nursery School, Dartmouth College Highway, Hanover,
NH 03755
Prior to April, 1995,
Associate Professor, Amos Tuck School of Business,
Dartmouth College, Hanover, NH 03255
William F. McGue
Managing Director ............ Member, Advisory Committee, Academy of Finance,
2 Oliver St., Boston, MA 02109
Carol McMullen
Managing Director ............ Prior to June, 1995,
Senior Vice President and Senior Portfolio Manager,
Baring Asset Management,
125 High Street, Boston, MA 02110
Kenneth Mongtomery
Managing Director ............ Prior to July, 1995,
Senior Vice President and Director of World Wide Sales,
Chemical Banking Corporation
George Putnam
Chairman and Director ......... Chairman and Director, Putnam Mutual Funds Corp.
Director, Freeport-McMoRan, 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
Justin M. Scott
Managing Director ............ Director, DSI Properties (Neja) Ltd.
Epping Rd., Reydon, Essex CM19 5RD
Director, DSI Management (Neja) Ltd.,
Epping Rd., Reydon, Essex CM19 5RD
Gordon H. Silver
Managing Director ............ Trustee, Wang Center for the Performing Arts,
270 Tremont St., Boston, MA 02116
Steven Spiegel
Senior Managing Director ...... Director, Ultra Corp.,
29 East Madison St., Chicago, IL 60602
Trustee, Babson College, One College Drive, Wellesley,
MA 02157
Prior to December, 1994,
Managing Director/Retirement, Lehman Brothers, Inc.,
200 Vesey St., World Financial Center, New York, NY
10285
<PAGE>
William E. Zieff
Managing Director ...... Prior to December 1996,
Global Asset Allocation, Graham, Mayo, Van Otterloo & Co.,
40 Rowes Wharf, Boston, MA 02110
</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.
(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.
<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.
<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 30th day of
May, 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 30th day of May, 1997.
* President and Chairman of the Board;
--------------------- Principal Executive Officer;
George Putnam Trustee
* Senior Vice President, Treasurer and
--------------------- Principal Financial Officer
John D. Hughes
* Assistant Treasurer and Principal
--------------------- Accounting Officer
Paul Bucuvalas
* Trustee
---------------------
Jameson A. Baxter
* Trustee
---------------------
Hans H. Estin
* Trustee
---------------------
John A. Hill
* Trustee
---------------------
Ronald A. Jackson
* Trustee
---------------------
Elizabeth T. Kennan
* Trustee
---------------------
Lawrence J. Lasser
* Trustee
---------------------
Robert E. Patterson
* Trustee
---------------------
Donald S. Perkins
* Trustee
---------------------
George Putnam, III
* Trustee
---------------------
A.J.C. Smith
* Trustee
---------------------
William F. Pounds
* Trustee
---------------------
W. Nicholas Thorndike
*By Gordon H. Silver
----------------------
Attorney-in-fact
<PAGE>
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Title of Exhibit
- ------- ----------------
<S> <C>
2(b)(1) Amended and Restated Bylaws
2(d)(1) Form of Certificate representing Common Shares of beneficial interest
2(d)(3) Form of Certificate representing Remarketed Preferred Shares, Series B ("RPB")
2(d)(4) Form of Certificate representing Remarketed Preferred Shares, Series C ("RPC")
2(d)(6) Form of Portions of Amended and Restated Bylaws Relating to Shareholders' Rights
2(h)(3) Form of Purchase Agreement as to the offering of RPB and RPC
2(h)(4) Form of Merrill Lynch Standard Dealer Agreement
2(k)(2) Form of Administrative Services Contract
2(k)(4) Form of Paying Agent Agreement as to RPB and RPC
2(k)(6) Form of Remarketing Agreement as to RPB and RPC
2(l)(1) Opinion and Consent of Ropes & Gray
2(n) Consent of Independent Accountants
27 Financial Data Schedules
</TABLE>
EXHIBIT 2(b)(1)
AMENDED AND RESTATED BYLAWS
OF
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
TABLE OF CONTENTS
Page
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>
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
<PAGE>
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
<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
2
<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.
3
<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.
4
<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
5
<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;
6
<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
7
<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, the Dividend Periods for each of Series A RP, Series B RP and Series
C RP will never be co-extensive with the Dividend Period of any other Series of
RP unless the Trust has received an opinion of tax counsel that having such
co-extensive periods will not affect the tax opinion relating to the
deductibility of dividends paid on the different Series of RP. Further, 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.
"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.
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<PAGE>
"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
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:
Applicable Applicable
Percentage of Percentages of
Credit Ratings Reference 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%
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>
Moody's Exposure Period Rating Category
----------------------------------------- ------------------------------------------------------------------------
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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<PAGE>
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 $10,000,000. In addition, Municipal Bonds in the Trust's portfolio will
be included as Moody's Eligible Assets only to the extent they meet the
following diversification requirements:
Minimum Maximum Maximum
Issue Size Underlying State or Territory
Rating ($ Millions) Obligor (%)(1) Concentration (%)(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 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
16
<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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"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.
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"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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"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). Except as otherwise provides in this Section 12.1, the Dividend Periods
for the Series A RP, Series B RP and Series C RP will never be co-extensive.
"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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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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<PAGE>
"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. Except as otherwise
provided in this Section 12.1, the Dividend Periods for the Series A RP, Series
B RP and Series C RP will never be co-extensive. 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 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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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
57
<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.
59
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
Common Share Certificate
Common Share(s) of Beneficial Common Share(s) of Beneficial
Interest Interest
No Par Value No Par Value
Number Shares
This Certificate is Transferable Cusip
in Boston or in New York City
This certifies that is the owner of fully paid and
nonassessable Shares of Beneficial Interest of Putnam Municipal Opportunities
Trust the said shares being issued, received and held under and subject to the
terms and provisions of the Agreement and Declaration of Trust dated as of April
1, 1993, establishing Putnam Municipal Opportunities Trust, and all amendments
thereto, copies of which are on file with the Secretary of The Commonwealth of
Massachusetts and the Trust's Bylaws, and all amendments thereto. The said owner
by accepting this certificate agrees to and is bound by all of the said terms
and provisions. The shares represented hereby are transferable in writing by the
owner thereof in person or by attorney upon surrender of this certificate to the
Trust, properly endorsed for transfer. This certificate is executed on behalf of
the Trustees of the Trust as Trustees and not individually and the obligations
hereof are not binding upon any of the Trustees, officers or shareholders of the
Trust individually but are binding only upon the assets and property of the
Trust. This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Trust and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
PUTNAM INVESTOR SERVICES, a
Division of Putnam Fiduciary
Trust Company (Boston)
Transfer Agent & Registrar
AUTHORIZED SIGNATURE
BY: /s/ George Putnam /s/ John D. Hughes
----------------- -----------------
President Treasurer
Number Shares
- ------ ------
One -0-
This Certificate is Transferable CUSIP 746922-30-1
In New York See reverse side for
certain definitions
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
Remarketed Preferred Shares, Series B
("Series B Preferred Shares")
No Par Value, Liquidation Preference $25,000 Per Share Plus An Amount Equal to
Accumulated But Unpaid Dividends Thereon (Whether or Not Earned or Declared).
SEE REVERSE SIDE FOR RESTRICTIONS ON TRANSFER
AND CLASSES AND SERIES OF BENEFICIAL INTEREST
This certifies that ---SPECIMEN---. is the owner of Zero (0) shares, fully
paid and non-assessable, of Series B Preferred Shares of PUTNAM MUNICIPAL
OPPORTUNITIES TRUST (the "Trust"), the said shares being issued, received and
held under and subject to the terms and provisions of the Agreement and
Declaration of Trust dated as of April 1, 1993, establishing the Trust, and all
amendments thereto, copies of which are on file with the Secretary of The
Commonwealth of Massachusetts, and the Trust's Amended and Restated Bylaws (the
"Bylaws"). The said owner by accepting this certificate agrees to and is bound
by all of the said terms and provisions. The shares represented hereby are
transferable in writing by the owner thereof in person or by attorney upon
surrender of this certificate to the Trust properly endorsed for transfer. This
certificate is executed on behalf of the Trustees of the Trust as trustees and
not individually and the obligations hereof are not binding upon any of the
Trustees, officers or shareholders of the Trust individually but are binding
only upon the assets and property of the Trust. This certificate is not valid
until countersigned and registered by the Paying Agent.
IN WITNESS WHEREOF, the Trust has caused this certificate to be signed by
its duly authorized officers this _____ day of _______________ , 19 _______.
_______________ ___________________________ ______
Countersigned and Registered,
Bankers Trust Company
Paying Agent
_________________________ ______________________ __________________________
Authorized Signature Treasurer President
<PAGE>
Classes of Beneficial Interest: Transfers
-----------------------------------------
The preferences, voting powers, qualifications and special and relative
rights of the shares of beneficial interest of each class and series of the
Trust are set forth in the Agreement and Declaration of Trust and Bylaws.
Transfer of the shares represented by this certificate is subject to
restrictions set out in the Bylaws, including without limitation Article 12
thereof. The Trust will furnish a copy of the Agreement and Declaration of Trust
and Bylaws to the holder of this certificate without charge upon written
request.
EXPLANATION OF ABBREVIATIONS
The following abbreviations when used in the form of ownership on the
face of this certificate shall be construed as though they were written out in
full according to applicable laws or regulations. Abbreviations in addition to
those appearing below, may be used.
<TABLE>
<CAPTION>
Abbreviation Equivalent Abbreviation Equivalent
- ------------ ---------- ------------ ----------
<S> <C> <C> <C>
JT TEN As joint tenants, with rights of survivorship TEN IN COM As tenants in common
and not as tenants in common TEN BY ENT As tenants by the entireties
ADM Administrator(s) UNIF TRANSFERS MIN ACT Uniform Transfers to Minors
Administratrix FDN Foundation
AGMT Agreement PL Public Law
CUST Custodian for TR (As) trustee(s), for, of
EST Estate, Of estate of UA Under Agreement
FBO For the benefit of UW Under will of, Of will of,
Under last will & testament
</TABLE>
Additional abbreviations may also be used though not in the above list.
Assignment
----------
For value received, the undersigned hereby sells, assigns and transfers to:
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
_______________________ _______________________________________________________
Please Print or Typewrite Name and Address
(including postal Zip Code of Assignee)
_______________________________________________________
_______________________________________________________
(________________________) Series B Preferred Shares represented by this
certificate, and hereby irrevocably constitutes and appoints
____________________________________ attorney to transfer such beneficial
interest on the books of the Trust named therein with full power of substitution
in the premises.
Dated [_________________, 19__] ____________________________________
Signature Guaranteed By Signature of
registered owner corresponding exactly
to the name of such owner as written on
the face of this certificate
_______________________________
Signature must be guaranteed by
a commercial bank or trust
company or member firm of any
national stock exchange
Number Shares
- ------ ------
One -0-
This Certificate is Transferable CUSIP 746922-40-1
In New York See reverse side for
certain definitions
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
Remarketed Preferred Shares, Series C
("Series C Preferred Shares")
No Par Value, Liquidation Preference $25,000 Per Share Plus An Amount Equal to
Accumulated But Unpaid Dividends Thereon (Whether or Not Earned or Declared).
SEE REVERSE SIDE FOR RESTRICTIONS ON TRANSFER
AND CLASSES AND SERIES OF BENEFICIAL INTEREST
This certifies that ---SPECIMEN---. is the owner of Zero (0) shares, fully
paid and non-assessable, of Series C Preferred Shares of PUTNAM MUNICIPAL
OPPORTUNITIES TRUST (the "Trust"), the said shares being issued, received and
held under and subject to the terms and provisions of the Agreement and
Declaration of Trust dated as of April 1, 1993, establishing the Trust, and all
amendments thereto, copies of which are on file with the Secretary of The
Commonwealth of Massachusetts, and the Trust's Amended and Restated Bylaws (the
"Bylaws"). The said owner by accepting this certificate agrees to and is bound
by all of the said terms and provisions. The shares represented hereby are
transferable in writing by the owner thereof in person or by attorney upon
surrender of this certificate to the Trust properly endorsed for transfer. This
certificate is executed on behalf of the Trustees of the Trust as trustees and
not individually and the obligations hereof are not binding upon any of the
Trustees, officers or shareholders of the Trust individually but are binding
only upon the assets and property of the Trust. This certificate is not valid
until countersigned and registered by the Paying Agent.
IN WITNESS WHEREOF, the Trust has caused this certificate to be signed by
its duly authorized officers this ______ day of _____________ , 19 ________.
______________ ___________________________ ______
Countersigned and Registered,
Bankers Trust Company
Paying Agent
_____________________________ ________________________ _______________________
Authorized Signature Treasurer President
3215503.01
<PAGE>
Classes of Beneficial Interest: Transfers
-----------------------------------------
The preferences, voting powers, qualifications and special and relative
rights of the shares of beneficial interest of each class and series of the
Trust are set forth in the Agreement and Declaration of Trust and Bylaws.
Transfer of the shares represented by this certificate is subject to
restrictions set out in the Bylaws, including without limitation Article 12
thereof. The Trust will furnish a copy of the Agreement and Declaration of Trust
and Bylaws to the holder of this certificate without charge upon written
request.
EXPLANATION OF ABBREVIATIONS
The following abbreviations when used in the form of ownership on the face
of this certificate shall be construed as though they were written out in full
according to applicable laws or regulations. Abbreviations in addition to those
appearing below, may be used.
<TABLE>
<CAPTION>
Abbreviation Equivalent Abbreviation Equivalent
- ------------ ---------- ------------ ----------
<S> <C> <C> <C>
JT TEN As joint tenants, with rights of survivorship TEN IN COM As tenants in common
and not as tenants in common TEN BY ENT As tenants by the entireties
ADM Administrator(s) UNIF TRANSFERS MIN ACT Uniform Transfers to Minors
Administratrix FDN Foundation
AGMT Agreement PL Public Law
CUST Custodian for TR (As) trustee(s), for, of
EST Estate, Of estate of UA Under Agreement
FBO For the benefit of UW Under will of, Of will of,
Under last will & testament
</TABLE>
Additional abbreviations may also be used though not in the above list.
Assignment
----------
For value received, the undersigned hereby sells, assigns and transfers to:
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
___________________ _______________________________________________________
Please Print or Typewrite Name and Address
(including postal Zip Code of Assignee)
_______________________________________________________
_______________________________________________________
(________________________) Series C Preferred Shares represented by this
certificate, and hereby irrevocably constitutes and appoints _________________
______________________ attorney to transfer such beneficial interest on the
books of the Trust named therein with full power of substitution in the
premises.
Dated [_________________, 19__] ------------------------------------
Signature Guaranteed By Signature of
registered owner corresponding exactly
to the name of such owner as written on
the face of this certificate
- ---------------------------------
Signature must be guaranteed by a
commercial bank or trust company or
member firm of any national stock
exchange
3215503.01
PORTIONS OF THE AMENDED AND RESTATED BYLAWS OF
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
RELATING TO SHAREHOLDERS' RIGHTS
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.
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
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3215256.01
<PAGE>
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
********
10.4 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.
********
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
-ii-
3215256.01
<PAGE>
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 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
- --------
(R) Registered trademark of Merrill Lynch & Co., Inc.
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3215256.01
<PAGE>
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 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
-iv-
3215256.01
<PAGE>
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 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.
********
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 additional Trustees,
together with the two Trustees that such holders are in any event entitled to
elect. A Voting Period shall commence:
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3215256.01
<PAGE>
(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 Holders thereof, the affirmative vote
or consent of the Holders of at least a majority of the
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3215256.01
<PAGE>
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 aintenance 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
(d) Voting Procedures.
-vii-
3215256.01
<PAGE>
(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.
-viii-
3215256.01
<PAGE>
(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 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.
-ix-
$81,000,000
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
(a Massachusetts business trust)
REMARKETED PREFERRED SHARES ["RP"(R)]
1,620 Shares Series B
1,620 Shares Series C
Liquidation Preference $25,000 Per Share
PURCHASE AGREEMENT
------------------
June __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Dear Sirs and Mesdames:
Putnam Municipal Opportunities Trust, a Massachusetts business trust
(the "Fund"), and Putnam Investment Management, Inc., a Massachusetts
corporation (the "Adviser"), each confirms its agreement with Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") with
respect to the sale by the Fund and the purchase by the Underwriter of 1,620
remarketed preferred shares of beneficial interest, Series B of the Fund (the
"Series B RP") and 1,620 remarketed preferred shares of beneficial interest,
Series C of the Fund (the "Series C RP"), all without par value and with a
liquidation preference of $25,000 per share plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared). The Series B RP and
Series C RP are herein collectively referred to as the "Shares".
- --------------------------
(R)Registered trademark of Merrill Lynch & Co., Inc.
<PAGE>
Prior to the purchase and public offering of the Shares by the
Underwriter, the Fund and the Underwriter 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 Underwriter 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. 333-25453) and a related
preliminary prospectus for the registration of the Shares under the Securities
Act of 1933, as amended (the "1933 Act"), which registration statement also
constitutes an amendment to the registration statement of the Fund under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the published
rules and regulations of the Commission under the 1940 Act (together with the
published rules and regulations 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 pursuant to the terms
hereof. Such registration statement (as amended at the time it becomes
effective, 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) or Rule 434 of the Rules and Regulations), as from time
to time amended or supplemented pursuant to the 1933 Act, are hereinafter
referred to as the "Registration Statement" and the "Prospectus," respectively,
except that if any revised prospectus shall be provided to the Underwriter 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(c) 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 Underwriter for such use. If the
Fund elects to rely on Rule 434 of the Rules and Regulations, all references to
the Prospectus shall be deemed to include, without limitation, the form of
prospectus and the term sheet, taken together, provided to the Underwriter by
the Fund in reliance on Rule 434 of the Rules and Regulations (the "Rule 434
Prospectus"). If the Fund files a registration statement to register a portion
of the Shares and relies on Rule 462(b) for such registration statement to
become effective upon filing with the Commission (the "Rule 462 Registration
Statement"), then any reference to "Registration
2.
<PAGE>
Statement" herein shall be deemed to include both the registration statement
referred to above (No. 333-25453) and the Rule 462 Registration Statement, as
each such registration statement may be amended pursuant to the 1933 Act.
The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems 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 the 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:
(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
Underwriter 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 Underwriter 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 Underwriter
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".
(ii) The accountants who certified the financial statements
included in the Registration Statement are independent public
accountants as required by the 1933 Act and the Rules and Regulations.
3.
<PAGE>
(iii) The financial statements included in the Registration
Statement present fairly the financial position of the Fund as at the
dates indicated; and such financial statements have 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) except for
regular monthly dividends on the outstanding common shares of
beneficial interest, without par value, of the Fund (the "Common
Shares") and the outstanding remarketed preferred shares of beneficial
interest, Series A of the Fund without par value and with a liquidation
preference of $50,000 per share, plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared) (the "Series A
RP"), there has been no dividend or distribution of any kind declared,
paid or made by the Fund on any class of its 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 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 and shares of Series A RP of the Fund are as set
4.
<PAGE>
forth in the Prospectus under the caption "Capitalization"; the
outstanding Common Shares and shares of Series A RP have been duly
authorized and validly issued and are fully paid and nonassessable
(except as set forth in the Prospectus); the Shares have been duly
authorized for issuance and sale to the Underwriter 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 nonassessable
(except as set forth in the Prospectus); the Common Shares, the shares
of Series A RP and 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 Underwriter 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 amended and restated by-laws 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 and the Management Contract (as used
herein, the "Management Contract") 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 acts as the dividend disbursing agent, transfer
agent and registrar of the Fund's Common Shares (the "Investor
Servicing Agreement") and the Letter of Representations to be entered
into by the Fund, Bankers Trust Company and The Depository Trust
Company (the "Letter of Representations") and the Remarketing Agreement
and the Paying Agent Agreement referred to in the Registration
Statement (the "Remarketing Agreement" and the "Paying Agent
Agreement," respectively) and the consummation of the transactions
contemplated herein and therein have been duly authorized by all
necessary trust action and do not 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 bound or to which any of the
property or assets of the Fund is subject; nor does or will such action
result in any violation of the provisions of the Declaration of Trust
or the By-laws or, to
5.
<PAGE>
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, the Custodian Agreement, the Remarketing
Agreement, the Paying Agent Agreement or the Letter of Representations,
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
Underwriter.
(ix) The Management 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) Except for the trademark "RP"(R), 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 Remarketing Agreement, the Paying Agent
Agreement and the Letter of Representations have each been
6.
<PAGE>
duly authorized for execution and delivery by the Fund and, when
executed and delivered by the Fund, will each constitute a valid and
binding obligation of the Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting creditors' rights
and to general equity principles.
(b) The Adviser represents and warrants to the Underwriter
as follows:
(i) The Adviser has been duly incorporated as a corporation under
the laws of The Commonwealth of Massachusetts 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 has been duly
authorized, executed and delivered by the Adviser and constitutes a
valid and binding obligation of the Adviser, enforceable in accordance
with its 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 or the Management Contract nor the
performance by the Adviser of its obligations hereunder or thereunder
conflict with or 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 of 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.
(c) Any certificate signed by any officer of the Fund or the Adviser
and delivered to the Underwriter or to counsel for the Underwriter shall be
deemed a representation and warranty by
7.
<PAGE>
the Fund or the Adviser, as the case may be, to the Underwriter
as to the matters covered thereby.
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 the Shares to the
Underwriter and the Underwriter agrees to purchase the Shares from the Fund at
the price per share set forth in the Pricing Agreement.
(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 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
Underwriter for the Shares shall be an amount equal to the applicable
initial public offering price, less an amount to be determined by
agreement between the Underwriter and the Fund. The initial public
offering price per share shall be a fixed price to be determined by
agreement between the Underwriter 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
fourteenth business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of any party to
any other party, except as provided in Section 5, unless otherwise
agreed to by the Fund, the Adviser and the Underwriter.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the office of Brown & Wood LLP, One World Trade
Center, New York, New York 10048-0557 or at such other place as shall be agreed
upon by the Underwriter and the Fund, at 9:00 A.M. on the third business day
following the date the Registration Statement becomes effective or, if the Fund
has elected to rely upon Rule 430A of the Rules and Regulations, the third
business day after execution of the Pricing Agreement, (or, if pricing takes
place after 4:30 P.M. on either the date the Registration Statement becomes
effective or the date of execution of the Pricing Agreement, as applicable, the
fourth business day after such applicable date), or such other time not later
than ten business days after such date as shall be agreed upon by the
Underwriter and the Fund (such time
8.
<PAGE>
and date of payment and delivery being herein called "Closing Time"). Payment
shall be made to the Fund by Federal funds check or checks or similar same-day
funds payable to the order of the Fund, against delivery to the Underwriter for
its account of certificates for the Shares to be purchased by the Underwriter.
The Series B RP and Series C RP each shall be represented by a certificate
registered in the name of Cede & Co., as nominee for The Depository Trust
Company. The certificates for the 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.
SECTION 3. Covenants of the Fund. The Fund covenants with
the Underwriter as follows:
(a) The Fund will use its best efforts to cause the Registration
Statement to become effective under the 1933 Act, and will advise the
Underwriter promptly as to the time at which the Registration Statement becomes
so effective.
(b) The Fund will notify the Underwriter 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(c) 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.
If the Fund elects to rely on Rule 434 of the Rules and Regulations, the Fund
will prepare a term sheet that complies with the requirements of Rule 434 of the
Rules and Regulations and the Fund will provide the Underwriter with copies of
the form of Rule 434 Prospectus, in such number as the Underwriters may
reasonably request by the close of business in New York on the business day
immediately succeeding the date of the Pricing Agreement.
(c) During any period in which the Underwriter is required to deliver a
prospectus in connection with the sale or offer of Shares, the Fund will give
the Underwriter 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 (including any revised prospectus which the Fund
proposes for use by the Underwriter in connection
9.
<PAGE>
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 pursuant to Rule 497(c) or Rule
497(h) of the Rules and Regulations, or any term sheet prepared in reliance on
Rule 434 of the Rules and Regulations), whether pursuant to the 1940 Act, the
1933 Act, or otherwise, and will furnish the Underwriter with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement to which the Underwriter or counsel for the Underwriter shall
reasonably object.
(d) The Fund will deliver to the Underwriter, as soon as practicable,
two signed copies of the Registration Statement as originally filed and of each
amendment thereto, in each case with two sets of the exhibits filed therewith,
and will also deliver to the Underwriter a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (but without
exhibits to the Registration Statement or any such amendment) for the
Underwriter.
(e) The Fund will furnish to the 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 the
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 the 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 Underwriter, 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 Underwriter 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 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 the 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, and at the expense of such Underwriter, such
amendment or amendments to the Registration Statement, and such
10.
<PAGE>
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 Underwriter, 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 Underwriter 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 of the Rules and Regulations) covering a twelve month period beginning
not later than the first day of the Fund's fiscal quarter next following the
"effective" date (as defined in said Rule 158) 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) Until 30 days after the date of this Agreement, the Fund will not,
without the Underwriter's prior consent, offer or sell, or enter into any
agreement to sell, any equity related securities of the Fund other than the
Shares and the Common Shares issued in reinvestment of dividends or
distributions.
SECTION 4. Covenants of the Underwriter. The Underwriter covenants and
agrees with the Fund that as soon as practicable after Closing Time, but not
later than the fifth business day after Closing Time, the Underwriter will
provide the Fund and the Paying Agent with (i) a list of the Beneficial Owners
(as such term is defined in the By-Laws of the Fund) (other than the
Underwriter) in whose names Shares are to be registered in the books to be
maintained by the Paying Agent and the respective numbers of Shares acquired by
such Beneficial Owners from the Underwriter and (ii) the number of Shares they
are holding as
11.
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Beneficial Owners for their own accounts and (on an aggregate basis) as nominees
for the accounts of others as of the date of such notice.
SECTION 5. 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
preparation, issuance and delivery of the certificates for the Shares to the
Underwriter, (iii) the fees and disbursements of the Fund's counsel and
accountants, (iv) the qualification of the 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
Underwriter in connection therewith and in connection with the preparation of
the Blue Sky Survey, (v) the printing and delivery to the Underwriter of copies
of the registration statement as originally filed and of each amendment thereto,
of the preliminary prospectuses and of the Prospectus and any amendments or
supplements thereto, (vi) the printing and delivery to the Underwriter of copies
of the Blue Sky Survey and (vii) the fees charged by rating agencies for the
rating of the Shares.
If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 6 or Section 10(a)(i), the Fund or the Adviser shall
reimburse the Underwriter for all of their reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriter.
SECTION 6. Conditions of Underwriters' Obligations. The obligations of
the Underwriter 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. on the date hereof, or with the consent of the Underwriter, 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 Underwriter, 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
12.
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provided evidence satisfactory to the Underwriter 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 Underwriters 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 Underwriter, to the effect that:
(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 outstanding Common Shares have been duly
authorized and validly issued and are fully paid and
nonassessable (except as set forth in the Prospectus).
(iv) The Shares have been duly authorized for issuance and
sale to the Underwriter 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
nonassessable (except as set forth in the Prospectus); and the
issuance of the Shares is not subject to preemptive or other
similar rights.
(v) Each of this Agreement and the Pricing Agreement has
been duly authorized, executed and delivered by the Fund.
(vi) The Registration Statement is effective under the 1933
Act and, to their knowledge, 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.
(vii) At the time the Registration Statement became
effective and at the Representation Date, the Registration
Statement (other than the financial statements and other
financial data included therein,
13.
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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. The Rule 434 Prospectus
conforms to the requirements of Rule 434 in all material
respects.
(viii) The authorized shares of beneficial interest of the
Fund conform in all material respects to the description thereof
contained in the Prospectus under the captions "Description of
RP" and "Description of Shares", and the form of certificate used
to evidence the Shares are in proper form and comply with all
applicable statutory requirements.
(ix) To their knowledge, 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.
(x) To their knowledge, (i) there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments of the Fund required to be described in the
Registration Statement or to be filed as exhibits thereto which
are not so described therein or filed as exhibits thereto, (ii)
there are no material omissions or misstatements in the
descriptions thereof in the Registration Statement, and (iii) no
default by the Fund 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 or filed.
(xi) 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 Underwriter, 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 their knowledge, the execution and
delivery of this Agreement, the Pricing Agreement, the
Remarketing Agreement, the Paying Agent Agreement or the Letter
of Representations 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
14.
<PAGE>
of the Fund is subject, nor to their knowledge 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.
(xii) The Management 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.
(xiii) 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; and 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.
(xiv) 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.
(xv) The Remarketing Agreement, the Paying Agent Agreement
and the Letter of Representations each have been duly
authorized, executed and delivered by the Fund.
(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 Underwriter, to the
effect that:
(i) The Adviser has been duly organized as a corporation
under the laws of The Commonwealth of Massachusetts 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 for the Fund as
contemplated by the Prospectus.
15.
<PAGE>
(iii) This Agreement has been duly authorized, executed and
delivered by the Adviser; the Management Contract is in full
force and effect and constitutes a valid and binding
obligation of the Adviser, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting
creditors' rights and to general equity principles; and, to
the best of his knowledge and information, neither the
execution and delivery of this Agreement or the Management
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
it 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 respective 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 LLP, counsel for the Underwriter, with respect to the matters
set forth in (i), (iv) to (vii), inclusive, and (xiii) 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
LLP shall each additionally state that nothing has come to their
attention that would lead them to believe that the Registration
Statement (excluding the financial statements and other financial 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 financial
statements and other financial data included therein, as to which such
counsel need express no belief), at the Representation Date (unless the
term "Prospectus" refers to
16.
<PAGE>
a prospectus which has been provided to the Underwriter 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 Underwriter 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, Ropes & Gray may state that their opinion is limited to
matters governed by the Federal laws of the United States and the laws
of The Commonwealth of Massachusetts. In giving their opinion, Brown &
Wood LLP may rely as to matters involving the laws of The Commonwealth
of Massachusetts upon the opinion of Ropes & Gray. Ropes & Gray, Mr.
Woolverton, Brown & Wood LLP and Coopers & Lybrand L.L.P. 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 the Prospectus shall not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein in the light of the circumstances under which
they were made, 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 as of which information is given in 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
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, (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 (v) Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Ratings Services ("S&P") shall have
confirmed that the
17.
<PAGE>
Shares have been rated "aaa" and AAA, respectively, by such agencies; and the
Underwriter 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 President of the Adviser dated as
of Closing Time, evidencing compliance with the appropriate provisions of this
subsection (c), together with true and correct copies of letters from Moody's
and S&P confirming their rating. As used in this subsection (c), the term
"Prospectus" means the Prospectus in the form first used to confirm sales of the
Shares.
(d) At Closing Time, the Underwriter shall have received certificates,
dated as of Closing Time, (i) of the Fund signed by the President or Treasurer
of the Fund to the effect that the representations and warranties of the Fund
contained in Section l(a) are true and correct with the same force and effect as
though expressly made at and as of Closing Time and (ii) of the Adviser signed
by the President, a Managing Director or a Vice President of the Adviser to the
effect that the representations and warranties of the Adviser contained in
Sections l(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 execution of this Agreement, the Underwriter shall
have received from Coopers & Lybrand L.L.P., a letter, dated the date hereof, in
form and substance satisfactory to the Underwriter, to the effect that:
(i) they are independent accountants with respect to the Fund
within the meaning of the 1933 Act and the Rules and Regulations;
(ii) in their opinion, the financial statements examined by them
and included in the Registration Statement complies as to form in all
material respects with the applicable accounting requirements of the
1933 Act and 1940 Act and the Rules and Regulations;
(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 (A) the
unaudited financial statements as of October 31, 1996 included in the
Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act
and the rules and regulations under the 1933 Act applicable to
unaudited interim financial statements included in
18.
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registration statements or are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in
the Registration Statement, and (B) during the period from October 31,
1996 to a specified date not more than three days prior to the date of
this Agreement, there was any change in the shares of beneficial
interest of the Fund or any increase in the long-term debt of the Fund,
as compared with amounts shown on the unaudited financial statements
included in the Registration Statement, except for changes which the
Registration Statement discloses have occurred or may occur; and
(iv) in addition to the procedures referred to in clause (iii)
above, they have performed other specified procedures, not constituting
an audit, with respect to certain amounts, percentages, numerical data,
financial information and financial statements appearing in the
Registration Statement, which have previously been specified by you and
which shall be specified in such letter, and have compared certain of
such items with, and have found such items to be in agreement with, the
accounting and financial records of the Fund.
(f) At Closing Time, the Underwriter shall have received from Coopers &
Lybrand L.L.P. 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 three days prior to Closing Time.
(g) At Closing Time, counsel for the Underwriter 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 to pass upon 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 satisfactory in form and substance to the
Underwriter and counsel for the Underwriter.
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 Underwriter 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 5 and except that Sections 1, 7, 8 and 9
hereof shall survive any such termination and remain in full force and effect.
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SECTION 7. Indemnification. (a) The Fund and the Adviser,
jointly and severally, agree to indemnify and hold harmless the
Underwriter and each person, if any, who controls the 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 or Rule 434 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 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 any 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, provided that (subject to Section 7(d) below) any 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
Underwriter), 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 the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto), including the information deemed to be part of the
20.
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Registration Statement pursuant to Rule 430A or Rule 434 of the Rules and
Regulations, 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 the
Underwriter if 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 the 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 the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability.
(b) The Underwriter agrees to indemnify and hold harmless the Fund and
the Adviser, their respective trustees or directors, as the case may be, each of
the Fund's officers 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, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including the information deemed to be part of the Registration Statement
pursuant to Rule 430A or Rule 434 of the Rules and Regulations, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Fund by the Underwriter expressly for use in the Registration Statement
(or any amendment thereto) or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as reasonably
practical to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action; provided, however,
that counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to local counsel) separate from their own 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
21.
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same general allegations or circumstances. No indemnifying party shall, without
the prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7 or Section 8 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 7(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 90 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 60 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
Notwithstanding the immediately preceding sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any settlement of the nature contemplated by Section 7(a)(ii)
effected without its consent if such indemnifying party (i) reimburses such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and (ii) provides written notice to the
indemnified party objecting to the unpaid balance as unreasonable, in each case
prior to the date of such settlement.
SECTION 8. Contribution. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Fund and the
Adviser on the one hand and the Underwriter on the other hand from the offering
of the Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion
22.
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as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Fund and the Adviser on the
one hand and of the Underwriter on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Fund and the Adviser on the one
hand and the Underwriter on the other hand in connection with the offering of
the Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Shares
pursuant to this Agreement (before deducting expenses) received by the Fund and
the total underwriting discount received by the Underwriter, in each case as set
forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding
location on the term sheet, bear to the aggregate initial public offering price
of the Shares as set forth on such cover.
The relative fault of the Fund and the Adviser on the one hand and the
Underwriter on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Fund and the Adviser or by the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Fund, the Adviser and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, the Underwriter shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
23.
<PAGE>
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 8, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as such Underwriter, and each trustee and 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 and the
Adviser within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Fund.
SECTION 9. 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 the Underwriter or any controlling person, or by or on behalf of
the Fund or the Adviser or any controlling person and shall survive delivery of
the Shares to the Underwriter.
SECTION 10. Termination of Agreement. (a) The Underwriter 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 time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus, 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 material adverse change in the financial
markets in the United States, any outbreak of hostilities or escalation thereof
or other calamity or crisis or any change or development involving a prospective
change in national or international political, financial or economic conditions,
in each case the effect of which is such as to make it, in the judgment of the
Underwriter, impracticable to market the Shares or to enforce contracts for the
sale of Shares, or (iii) if trading in the Common Shares has been suspended or
materially limited by the Commission or if trading generally on the American
Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market
has been suspended or materially limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices have been required, by any
of said exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by Federal, New York or
Massachusetts authorities. As used in this Section 10, the term "Prospectus"
means the Prospectus in the form first used to confirm sales of the Shares.
24.
<PAGE>
(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 5 hereof, and provided further that Sections 1, 7,
8 and 9 shall survive such termination and remain in full force and effect.
SECTION 11. Notices. 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
Underwriter shall be directed to Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Merrill Lynch World Headquarters, World Financial
Center, North Tower, New York, New York 10281-1209, attention of Lee Whitley,
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 Underwriter, 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 Sections 7 and 8 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 the 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 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
25.
<PAGE>
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 Underwriter, the Fund and the Adviser and in
accordance with its terms.
Very truly yours,
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By:
---------------------------------
Authorized Officer
PUTNAM INVESTMENT MANAGEMENT, INC.
By:
---------------------------------
Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------------
Authorized Officer
26.
<PAGE>
EXHIBIT A
$81,000,000
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
(a Massachusetts business trust)
REMARKETED PREFERRED SHARES ["RP"(R)]
1,620 Shares Series B
1,620 Shares Series C
Liquidation Preference, $25,000 Per Share
PRICING AGREEMENT
-----------------
June __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Dear Sirs and Mesdames:
Reference is made to the Purchase Agreement, dated June ___, 1997 (the
"Purchase Agreement"), relating to the purchase by Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") of 1,620
remarketed preferred shares of beneficial interest, Series B (the "Series B RP")
and 1,620 remarketed preferred shares of beneficial interest, Series C (the
"Series C RP," and with the Series B RP, the "Shares), all without par value and
with a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) of Putnam
Municipal Opportunities Trust (the "Fund").
- -------------------
(R)Registered trademark of Merrill Lynch & Co., Inc.
<PAGE>
Pursuant to Section 2 of the Purchase Agreement, the Fund agrees with
the Underwriter as follows:
1. The initial public offering price per share for the Shares,
determined as provided in said Section 2, shall be $25,000, plus accumulated
dividends, if any, from the date of original issue.
2. The purchase price per share for the Shares to be paid by the
Underwriters shall be $______, plus accumulated dividends, if any, from the date
of original issue, being an amount equal to the initial public offering price
set forth above less $___ per share.
3. The dividend rate on the Series B RP for the initial dividend period
ending __, 1997 will be ___% and the dividend rate on the Series C RP for the
initial dividend period ending , 1997 will be %.
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 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.
A-2.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Fund a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Fund in accordance with its terms.
Very truly yours,
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By:
---------------------------------
Authorized Officer
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
----------------------------------------
Authorized Officer
A-3.
[LOGO]
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MERRILL LYNCH WORLD HEADQUARTERS
NORTH TOWER WORLD FINANCIAL CENTER
NEW YORK, N.Y. 10281-1305
STANDARD DEALER AGREEMENT
-------------------------
Dear Sirs:
In connection with public offerings of securities underwritten by us,
or by a group of underwriters (the "Underwriters") represented by us, you may be
offered the opportunity to purchase a portion of such securities, as principal,
at a discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by you in the sale of
such securities. We request that you agree to the following terms and
provisions, and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter sent to you in
connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by you.
Your subscription to, or purchase of, such securities will constitute
your reaffirmation of this Agreement.
1. When we are acting as representative (the "Representative") of the
Underwriters in offering securities to you, it should be understood that all
offers are made subject to prior sale of the subject securities, when, as and if
such securities are delivered to and accepted by the Underwriters and subject to
the approval of legal matters by their counsel. In such cases, any order from
you for securities will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part.
Upon release by us, you may reoffer such securities at the offering price fixed
by us. With our consent, you may allow a
<PAGE>
discount, not in excess of the reallowance fixed by us, in selling such
securities to other dealers, provided that in doing so you comply with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"). Upon our request, you will advise us of the identity of any dealer to
whom you allow such a discount and any Underwriter or dealer from whom you
receive such a discount. After the securities are released for sale to the
public, we may vary the offering price and other selling terms.
2. You represent that you are a dealer actually engaged in the
investment banking or securities business and that you are either (i) a member
in good standing of the NASD or (ii) a dealer with its principal place of
business located outside the United States, its territories or possessions and
not registered under the Securities Exchange Act of 1934 (a "non-member foreign
dealer") or (iii) a bank not eligible for membership in the NASD. If you are a
non-member foreign dealer, you agree to make no sales of securities within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. Non-member foreign dealers and banks
agree, in making any sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. In accepting a selling concession where
we are acting as Representative of the Underwriters, in accepting a reallowance
from us whether or not we are acting as such Representative, and in allowing a
discount to any other person, you agree to comply with the provisions of Section
24 of Article III of the Rules of Fair Practice of the NASD, and, in addition,
if you are a non-member foreign dealer or bank, you agree to comply, as though
you were a member of the NASD, with the provisions of Sections 8 and 36 of
Article III of such Rules of Fair Practice and to comply with Section 25 of
Article III thereof as that Section applies to a non-member foreign dealer or
bank. You represent that you are fully familiar with the above provisions of the
Rules of Fair Practice of the NASD.
3. If the securities have been registered under the Securities Act of
1933 (the "1933 Act"), in offering and selling such securities, you are not
authorized to give any information or make any representation not contained in
the prospectus relating thereto. You confirm that you are familiar with the
rules and policies of the Securities and Exchange Commission relating to the
distribution of preliminary and final prospectuses, and you agree that you will
comply therewith in any offering covered by this Agreement. If we are acting as
Representative of the Underwriters, we will make available to you, to the extent
made available to us by the issuer of the securities, such number of copies of
the prospectus or offering
2
<PAGE>
documents, for securities not registered under the 1933 Act, as
you may reasonably request.
4. If we are acting as Representative of the Underwriters of securities
of an issuer that is not required to file reports under the Securities Exchange
Act of 1934 (the "1934 Act"), you agree that you will not sell any of the
securities to any account over which you have discretionary authority.
5. Payment for securities purchased by you is to be made at our office,
One Liberty Plaza, 165 Broadway, New York, N.Y. 10006 (or at such other place as
we may advise), at the offering price less the concession allowed to you, on
such date as we may advise, by certified or official bank check in New York
Clearing House funds (or such other funds as we may advise), payable to our
order, against delivery of the securities to be purchased by you. We shall have
authority to make appropriate arrangements for payment for and/or delivery
through the facility of The Depository Trust Company or any such other
depository or similar facility for the securities.
6. In the event that, prior to the completion of the distribution of
securities covered by this Agreement, we purchase in the open market or
otherwise any securities delivered to you, if we are acting as Representative of
the Underwriters, you agree to repay to us for the accounts of the Underwriters
the amount of the concession allowed to you plus brokerage commissions and any
transfer taxes paid in connection with such purchase.
7. At any time prior to the completion of the distribution of
securities covered by this Agreement you will, upon our request as
Representative of the Underwriters, report to us the amount of securities
purchased by you which then remains unsold and will, upon our request, sell to
us for the account of one or more of the Underwriters such amount of such unsold
securities as we may designate, at the offering price less an amount to be
determined by us not in excess of the concession allowed to you.
8. If we are acting as Representative of the Underwriters, upon
application to us, we will inform you of the states and other jurisdictions of
the United States in which it is believed that the securities being offered are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell securities in any jurisdiction. We shall have authority to file
with the Department of State of the State of New York a Further State Notice
with respect to the securities.
if necessary.
3
<PAGE>
9. You agree that in connection with any offering of securities covered
by this Agreement you will comply with the applicable provisions of the 1933 Act
and the 1934 Act and the applicable rules and regulations of the Securities and
Exchange Commission thereunder, the applicable rules and regulations of the
NASD, and the applicable rules of any securities exchange having jurisdiction
over the offering.
10. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to any offering covered by this
Agreement. We shall be under no liability to you except for our lack of good
faith and for obligations assumed by us in this Agreement, except that you do
not waive any rights that you may have under the 1933 Act or the rules and
regulations thereunder.
11. Any notice from us shall be deemed to have been duly given if
mailed or transmitted by any standard form of written telecommunications to you
at the above address or at such other address as you shall specify to us in
writing.
12. With respect to any offering of securities covered by this
Agreement, the price restrictions contained in Paragraph 1 hereof and the
provisions of Paragraphs 6 and 7 hereof shall terminate as to such offering at
the close of business on the 45th day after the securities are released for sale
or, as to any or all such provisions, at such earlier time as we may advise. All
other provisions of this Agreement shall remain operative and in full force and
effect with respect to such offering.
4
<PAGE>
13. This Agreement shall be governed by the laws of the
State of New York.
Please confirm your agreement hereto by signing the enclosed duplicate
copy hereof in the place provided below and returning such signed duplicate copy
to us at World Headquarters, North Tower, World Financial Center, New York, N.Y.
10281-1305, Attention: Corporate Syndicate. Upon receipt thereof, this
instrument and such signed duplicate copy will evidence the agreement between
us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Fred F. Hessinger
--------------------------------
Name: Fred F. Hessinger
Confirmed and accepted as of the
day of , 19
- -----------------------------------
Name of Dealer
- -----------------------------------
Authorized Officer or Partner
(if not Officer or Partner, attach
copy of Instrument of Authorization)
5
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
ADMINISTRATIVE SERVICES CONTRACT
Administrative Services 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 "Administrator")
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY ADMINISTRATOR TO FUND.
(a) The Administrator, at its expense, subject always to the control of
the Trustees of the Fund and except for the functions carried out by the
officers and personnel referred to in Section 1(d), will manage, supervise and
conduct the non-investment related affairs and business of the Fund and matters
incidental thereto. In the performance of its duties, the Administrator will
comply with the provisions of the Agreement and Declaration of Trust and Bylaws
of the Fund, and will use its best efforts to safeguard and promote the welfare
of the Fund and to comply with such policies which the Trustees may from time to
time determine and shall exercise the same care and diligence expected of the
Trustees.
(b) The Administrator, at its expense, except as such expense is paid
by the Fund as provided in Section 1(c), will furnish (1) suitable office space
for the Fund and (2) all necessary administrative facilities, including
bookkeeping, clerical personnel and equipment necessary for the efficient
conduct of the affairs of the Fund, including determination of the Fund's net
asset value, but excluding shareholder accounting services. Except as otherwise
provided in Section 1(c), the Administrator will pay the compensation, if any,
of certain officers of the Fund carrying out the administrative duties provided
for by this Contract.
(c) The Fund will pay or reimburse the Administrator 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 Administrator 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.
(d) The Administrator shall not be obligated to pay any expenses of or
for the Fund not expressly assumed by the Administrator pursuant to this Section
1 other than as provided in Section 3.
<PAGE>
(e) Notwithstanding any provision of this Contract, the Administrator
will not pursuant to this Contract at any time provide, or be required to
provide, to the Fund or to any person with respect to the Fund investment
research, advice, or supervision, or in any way advise the Fund or any person
acting on behalf of the Fund as to the value of securities or other investments
or as to the advisability of investing in, purchasing, or selling securities or
other investments.
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 Administrator, and in any person controlled by
or under common control with the Administrator, and that the Administrator and
any person controlled by or under common control with the Administrator may have
an interest in the Fund. It is also understood that the Administrator and any
person controlled by or under common control with the Administrator 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 ADMINISTRATOR.
The Fund will pay to the Administrator as compensation for the
Administrator's services rendered, for the facilities furnished and for the
expenses borne by the Administrator pursuant to paragraphs (a), (b), (c) and (e)
of Section 1, a fee computed and paid quarterly at the following annual rate:
(a) 0.20% of the first $500 million of the average net asset value of the
Fund;
(b) 0.17% of the next $500 million of such average net asset value;
(c) 0.16% of the next $500 million of such average net asset value; and
(d) 0.15% 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.
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 Administrator 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
-2-
<PAGE>
which the Administrator may, by written notice to the Fund, voluntarily declare
to be effective subject to such terms and conditions as the Administrator may
prescribe in such notice, the compensation due the Administrator shall be
reduced, and, if necessary, the Administrator 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
Period, then the fee payable to Putnam pursuant to this Section 3 shall be
reduced by the amount of such excess; 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
Preferred Shares outstanding during the 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 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 5 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 Period
shall be determined by the Trustees of the Fund.
If the Administrator 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 Trustees of the Fund and of a majority of the Trustees of the
Fund who are not interested persons of the Fund or of the Administrator.
-3-
<PAGE>
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 and (ii) a majority of the Trustees
of the Fund who are not interested persons of the Fund or of the Administrator,
do not specifically approve at least annually the continuance of this Contract,
then this Contract shall automatically terminate at the close of business on May
7, 1995 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.
6. CERTAIN DEFINITIONS.
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 ADMINISTRATOR.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Administrator, or reckless disregard of its obligations and
duties hereunder, the Administrator 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.
-4-
<PAGE>
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.
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
----------------------------------
Charles E. Porter
Executive Vice President
PUTNAM INVESTMENT MANAGEMENT, INC.
By: /s/ Gordon H. Silver
----------------------------------
Gordon H. Silver
Senior Managing Director
-5-
__________________________
PAYING AGENT AGREEMENT
between
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
and
BANKERS TRUST COMPANY
Dated as of May __, 1997
Relating to
Remarketed Preferred Shares, Series B and
Remarketed Preferred Shares, Series C
of
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
__________________________
<PAGE>
TABLE OF CONTENTS
Page
Section 1.01. Purpose.......................................................1
Section 1.02. Definitions...................................................1
Section 1.03. Rules of Construction.........................................2
Section 2.01. Notice of Redemption; Other Redemption Procedures.............3
Section 3.01. Results of Remarketings.......................................5
Section 3.02. Disbursing Dividends and Redemption Price.....................5
Section 3.03. Change in Dividend Period.....................................6
Section 3.04. Notice to the Fund and Remarketing Agent......................6
Section 3.05. Settlement Procedures.........................................7
Section 4.01. Issue of Share Certificates...................................7
Section 4.02. Share Register; Allocation of Shares..........................8
Section 4.03. Registration of Shares........................................8
Section 4.04. Lost Certificates.............................................9
Section 4.05. Disposition of Cancelled Certificates; Record Retention.......9
Section 4.06. Share Transfer Books.........................................10
Section 4.07. Return of Funds..............................................10
Section 5.01. Representations and Warranties of the Fund. .................10
Section 5.02. Representations and Warranties of the Paying Agent. .........11
Section 6.01. Duties and Responsibilities..................................11
Section 6.02. Rights of the Paying Agent...................................12
Section 6.03. Paying Agent's Disclaimer....................................12
<PAGE>
Section 6.04. Compensation, Expenses and Indemnification...................12
Section 7.01. Term of Agreement............................................13
Section 7.02. Communications...............................................13
Section 7.03. Entire Agreement.............................................14
Section 7.04. Benefits. ...................................................14
Section 7.05. Amendment; Waiver............................................15
Section 7.06. Successors and Assigns.......................................15
Section 7.07. Severability.................................................15
Section 7.08. Article and Section Headings.................................15
Section 7.09. Counterparts.................................................15
Section 7.10. Governing Law................................................15
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PAYING AGENT AGREEMENT
PAYING AGENT AGREEMENT dated as of May __, 1997, between PUTNAM
MUNICIPAL OPPORTUNITIES TRUST, a Massachusetts business trust (the "Fund"), and
BANKERS TRUST COMPANY (the "Paying Agent").
The Fund proposes to issue 1620 shares of Remarketed Preferred(R)
Shares, Series B ("RPB") and 1620 shares of Remarketed Preferred Shares, Series
C ("RPC", and together with RPB, "RP(R)") pursuant to its Bylaws (as defined
below). The Fund desires that the Paying Agent perform certain duties in
connection with the shares of RP upon the terms and conditions of this Agreement
and hereby appoints the Paying Agent to act in the capacities set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Fund and the Paying Agent agree as follows:
ARTICLE ONE
PURPOSE; DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Purpose. The Trustees of the Fund have adopted one or
more resolutions appointing the Paying Agent as transfer agent, registrar,
dividend and redemption price disbursing agent, settlement agent and agent for
certain notifications for the Fund in connection with the shares of RP. The
Paying Agent accepts such appointment and agrees to act in accordance with (a)
its standard procedures as Paying Agent with respect to the shares of RP, (b)
the Bylaws and (c) this Agreement.
Section 1.02. Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires,
capitalized terms used herein that are not otherwise defined shall have the
meanings ascribed thereto in the Bylaws.
"Agent Member" of any person shall mean such person's agent member of
the Securities Depository.
"Authorized Newspaper" shall mean a newspaper of general circulation in
the English language generally published on Business Days in The City of New
York.
"Authorized Officer" shall mean each Managing Director, Vice President,
Assistant Vice President, Assistant Secretary and Assistant Treasurer of the
Paying Agent assigned to its Corporate Trust and Agency Group and every other
officer or employee of the Paying Agent designated as an "Authorized Officer"
for purposes hereof in a notice from the Paying Agent to the Fund.
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(R) Registered trademark of Merrill Lynch & Co., Inc.
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"Beneficial Owner" shall mean 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 not registered in the name of the Securities Depository on
the share transfer books of the Fund, the person in whose name such share is so
registered.
"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" shall mean the Amended and Restated Bylaws of the Fund as they
may be amended from time to time.
"Commission" shall mean the Securities and Exchange Commission.
"Holder" shall mean, with respect to any share of RP, the person whose
name appears on the share transfer books of the Fund as the registered holder of
such share.
"Notice of Redemption" shall mean a notice of redemption of some or all
shares of RP given by the Fund by telephone or facsimile and in writing
substantially in the form attached hereto as Exhibit A.
"Part" shall mean, as the case may be, either of part I or part II of
Section 12 of the Bylaws establishing the rights and preferences of the shares
of RP.
"Purchase Agreement" shall mean the Purchase Agreement, dated May __,
1997 by and among the Fund, Putnam Investment Management, Inc., and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"
or the "Underwriter"), providing for the sale of the shares of RP by the Fund to
the Underwriter.
"Signing Officer" shall mean the Chairman of the Board, the President,
a Vice President or the Treasurer of the Fund and every other officer or
employee of the Fund designated by the Chairman of the Board, the President or a
Vice President as a "Signing Officer" for purposes hereof in a notice to the
Paying Agent.
"Trustees" means the Trustees of the Fund.
"Vice President" when used with respect to the Fund shall mean any Vice
President of the Fund whether or not designated by a number or a word or words
added before or after the title "Vice President."
Section 1.03. Rules of Construction. Unless the context or use
indicates another or different meaning or intent, the following rules shall
apply to the construction of this Agreement: (i) words importing the singular
number shall include the plural number and vice versa; (ii) the captions and
headings herein are solely for convenience of reference and shall not constitute
a part of this Agreement nor shall they affect its meaning, construction or
effect; (iii) the words
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"hereof", "herein", "hereto" and other words of similar import refer to this
Agreement as a whole; and (iv) all references herein to times of day shall be to
New York City time.
ARTICLE TWO
REDEMPTION OF SHARES OF RP
Section 2.01. Notice of Redemption; Other Redemption Procedures.
(a) Notice of redemption, in whole or in part, of any series of RP
pursuant to Part I, paragraph 4 shall be given by the Fund to the Paying Agent,
the Remarketing Agent and the Securities Depository, if any (and any other
Holder) by telephone, in the form of a Notice of Redemption, not later than 1:00
p.m. (and later confirmed in writing), (1) in the case of optional redemption,
not less than 20 nor more than 30 days prior to the earliest date upon which any
such redemption may occur and (2) in the case of 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.
(b) In the case of any partial redemption of shares of any series of RP
pursuant to paragraph 4 of Part I, the Paying Agent will use its reasonable
efforts to provide telephonic notice to each Beneficial Owner of shares of RP
selected 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
clause (e) below (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
Fund). Such telephonic notice shall be confirmed promptly in writing by a notice
of redemption substantially in the form of Exhibit B hereto to the Remarketing
Agent and the Securities Depository, if any, and substantially in the form of
Exhibit C to each Beneficial Owner of the shares called for redemption, in each
case 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.
(c) In the case of a redemption in whole of shares of any series of RP
pursuant to paragraph 4 of Part I, the Paying Agent will use 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 the Paying Agent receives a Notice of Redemption
pursuant to clause (a) above. Such telephonic notice shall be confirmed in
writing by a notice of redemption substantially in the form of Exhibit B hereto
to the Securities Depository, if any, and the Remarketing Agent and
substantially in the form of Exhibit C hereto to each Beneficial Owner of the
shares called for redemption, in each case 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.
(d) Every Notice of Redemption and every other notice of redemption
sent to Beneficial Owners of shares subject to redemption shall state: (i) the
redemption date; (ii) the number of shares of RP to
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be redeemed; (iii) the redemption price; (iv) that dividends on the shares of RP
to be redeemed will cease to accumulate as of such redemption date; and (v) the
provisions of the Declaration of Trust, the Bylaws and the applicable Statement
pursuant to which such shares are being redeemed. In addition, notice of
redemption given to Beneficial Owners shall state the CUSIP numbers, 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 mailing
thereof shall affect the validity of the redemption proceedings, except as
required by applicable law. The Paying Agent will use its reasonable efforts to
cause any Notice of Redemption to be published in an Authorized Newspaper within
two Business Days of the date of such Notice of Redemption pursuant to clause
(a) above, but failure so to publish such Notice of Redemption shall not affect
the validity or effectiveness of any such redemption proceedings.
(e) (i) Subject to clause (e)(ii) below, if fewer than all the
outstanding shares of any series of RP are to be redeemed, the number of such
shares to be redeemed shall be a whole number of shares and shall be determined
by the Trustees, and the Fund shall give a Notice of 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 in clause (f) below. Unless certificates representing shares
are held by Holders other than the Securities Depository or its nominee, the
Securities Depository will, upon receipt of such notice, determine by lot 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, will 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 Agent. In doing so, shares may be redeemed
from the accounts of some Beneficial Owners, which may include the Remarketing
Agent, without shares being redeemed from the accounts of other Beneficial
Owners.
(ii) Notwithstanding clause (e)(i) above, if certificates
representing shares of any series of RP are held by Holders other than the
Securities Depository, then the shares of such series of RP to be redeemed shall
be selected by the Paying Agent by lot.
(f) 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 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
shall be selected for redemption in an ascending order of outstanding Non-Call
Period (with shares with the lowest number of days remaining in the Period to be
called first) and by lot in the event of equal outstanding Non-Call Periods.
(g) Notwithstanding the foregoing provisions of this Section 2.01, the
Remarketing Agent may, in its sole discretion, modify the procedures set forth
above with respect to notification of redemption for shares of RP, provided that
any such modification does not
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adversely affect any Holder of shares of RP or materially alter the obligations
of the Paying Agent or the Fund; and further provided that the Trust receives
written confirmation from S&P and Moody's that any such modification would not
impair the ratings then assigned by S&P and Moody's to shares of RP.
ARTICLE THREE
PAYING AGENT AS DIVIDEND AND REDEMPTION PRICE
DISBURSING AGENT, SETTLEMENT AGENT AND AGENT FOR
CERTAIN NOTIFICATIONS
Section 3.01. Results of Remarketings.
(a) On each Remarketing Date, the Fund will cause the Remarketing Agent
to advise the Paying Agent by electronic data transfer or telecopy by 3:30 p.m.
of (i) the Applicable Dividend Rate determined in the related Remarketing; (ii)
the identities of (and the number of shares held by) the Beneficial Owners who
purchased such shares of RP as a result of the Remarketing; and (iii) the
identities of (and number of shares sold by) persons who sold shares of RP in
the Remarketing. By approximately 4:30 p.m. on such Remarketing Date, the Paying
Agent will confirm by telephone, telecopy or electronic data transfer such
information with the Remarketing Agent.
(b) This Section shall not be applicable to any share of RP during a
Non-Payment Period applicable to such series.
Section 3.02. Disbursing Dividends and Redemption Price.
(a) The Fund shall deposit in same-day funds with the Paying Agent by
12:00 noon (i) on each Dividend Payment Date for a series of RP, the full amount
of any dividend declared and payable on such Dividend Payment Date on any share
of RP, and (ii) on any redemption date, the Optional Redemption Price or
Mandatory Redemption Price, as the case may be, for each share of RP called for
redemption. With respect to any such deposit which is not made by the Fund by
12:00 noon on a Dividend Payment Date for such shares of RP (if, prior to 12:00
noon 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 Holders
who held such shares of RP as of 12:00 noon on the Business Day preceding such
Dividend Payment Date) or redemption date for any shares of RP subject to
redemption, as the case may be, but made within three Business Days after such
due date, the Fund shall also deposit with the Paying Agent a late charge in
such an amount as shall be calculated by the Fund 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, all as more
fully described in the Bylaws. The Paying Agent agrees to hold all moneys so
deposited with the Paying Agent by the Fund in trust for the payment of
dividends, the redemption price or any applicable late charge on shares of RP
for the benefit of the Holders entitled thereto and to apply such moneys as set
forth in clause (b) below.
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(b) The Paying Agent will pay to the applicable Holder, as determined
pursuant to the Bylaws, on the Business Day following the Fund's deposit of
funds in accordance with the provisions of paragraph (a) above (provided,
however, that such payment shall be made on the Business Day following such
Business Day following the Fund's deposit of funds if such deposit is made after
12:00 noon) (or, in the case of dividends in arrears on any share of RP, at any
time as may be fixed by the Fund), (i) dividends, including any late charge, on
the applicable shares of RP, and (ii) the Optional Redemption Price or Mandatory
Redemption Price, as the case may be, plus any late charge, on any shares of RP
called for redemption, in either case after receipt of the necessary funds from
the Fund with which to make such payments. The amount of dividends for any
Dividend Period to be paid by the Paying Agent to the Holder entitled thereto
will be determined by the Fund as set forth in Part I, paragraph 3. The
redemption price to be paid by the Paying Agent to the Holder entitled thereto
will be determined by the Fund as set forth in Part I, paragraph 4. The Paying
Agent shall have no duty to determine the redemption price or the Non-Payment
Period Rate and may rely on the amount thereof set forth in the Notice of
Redemption. Upon the request of the Fund, the Paying Agent shall promptly
transmit to the Fund after the date of any redemption as described above any
cash held by the Paying Agent in excess of the aggregate redemption price of
shares of RP called for redemption on such date.
Section 3.03. Change in Dividend Period. Upon any change in the period
of time between Dividend Payment Dates for shares of a series of RP as a result
of a change in law or otherwise, the Fund will give notice of such change to the
Paying Agent and the Remarketing Agent and the Paying Agent will use reasonable
efforts to notify the Holders thereof by telephone, confirmed in writing of such
change; provided that if the Dividend Period whose length is being adjusted is a
Dividend Period for which the Applicable Dividend Rate is the Non-Payment Period
Rate, the Fund will notify the Holders of shares of such series of RP directly.
Section 3.04. Notice to the Fund and Remarketing Agent. If one or more
of the following events occurs with respect to shares of any series of RP, the
Paying Agent shall promptly notify the Fund and, so long as the Applicable
Dividend Rate applicable to shares of such series shall not be the Non-Payment
Period Rate, the Remarketing Agent, of such occurrence by telephone, promptly
confirmed in writing:
(i) at the close of business on any Dividend Payment Date for
such shares, dividends on all outstanding shares accumulated to any Dividend
Payment Date for such shares of such series, including such first mentioned
Dividend Payment Date, have not been paid in full or sufficient funds have not
been deposited with the Paying Agent for the payment of such accumulated
dividends;
(ii) the Fund has failed to redeem on any redemption date any
shares for which Notice of Redemption has been received by the Paying Agent; or
(iii) by 12:00 Noon on the third Business Day following the
occurrence of either of the events described in (i) or (ii) above, the Fund has
not deposited with the Paying Agent the full amount of funds described in
subparagraph (a) of Section 3.02.
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Section 3.05. Settlement Procedures.
(a) In the event that any person other than the Paying Agent fails to
perform any act necessary to enable the Paying Agent to act as contemplated by
this Section, the Paying Agent shall take such steps as are reasonably requested
by the Fund or the Remarketing Agent (and approved by the Fund) to facilitate
the transfers contemplated by this Section even if such transfers cannot take
place within the time periods set forth in this Section.
(b) On the first day of any Dividend Period on which the Applicable
Dividend Rate applicable to any share of RP shall be the Non-Payment Period
Rate, this Section 3.05 shall no longer be applicable to such share of RP.
(c) Notwithstanding the foregoing provisions of this Section 3.05, the
Remarketing Agent may, in its sole discretion, modify the procedures set forth
above in Article 3 with respect to the shares of RP, provided any modification
does not adversely affect the Holders or the Beneficial Owners of such shares or
the Fund.
ARTICLE FOUR
PAYING AGENT AS TRANSFER AGENT AND REGISTRAR
Section 4.01. Issue of Share Certificates. On the Date of Original
Issue of RP, one certificate for shares of each series of RP shall be issued by
the Fund. At the request of the Fund, such certificates shall be registered as
instructed by the Fund and countersigned by the Paying Agent in its capacity as
registrar, which, except in the event a Securities Depository is used, shall
deliver the certificates as instructed by the Fund in writing. If a Securities
Depository is used, the Paying Agent shall hold the certificates as custodian
for the Securities Depository. At no time shall the aggregate number of shares
of a series of RP represented by such countersigned certificate exceed the
number of then outstanding shares of that series of RP.
Section 4.02. Share Register; Allocation of Shares.
(a) So long as the Applicable Dividend Rate for shares of a series of
RP shall not be the Non-Payment Period Rate, the Paying Agent shall maintain a
registry of the Beneficial Owners of the shares which shall specify with respect
to each Beneficial Owner the Remarketing Agent through which such Beneficial
Owner purchased and holds its shares. By 9:00 a.m. on each Remarketing Date, the
Paying Agent shall inform the Remarketing Agent of the name of each Beneficial
Owner of shares of RP subject to Tender and Dividend Reset and the number of
such shares. On each Remarketing Date, the Paying Agent shall deliver a copy of
such registry to the Fund. On or prior to their original issuance, the Fund
shall cause the Underwriter to provide the Paying Agent with a list of the
initial Beneficial Owners of the shares of RP who purchased shares of RP through
the Underwriter and, as to each such Beneficial Owner, (i) its address and
telephone number, including the name of an individual or department authorized
to receive notices pursuant to this agreement, (ii) the name and Securities
Depository account number of its Agent Member and (iii) such other information
as the Paying Agent may reasonably require
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(collectively, "Beneficial Owner Information"). The Paying Agent may rely
exclusively upon, as conclusive evidence of the identities of the Beneficial
Owners, (i) such lists; (ii) the results of Remarketings reported to the Paying
Agent by the Remarketing Agent; and (iii) notice from the Remarketing Agent with
respect to the transfer of shares of RP outside of a Remarketing by a Beneficial
Owner to another person.
(b) The Paying Agent shall only register a transfer of shares of RP
from a Beneficial Owner to a new Beneficial Owner if (i) the Paying Agent has
been notified of such transfer by the Remarketing Agent who provides the
Beneficial Owner Information for the new Beneficial Owner, or (ii) the Paying
Agent has been notified in writing in a notice substantially in the form of
Exhibit D hereto by the Remarketing Agent of such transfer outside of a
Remarketing therefor. The Paying Agent shall not be required to accept any
notice delivered pursuant to the foregoing sentence unless received by the
Paying Agent by 3:00 p.m. on the Business Day preceding the immediately
succeeding Remarketing Date for such shares for such Remarketing.
(c) Except as otherwise provided in this Section, the foregoing
provisions of this Section shall no longer be applicable to shares of a series
of RP if the Applicable Dividend Rate applicable to all shares of such series
shall be the Non-Payment Period Rate.
Section 4.03. Registration of Shares.
(a) If a Securities Depository is used for any series of RP and except
as set forth in this Section, shares of such series of RP shall be registered
solely in the name of the Securities Depository or its nominee. If, with respect
to shares of such series of RP, the Securities Depository shall give notice of
its intention to resign as such, and if the Fund shall not have selected a
substitute Securities Depository with respect to shares of such series of RP
reasonably acceptable to the Paying Agent prior to such resignation, then upon
such resignation, such shares of such series of RP shall be registered for
transfer or exchange, and new certificates shall be issued in the name of the
designated transferee or transferees of the Securities Depository, upon
surrender of the old certificates in a form deemed by the Paying Agent in its
capacity as registrar properly endorsed for transfer with (i) all necessary
endorsers' signatures guaranteed in such manner and form as the Paying Agent in
its capacity as registrar may require by a guarantor reasonably believed by the
Paying Agent in its capacity as registrar to be responsible; (ii) such
assurances as the Paying Agent in its capacity as registrar shall deem necessary
or appropriate to evidence the genuineness and effectiveness of each necessary
endorsement; and (iii) satisfactory evidence of compliance with all applicable
laws relating to the collection of taxes or funds necessary for the payment of
such taxes.
(b) If certificates representing shares of any series of RP are, at the
direction of the Fund, to be held by Holders other than the Securities
Depository, such shares shall be registered for transfer or exchange, and the
Fund shall issue one or more new certificates with respect to such shares
registered in the names of the Beneficial Owners thereof or their nominees, upon
surrender of the old certificates in a form deemed by the Paying Agent properly
endorsed for transfer, with (i) all necessary endorsers' signatures guaranteed
in such manner and form as the Paying Agent may require by a guarantor
reasonably believed by the Paying Agent to be responsible; (ii) such assurances
as the Paying Agent shall deem necessary or appropriate to
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evidence the genuineness and effectiveness of each necessary endorsement; and
(iii) satisfactory evidence of compliance with all applicable laws relating to
the collection of taxes or funds necessary for the payment of such taxes.
Section 4.04. Lost Certificates. The Paying Agent shall issue and
register replacement certificates for certificates represented to have been
lost, stolen or destroyed, upon the fulfillment of such requirements as shall be
deemed appropriate by the Fund and the Paying Agent, subject at all times to
provisions of law, the Bylaws and resolutions adopted by the Fund with respect
to lost securities. The Paying Agent may issue new certificates in exchange for
and upon the cancellation of mutilated certificates. Any request by the Fund to
the Paying Agent to issue a replacement or new certificate pursuant to this
Section shall be deemed to be a representation and warranty by the Fund to the
Paying Agent that such issuance will comply with applicable provisions of law
and the Bylaws and resolutions of the Fund.
Section 4.05. Disposition of Cancelled Certificates; Record Retention.
The Paying Agent shall retain share certificates which have been cancelled in
transfer or in exchange and accompanying documentation for two calendar years
from the date of such cancellation. The Paying Agent shall afford access to the
Fund, its agents and counsel upon written request at reasonable times during
normal business hours to review and make extracts or copies of such certificates
and accompanying documentation. Upon the expiration of such two-year period, the
Paying Agent shall deliver to the Fund the cancelled certificates and
accompanying documentation. The Fund shall, at its sole cost and expense, retain
such records for a minimum additional period of ten calendar years from the date
of delivery of the records to the Fund and shall make such records available
during normal business hours upon written request during this period at any
time, or from time to time, for reasonable periodic, special or other
examinations by representatives of the Commission. The Fund shall also undertake
to furnish to the Commission, upon demand, at either its principal office or at
any regional office, complete, correct and current hard copies of any and all
such records.
Section 4.06. Share Transfer Books. The Paying Agent shall maintain the
share transfer books listing the Holders of the shares of each series of RP. In
case of any request or demand for the inspection of the share transfer books of
the Fund or any other books in the possession of the Paying Agent, the Paying
Agent will notify the Fund and secure written instructions as to permitting or
refusing such inspection. Notwithstanding the foregoing, the Paying Agent
reserves the right to exhibit the share transfer books or other books to any
person in case it is advised by its counsel that its failure to do so would: (i)
be unlawful; or (ii) expose it to liability unless the Paying Agent shall have
received sufficient indemnification.
Section 4.07. Return of Funds. The Paying Agent shall notify the Fund
in writing of the amount of any funds deposited with the Paying Agent by the
Fund for any reason under this Agreement, including for the payment of dividends
or the redemption of shares of RP, that remain with the Paying Agent after 90
days from the date of such deposit and such amount shall, to the extent
permitted by law, be repaid to the Fund by the Paying Agent. The Paying Agent
shall have no duty to invest any funds deposited with it at any time pursuant to
this Agreement. The Fund shall be entitled, however, to receive, from time to
time after the date fixed for redemption, investment earnings, if any, on the
funds so deposited.
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ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties of the Fund. The Fund
represents and warrants to the Paying Agent that:
(a) the Fund is duly established and is validly existing as a voluntary
association in good standing under the laws of The Commonwealth of Massachusetts
and has full power to execute and deliver this Agreement and to authorize,
create and issue the shares of RP;
(b) this Agreement has been duly and validly authorized, executed and
delivered by the Fund, is enforceable in accordance with its terms and
constitutes the legal, valid and binding obligation of the Fund;
(c) the form of the certificates evidencing the shares of each series
of RP comply with all applicable laws of The Commonwealth of Massachusetts;
(d) the shares of RP have been duly authorized and are validly issued,
fully paid and nonassessable (except as set forth in the Fund's Prospectus
relating to the shares of RP);
(e) no action by or before any governmental body or authority of the
United States or of any state thereof is required in connection with the
execution and delivery of this Agreement or the issuance of the shares of RP
except as required by the Securities Act of 1933, as amended, the 1940 Act, the
rules and regulations promulgated thereunder, and applicable state securities
laws, in each case as in effect at the date hereof, all of which have been
taken, obtained or made and are in full force and effect on the date hereof;
(f) the execution and delivery of this Agreement and the issuance and
delivery of the shares of RP do not and will not conflict with, violate or
result in a breach of, in any material respects, the terms, conditions or
provisions of, or constitute a default under, the Agreement and Declaration of
Trust or the Bylaws of the Fund, any law or regulation, any order or decree of
any court or public authority having jurisdiction, or any mortgage, indenture,
contract, agreement or undertaking to which the Fund is a party or by which it
is bound; and
(g) no taxes are payable by the Fund upon or in respect of the
execution of this Agreement or the issuance of the shares of RP.
Section 5.02. Representations and Warranties of the Paying Agent. The
Paying Agent represents and warrants to the Fund that the Paying Agent is duly
organized and is validly existing as a banking corporation under the laws of the
State of New York and has the power to enter into and perform its obligations
under this Agreement.
ARTICLE SIX
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THE PAYING AGENT
Section 6.01. Duties and Responsibilities.
(a) The Paying Agent is not a trustee and is acting solely as agent for
the Fund hereunder and owes no fiduciary duties to any other person by reason of
this Agreement.
(b) The Paying Agent undertakes to perform such duties and only such
duties as are specifically set forth in or incorporated by reference into this
Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Paying Agent.
(c) In the absence of negligence or willful misconduct on its part, the
Paying Agent shall not be liable for any action taken, suffered or omitted or
for any error of judgment made by it in the performance of its duties under this
Agreement. The Paying Agent shall not be liable for any error of judgment made
in good faith unless the Paying Agent shall have been negligent in ascertaining
or failing to ascertain the pertinent facts.
Section 6.02. Rights of the Paying Agent.
(a) The Paying Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized hereby and upon any
written instruction, notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document, in each case
reasonably believed by it to be genuine. The Paying Agent shall not be liable
for acting upon any telephone communication authorized hereby which the Paying
Agent believes in good faith to have been given by the Fund, a Holder, a
Beneficial Owner, an Agent Member or Remarketing Agent. The Paying Agent may
record telephone communications with the Fund and the Remarketing Agent in
connection with its duties hereunder.
(b) The Paying Agent may consult with counsel and the advice of such
counsel shall be full and complete authorization and protection in respect of
any action (other than willful misconduct) taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(c) The Paying Agent shall not be required to advance, expend or risk
its own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.
(d) The Paying Agent may exercise its rights hereunder and, with the
prior written consent of the Fund, may perform its duties hereunder either
directly or by or through agents or attorneys.
Section 6.03. Paying Agent's Disclaimer. The Paying Agent makes no
representation as to the validity or adequacy of this Agreement or any share of
RP.
Section 6.04. Compensation, Expenses and Indemnification.
-11-
<PAGE>
(a) The Fund shall pay the Paying Agent, from time to time, reasonable
compensation for all services rendered by it under this Agreement as shall be
agreed upon by the Fund and the Paying Agent.
(b) The Fund shall reimburse the Paying Agent, upon the Paying Agent's
request, for all reasonable out-of-pocket expenses, disbursements and advances
which shall have been agreed upon by the Fund and the Paying Agent and shall
have been incurred or made by the Paying Agent in accordance with the provisions
of this Agreement (including the reasonable compensation, expenses and
disbursements of any agent or counsel for the Paying Agent) except any expense
or disbursement attributable to its negligence or willful misconduct.
(c) The Fund shall indemnify the Paying Agent for and hold it harmless
against any loss, liability or expense incurred without negligence or willful
misconduct on the Paying Agent's part, arising out of or in connection with its
agency under this Agreement, including the costs and expenses of defending
itself against any claim or liability (including reasonable attorneys' fees) in
connection with its exercise or performance of any of its duties hereunder.
ARTICLE SEVEN
MISCELLANEOUS
Section 7.01. Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be
terminated as provided in this Section. The Fund may terminate this Agreement at
any time by so notifying the Paying Agent, provided that, so long as any shares
of RP are outstanding, the Fund has entered into an agreement with a successor
Paying Agent in substantially the form of this Agreement. The Paying Agent may
terminate this Agreement, subject to the acceptance of the Fund, upon notice to
the Fund on the date specified in such notice, which shall be no earlier than 90
days after the date of delivery of such notice. If an instrument of acceptance
shall not have been delivered to the resigning Paying Agent within 30 days after
the giving of such notice of resignation, the resigning Paying Agent may, at the
expense of the Fund, petition any court of competent jurisdiction for the
appointment of a successor Paying Agent.
(b) Except as otherwise provided in this clause (b), the respective
rights and duties of the Fund and the Paying Agent under this Agreement shall
cease upon termination of this Agreement. The Fund's representations,
warranties, covenants and obligations to the Paying Agent under Sections 5.01
and 6.04 hereof shall survive the termination hereof. Upon termination of this
Agreement, the Paying Agent shall (i) at the request of the Fund, promptly
deliver to the Fund copies of all books and records maintained by it in
connection with its duties hereunder, and (ii) at the request of the Fund,
promptly transfer to the Fund or any successor Paying Agent any funds held for
the Fund which have not previously been distributed by the Paying Agent in
accordance with this Agreement.
-12-
<PAGE>
Section 7.02. Communications. Except for communications authorized to
be by telephone pursuant to this Agreement, all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) given to such person at its address or telecopy number set
forth below:
If to the Fund: Putnam Municipal Opportunities Trust
One Post Office Square
Boston, Massachusetts 02109
Attention: John R. Verani
Telephone: (617) 292-1103
Telecopier: (617) 760-8349
If to the Paying
Agent: Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Auction Rate/Remarketed
Securities Department
Telephone: (212) 250-6850
Telecopier: (212) 250-6215
If to the
Remarketing Agent: Merrill Lynch Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center - North Tower
New York, New York 10281-1205
Attention: Remarketed Preferred
Transactions Desk
(7th Floor)
Telephone: (212) 449-4940
Telecopier: (212) 449-2760
If to the
Securities
Depository: The Depository Trust Company
7 Hanover Square
24th Floor
New York, New York 10004
Attention: Manager, Cash Receipts
Section Dividend
Department
Telephone: (212) 709-1646
Telecopier: (212) 709-1623
or to such other address as the party to whom the communication is addressed
shall have previously communicated to the other party. Any notice to a
Beneficial Owner shall be given at the address or phone number, as the case may
be, as the Remarketing Agent or the Agent Member for such Beneficial Owner shall
have previously communicated to the Paying Agent. Communications shall be given
on behalf of the Fund by a Signing Officer and on behalf of the
-13-
<PAGE>
Paying Agent by an Authorized Officer. Communications shall be effective when
received at the proper address.
Section 7.03. Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and there
are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties.
Section 7.04. Benefits. Nothing herein, express or implied, shall give
to any person, other than the Fund, the Paying Agent and their respective
successors and assigns, any benefit of any legal or equitable right, remedy or
claim hereunder. In particular, and without limiting the generality of the
foregoing, no Holder or Beneficial Owner of any shares of RP shall have or be
deemed to have any right in respect of, or shall in any event be entitled to
enforce or to seek recourse against any person in respect of any provision of
this Agreement, and any and all rights of shareholders of RP or obligations of
the Fund in respect thereof arise only under and are governed solely by the
Declaration of Trust and Bylaws of the Fund as they are in effect from time to
time.
Section 7.05. Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of each party.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such rights or remedies with respect to any
subsequent breach.
Section 7.06. Successors and Assigns. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by, the respective successors
and assigns of each of the Fund and the Paying Agent. Without the prior written
consent of the Fund, the Paying Agent may not assign this Agreement except by
operation of law or to a person who acquires substantially all of the assets and
assumes all of the liabilities of the Paying Agent, either directly or by
operation of law.
Section 7.07. Severability. If any clause, provision or section hereof
shall be ruled invalid or unenforceable by any court of competent jurisdiction,
the invalidity or unenforceability of such clause, provision or section shall
not affect any of the remaining clauses, provisions or sections hereof.
Section 7.08. Article and Section Headings. The Article and Section
headings herein are for convenience of reference only, and shall not limit or
otherwise affect the meaning hereof.
Section 7.09. Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed and delivered shall be deemed
to be an original, but all of which counterparts shall together constitute but
one and the same instrument.
-14-
<PAGE>
Section 7.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and performed in said State.
Section 7.11. Fund Only. 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 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By:
---------------------------
Title:
BANKERS TRUST COMPANY
By:
----------------------------
Title:
-15-
<PAGE>
EXHIBIT A
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
NOTICE OF REDEMPTION OF
REMARKETED PREFERRED(R) SHARES, SERIES [INSERT SERIES] ("Series __RP"(R))
NOTICE IS HEREBY given that, pursuant to the provisions of paragraph 4
of Part I of Section 12 of the Bylaws of Putnam Municipal Opportunities Trust
(the "Fund"), the Fund will redeem on , , (the "Redemption Date")
shares (the "Redemption Shares") of its then outstanding Series __ RP at the
redemption price of $25,000 per share plus accumulated but unpaid dividends to
the Redemption Date plus premium, if any.
Payment of an amount equal to the redemption price, plus accumulated
but unpaid dividends to the Redemption Date, will be deposited, in same-day
funds, with the Paying Agent by 12:00 p.m., New York time, on the Redemption
Date or at such other time as is permitted under the Bylaws of the Fund.
As of , dividends on the Redemption Shares will cease to
accumulate.
[Date] PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By:
-----------------------
Title:
- --------
(R) Registered trademark of Merrill Lynch & Co., Inc.
-1-
<PAGE>
EXHIBIT B
[Paying Agent to Remarketing Agent and Securities Depository]
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
NOTICE OF REDEMPTION
REMARKETED PREFERRED(R) SHARES, [INSERT SERIES] ("Series __RP"(R))
NOTICE IS HEREBY given that, pursuant to the provisions of paragraph 4
of Part I of Section 12 of the Bylaws of Putnam Municipal Opportunities Trust
(the "Fund"), the Fund will redeem on , (the "Redemption Date")
shares (the "Redemption Shares") of its then outstanding Series __ RP at the
redemption price of $25,000 per share plus accumulated but unpaid dividends to
the Redemption Date plus premium, if any.
Payment of an amount equal to the redemption price, including
accumulated but unpaid dividends to the Redemption Date, will be made pursuant
to the Paying Agent Agreement.
As of , dividends on the Redemption Shares
will cease to accumulate.
[Date] BANKERS TRUST COMPANY
By:
---------------------
Title:
- --------
(R) Registered trademark of Merrill Lynch & Co., Inc.
-2-
3201417.05
<PAGE>
EXHIBIT C
[Paying Agent to Beneficial Owner]
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
NOTICE OF REDEMPTION OF
REMARKETED PREFERRED(R) SHARES, SERIES [INSERT SERIES] ("Series __RP"(R))
NOTICE IS HEREBY given that, pursuant to the provisions of paragraph 4 of Part I
of Section 12 of the Bylaws of Putnam Municipal Opportunities Trust (the
"Fund"), the Fund will redeem on , (the "Redemption Date") shares
(the "Redemption Shares") of its then outstanding Series __ RP at the redemption
price of $25,000 per share plus accumulated but unpaid dividends to the
Redemption Date plus premium, if any. [You shall instruct your Agent Member to
deliver by .m. on the Redemption Date, by book entry, shares selected for
redemption as provided in the Paying Agent Agreement against receipt of payment
therefor.]2 [You shall present and surrender at the office of the Paying Agent
by .m. on the Redemption Date the certificate or certificates evidencing
shares selected for redemption as provided in the Paying Agent Agreement against
receipt of payment therefor.]2
Payment of the redemption price, including accumulated but unpaid
dividends to the Redemption Date, will be made pursuant to the Paying Agent
Agreement.
As of , dividends on the Redemption Shares will
cease to accumulate.
[Date] BANKERS TRUST COMPANY
By:
-----------------
Title:
- --------
(R) Registered trademark of Merrill Lynch & Co., Inc.
2 Delete if not applicable.
-3-
<PAGE>
EXHIBIT D
[Remarketing Agent to Paying Agent --
To be used only for transfers made
other than pursuant to a Remarketing]
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
REMARKETED PREFERRED SHARES, SERIES [INSERT SERIES] ("Series __RP"(R))
TRANSFER FORM
The undersigned hereby notifies you that:
__________________________________________
(Print name of existing beneficial owner)
has sold _________ shares of Series __ RP
(CUSIP No. ) to
__________________________________________
(Print name of new Beneficial Owner)
__________________________________________
(Print address of new Beneficial Owner)
__________________________________________
(Print telephone number of new Beneficial Owner)
__________________________________________
(Print name and Securities Depository account
number of new Agent Member)
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By:
--------------------------------------
Name:
Title:
- --------
(R) Registered trademark of Merrill Lynch & Co., Inc.
-4-
================================================================================
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
AND
PUTNAM INVESTMENT MANAGEMENT, INC.
AND
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
REMARKETING AGREEMENT
Dated June __, 1997
================================================================================
<PAGE>
REMARKETING AGREEMENT
REMARKETING AGREEMENT, dated June __, 1997 (the "Remarketing
Agreement"), by and among Putnam Municipal Opportunities Trust, a Massachusetts
business trust (the "Fund"), Putnam Investment Management, Inc., a Massachusetts
corporation (the "Adviser"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation ("Merrill Lynch").
W I T N E S S E T H:
WHEREAS, the Fund expects to issue 1,620 remarketed preferred
shares of beneficial interest ("RP"(R)), Series B (the "Series B RP") and 1,620
remarketed preferred shares of beneficial interest, Series C (the "Series C
RP"), without par value and with a liquidation preference of $25,000 per share
plus accumulated but unpaid dividends (the Series B RP and Series C RP are
referred to together herein as "Shares"), pursuant to and with the powers,
preferences and rights assigned to them in the amended and restated by-laws of
the Fund (as amended from time to time, the "By-laws");
WHEREAS, all Shares will initially be sold to and purchased by
Merrill Lynch pursuant to the terms of a purchase agreement (the "Purchase
Agreement"), dated June __, 1997, among the Fund, the Adviser and Merrill Lynch;
WHEREAS, the Fund has requested Merrill Lynch to act as the
Remarketing Agent under this Agreement in accordance with the provisions of the
By-laws (and the Trustees of the Fund have adopted a resolution appointing
Merrill Lynch as Remarketing Agent) (i) to set the Applicable Dividend Rate on
each series of the Shares from time to time on behalf of the Fund, and (ii) to
remarket Shares tendered to them in a Remarketing on behalf of the Beneficial
Owners of the Shares from time to time who wish to sell their Shares in a
Remarketing (Merrill Lynch being referred to hereinafter when acting in any of
such capacities as the "Remarketing Agent"); and
- ------------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE>
WHEREAS, Merrill Lynch is willing to assume such duties on the
terms and conditions expressly set forth herein;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein
that are not otherwise defined shall have the meanings assigned
to them in the By-laws.
Section 2. Appointment and Obligations of the
Remarketing Agent.
(a) The Fund hereby appoints Merrill Lynch and Merrill Lynch
hereby accepts such appointment as the exclusive Remarketing Agent for the
purpose of (i) setting the Applicable Dividend Rate on each series of the Shares
from time to time; (ii) remarketing Shares from time to time on behalf of the
Beneficial Owners thereof; and (iii) performing such other duties as are
assigned to the Remarketing Agent in the By-laws, all pursuant to the procedures
set forth in the By-laws. The Fund shall have the right, on seven Business Days'
notice to the Remarketing Agent, to appoint one or more additional Remarketing
Agents with respect to the Shares or any series thereof under an agreement
substantially in the form of this Agreement. Upon any such appointment,
including any appointment of a successor Remarketing Agent pursuant to Section
4, all references in this Agreement to "Remarketing Agent" shall be deemed to
refer also to each such additional or successor Remarketing Agent. Any such
additional or successor Remarketing Agent shall accept its appointment by
executing an agreement substantially in the form of this Agreement.
(b) The Remarketing Agent agrees (i) to calculate the Maximum
Dividend Rate applicable to each Dividend Period with respect to each series of
the Shares; (ii) to use its best efforts to set in Remarketings the Applicable
Dividend Rate on each series of the Shares; (iii) to notify the Fund promptly of
the Applicable Dividend Rate with respect to each series of Shares; (iv) to use
its best efforts to remarket the Shares tendered to the Remarketing Agent in
Remarketings held from time to time as provided in the By-laws; and (v) to carry
out such other duties as are assigned to the Remarketing Agent in the Bylaws,
all in accordance with the provisions of the By-laws.
(c) The Remarketing Agent agrees that if, at any time, either
Moody's or S&P shall not make available a rating for the Shares required for the
Remarketing Agent to calculate any Maximum Dividend Rate, or if both Moody's and
S&P shall not make available such a rating, the Fund shall select one or more
Substitute Rating Agencies for such purpose.
2
<PAGE>
(d) It is expressly understood and agreed by the parties
hereto that Shares as to which the Remarketing Agent is listed in the books
maintained by the Paying Agent as the Beneficial Owner may be held by the
Remarketing Agent for its own account or for the account of others.
(e) It is expressly understood and agreed by the parties
hereto that the obligations of the Remarketing Agent hereunder are conditioned
on the issuance and delivery of the Shares pursuant to the terms and conditions
of the Purchase Agreement. It is further understood and agreed by and between
the parties that the Remarketing Agent shall not be obligated to set the
Applicable Dividend Rate on the Shares of a series or to remarket Shares of a
series during a Non-Payment Period for such series, or at any time that any of
the conditions set forth in clauses (a) and (b) of Section 7 hereof shall not
have been fully and completely met to the satisfaction of the Remarketing Agent
with respect to such series or at any time any of the events set forth in clause
(c) of Section 7 hereof shall have occurred with respect to such series.
(f) By 3:30 p.m. on each Remarketing Date for such series, the
Remarketing Agent will advise the Paying Agent of (i) the Applicable Dividend
Rate determined in the related Remarketing; (ii) the identities of (and the
number of Shares of such series held by) the Beneficial Owners in whose names
Shares of such series are to be registered in the books maintained by the Paying
Agent who purchased such Shares as a result of the Remarketing; and (iii) the
identities of (and number of Shares of such series sold by) persons (i.e.,
former Beneficial Owners) in whose names Shares of such series were registered
in the books maintained by the Paying Agent who sold Shares in the Remarketing.
By 3:30 p.m. on each Remarketing Date, the Remarketing Agent shall also advise
the Fund of the information set forth in clause (i) of this Section 2(f).
(g) As soon as practicable after the Date of Original Issue
for the Shares of such series, but not later than the fifth Business Day after
the Date of Original Issue for such Shares, the Remarketing Agent will provide
the Paying Agent with (i) a list of the Beneficial Owners (other than the
Remarketing Agent) in whose names Shares of such series are to be registered in
the books to be maintained by the Paying Agent and the respective numbers of
Shares of such series acquired by such Beneficial Owners from the Remarketing
Agent and (ii) the number of Shares of such series they are holding as
Beneficial Owners for their own account and (on an aggregate basis) as nominee
for the account of others as of the date of such notice.
(h) The Remarketing Agent shall promptly notify the Paying
Agent by a notice substantially in the form of Exhibit A hereto of any transfers
of Shares of such series outside a
3
<PAGE>
Remarketing of which it is aware. Notwithstanding the foregoing, the Remarketing
Agent shall not be required to notify the Paying Agent of any transfer outside a
Remarketing unless such transfer would result in a new Beneficial Owner. It is
understood and agreed by the parties hereto that the Remarketing Agent shall be
under no obligation to disclose to the Fund or the Paying Agent or any other
person the identity of any person for whose account Shares are held by the
Remarketing Agent as Beneficial Owner unless such disclosure is required by law
or in connection with any pending or threatened legal proceedings involving the
Fund or the Paying Agent.
(i) The Remarketing Agent agrees that, whenever it receives
the notice from the Fund contemplated by the first sentence of Section 3(m) of
Part I of Section 12.1 of the Bylaws, it will in turn notify the Holders of
Shares of such series and prospective purchasers believed by it to be interested
in purchasing Shares of such series in such Remarketing.
(j) Merrill Lynch represents and warrants to the Fund that
Merrill Lynch & Co., Inc. is the exclusive owner of the registered trademark
"RP" and that Merrill Lynch is authorized by Merrill Lynch & Co., Inc. to
consent to the use by the Fund of such trademark, and, subject to the provisions
of Section 9(c) hereof, hereby consents to the use by the Fund of such trademark
in connection with the Shares.
(k) The Remarketing Agent may, in its sole discretion, as and
to the extent permitted by the By-laws from time to time, modify the settlement
procedures set forth in the By-laws so long as any such modification does not
adversely affect the Beneficial Owners or the Holders of the Shares or the Fund.
It is understood that a failure to settle a purchase or sale of tendered Shares
in any Remarketing will not change the Applicable Dividend Rate previously set
in such Remarketing, and will not result in any responsibility of, or liability
to, the Fund for settlement of such purchase or sale.
(l) The Remarketing Agent may, in its sole discretion, modify
the procedures concerning notification of redemption set forth in the By-laws,
provided that any such modification does not adversely affect any Holder or any
Beneficial Owner of Shares or materially alter the obligations of the Paying
Agent or the Fund; and further provided that, for so long as Moody's or S&P
shall rate any Shares, the Fund receives confirmation from Moody's or S&P, as
the case may be, that any such modification would not impair the ratings then
assigned by Moody's or S&P, as the case may be, to the Shares.
Section 3. Fees and Expenses. For the performance of
its services as Remarketing Agent hereunder with respect to each
series of Shares, the Fund shall pay to the Remarketing Agent on
4
<PAGE>
the first Settlement Date and on the same day in every fourth week thereafter
(or the next Business Day if such day is not a Business Day) for such series an
aggregate fee for each Share of such series outstanding on such day which shall
be calculated by multiplying, (i) the product of 0.25% times $25,000 by (ii) the
product of the actual number of days from and including such day to but
excluding the next day for the payment of such fee or prior redemption or
liquidation day for such share (as the case may be) divided by 360, and rounding
the product of (i) and (ii) upward to the nearest dollar; provided that should
the Dividend Period with respect to any Share of such series be a Special
Dividend Period of longer than 60 days, then during such Dividend Period the fee
for such Share of such series will not be calculated in the aforesaid manner,
and, with respect to such Share of such series, 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 at the commencement of such Dividend Period. In addition to its
obligations under Section 8 hereof, the Fund shall, from time to time upon the
request of the Remarketing Agent, pay the reasonable fees and expenses of
counsel incurred by the Remarketing Agent in connection with the performance of
its duties hereunder, except any such fees and expenses arising out of the gross
negligence or willful misconduct of the Remarketing Agent. The obligation of the
Fund to make the payments required by this Section shall survive the termination
of this Agreement and remain in full force and effect until all such payments
shall have been made in full.
Section 4. Resignation and Removal of a Remarketing Agent.
(a) The Remarketing Agent may resign and be discharged from
its duties and obligations hereunder with respect to the Shares by giving 60
days' prior written notice to the Fund, the Securities Depository and the Paying
Agent; provided, however, that no such resignation nor any such removal shall be
effective until the Fund shall have appointed a nationally recognized
broker-dealer as successor Remarketing Agent pursuant to the Bylaws and such
successor Remarketing Agent shall have entered into a remarketing agreement with
the Fund in which it shall have agreed to conduct Remarketings in accordance
with the terms and conditions of the By-laws. In such case, the Fund will use
its best efforts to appoint a successor Remarketing Agent and enter into such
remarketing agreement with such person as soon as reasonably practicable.
(b) In addition to the provisions of Section 9(b) hereof, the
Remarketing Agent may also terminate the Remarketing Agreement with respect to
the Shares or may resign with respect
5
<PAGE>
to the Shares by giving notice in writing to the Fund, the Securities Depository
and the Paying Agent 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 the Remarketing Agent has given notice
thereof to the Fund specifying the condition or event): (i) the rating of the
Shares shall have been downgraded or withdrawn by a national rating service, the
effect of which, in the opinion of the Remarketing Agent, is to affect
materially and adversely the market price of the Shares or the ability of the
Remarketing Agent to remarket the Shares; (ii) all of the Shares shall have been
called for redemption; or (iii) without the prior written consent of the
Remarketing Agent, the Agreement and Declaration of Trust of the Fund (the
"Declaration of Trust"), the By-laws or the Paying Agent Agreement dated as of
the date hereof between the Fund and Bankers Trust Company (the "Paying Agent
Agreement") shall have been amended in any manner that, in the opinion of the
Remarketing Agent, materially and adversely changes the nature of the Shares or
the remarketing procedures.
(c) The Fund may remove the Remarketing Agent with respect to
the Shares by giving at least 60 days' prior written notice to the Remarketing
Agent, the Securities Depository and the Paying Agent; provided, however, that
no such removal nor any such resignation shall become effective until the Fund
shall have appointed at least one nationally recognized broker-dealer as
successor Remarketing Agent and such successor Remarketing Agent shall have
entered into a remarketing agreement with the Fund in which it shall have agreed
to conduct Remarketings in accordance with the terms and conditions of the
By-laws. In such case, the Fund will use its best efforts to appoint a successor
Remarketing Agent and enter into such a remarketing agreement with such person
as soon as reasonably practicable.
(d) Subject to Section 9(c) hereof, Merrill Lynch agrees that
in the event it shall resign or be removed pursuant to clause (a), (b) or (c)
above, it hereby consents to the use by the Fund of the registered trademark
"RP" in connection with the Shares. Merrill Lynch shall acknowledge and deliver
to the Fund, without requiring any additional consideration, any assignments,
consents or other documents and take such other action as the Fund may
reasonably request to permit the Fund's use of such trademark.
Section 5. Dealing in the Shares: Redemption of Remarketing
Agent's Shares. The Remarketing Agent, when acting as Remarketing Agent or in
its individual or any other capacity, may to the extent permitted by law, buy,
sell, hold and deal in any of the Shares; provided, however, that (i) the
Remarketing Agent may hold Shares of such series for its own account upon
completion of a Remarketing for such series only if the Applicable Dividend Rate
established with respect to such Shares
6
<PAGE>
in the Remarketing is no higher than the Applicable Dividend Rate that would
have been set if such Remarketing Agent did not hold or had not purchased such
Shares and (ii) the Remarketing Agent may purchase Shares of a series for its
own account or the accounts of others in a Remarketing for such series only if
it purchases all tendered Shares of such series not sold in the Remarketing to
other purchasers. Except as provided in clause (ii) of the preceding sentence,
the Remarketing Agent is not obligated to purchase any Shares that would
otherwise remain unsold in a Remarketing. If the Remarketing Agent holds any
Shares of a series for its own account immediately prior to a Remarketing and if
all other Shares tendered for sale have been sold in such Remarketing, then the
Remarketing Agent may sell, in such Remarketing, such number of Shares held by
it for its own account 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. The Remarketing Agent may exercise any vote or consent or
take or join in any action which any Holder of Shares may be entitled to
exercise or take pursuant to the By-laws with like effect as if it did not act
in any capacity hereunder. The Remarketing Agent, in its individual capacity,
either as principal or agent, may also engage in or have an interest in any
financial or other transaction with the Fund as freely as if it did not act in
any capacity hereunder.
Section 6. Information.
(a) The Fund agrees to furnish to the Remarketing Agent: (i)
copies of the Declaration of Trust and the By-laws and any amendment thereto and
each report or other document mailed or made available to holders of Shares
(including annual reports to shareholders) or filed by the Fund with the
Commission (including any documents incorporated therein by reference); (ii)
notice of the purchase of Shares, either in a Remarketing or otherwise, by an
affiliate of the Fund as soon as the Fund shall become aware of such purchase;
(iii) notice of the occurrence of any of the events set forth in clause (c)(i),
(c)(ii) or (c)(iii) of Section 7 hereof; and (iv) in connection with the
Remarketing of the Shares of any series, such other remarketing information as
the Remarketing Agent may reasonably request from time to time, including but
not limited to the financial condition of the Fund. The Fund agrees to provide
the Remarketing Agent with as many copies of the foregoing materials and
information as the Remarketing Agent may reasonably request for use in
connection with the Remarketing of the Shares of any series and consents to the
use thereof for such purpose.
(b) If at any time during the term of this Agreement any event
or condition known to the Fund relating to or affecting the Fund or the Shares
of any series shall occur which might affect the accuracy or completeness of any
statement of a material fact contained in any of the reports, documents,
7
<PAGE>
materials and information referred to in clause (a) above or any document
incorporated therein by reference (collectively, the "Remarketing Materials")
considered as a whole or any other materials or information made publicly
available by the Fund, the Fund shall promptly notify the Remarketing Agent in
writing of the circumstances and details of such event or condition. For
purposes of this Agreement, the term Remarketing Materials shall not include any
materials that have been modified or superseded by any subsequently provided
materials.
(c) None of the information contained in any of the
Remarketing Materials shall contain, as of its date, an untrue or misleading
statement of a fact or omit to state a fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstance under which they were made, not misleading with respect to which
there shall be a substantial possibility that such fact, statement or omission
would be material to an existing holder or prospective purchaser of Shares.
Section 7. Conditions to Obligations of the Remarketing Agent.
The obligations of the Remarketing Agent with respect to each series of the
Shares under this Agreement have been undertaken in reliance on, and shall be
subject to: (a) the due performance in all material respects by the Fund of its
obligations and agreements as set forth in this Agreement (including Section
6(c) hereof) and the Purchase Agreement; (b) the accuracy in all material
respects as of the dates specified therein of the representations and warranties
contained in the Purchase Agreement; and (c) the non-occurrence of any of the
following events: (i) the rating of such series of Shares shall have been
downgraded or withdrawn by a national rating service after the date hereof, the
effect of which, in the opinion of the Remarketing Agent, is to affect
materially and adversely the market price of such series of Shares or the
Remarketing Agent's ability to remarket such series of Shares; (ii) all of such
series of Shares shall have been called for redemption; or (iii) without the
prior written consent of the Remarketing Agent, the Declaration of Trust, the
By-laws or the Paying Agent Agreement shall have been amended in any manner that
in the opinion of the Remarketing Agent materially changes the nature of the
Shares or the remarketing procedures (each of the events set forth in this
subpart (iii) being referred to as a "Material Change"). In the event of the
failure of any such conditions with respect to such series of Shares, the
Remarketing Agent may terminate its obligations under this Agreement as provided
in Section 9(b).
Section 8. Indemnification. (a) The Fund and the
Adviser (collectively, the "Indemnifying Parties" and
individually an "Indemnifying Party"), jointly and severally,
agree to indemnify and hold harmless the Remarketing Agent, its
officers, directors and employees and each person, if any, who
8
<PAGE>
controls the Remarketing Agent within the meaning of Section 20 of the
Securities Exchange Act of 1934 (collectively, the "Indemnified Parties" and
individually, an "Indemnified Party") 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 any of the Remarketing Materials or any
revision thereof or supplement thereto, or the omission or
alleged omission therefrom of a material fact required to be
stated in any of the Remarketing Materials or any revision
thereof or supplement thereto or necessary 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 any
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, provided that (subject
to Section 8(c) below) any 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
Remarketing Agent), 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 the use by the
Remarketing Agent of any information that is not contained in the Remarketing
Materials. The indemnity agreement in this paragraph shall be in addition to any
liability or obligation which the Fund or the Adviser may otherwise have to any
Indemnified Party.
(b) Each Indemnified Party shall give notice as promptly as
reasonably practical to each Indemnifying Party of any action commenced against
it in respect of which indemnity may be sought hereunder, but failure to so
notify an Indemnifying
9
<PAGE>
Party shall not relieve such Indemnifying Party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. An Indemnifying Party may participate at
its own expense in the defense of such action; provided, however, that counsel
to the Indemnifying Party shall not (except with the consent of the Indemnified
Party) also be counsel to the Indemnified Party. In no event shall the
Indemnifying Parties be liable for the fees and expenses of more than one
counsel (in addition to local counsel) separate from their own 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. No Indemnifying Party shall, without the prior
written consent of the Indemnified Parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification could be sought under
this Section 8 (whether or not the Indemnified Parties are actual or potential
Parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each Indemnified Party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any Indemnified Party.
(c) If at any time an Indemnified Party shall have requested
an Indemnifying Party to reimburse the Indemnified Party for fees and expenses
of counsel, such Indemnifying Party agrees that it shall be liable for any
settlement of the nature contemplated by Section 8(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 90 days after
receipt by such Indemnifying Party of the aforesaid request, (ii) such
Indemnifying Party shall have received notice of the terms of such settlement at
least 60 days prior to such settlement being entered into and (iii) such
Indemnifying Party shall not have reimbursed such Indemnified Party in
accordance with such request prior to the date of such settlement.
Notwithstanding the immediately preceding sentence, if at any time an
Indemnified Party shall have requested an Indemnifying Party to reimburse the
Indemnified Party for fees and expenses of counsel, an Indemnifying Party shall
not be liable for any settlement of the nature contemplated by Section 8(a)(ii)
effected without its consent if such Indemnifying Party (i) reimburses such
Indemnified Party in accordance with such request to the extent it considers
such request to be reasonable and (ii) provides written notice to the
Indemnified Party objecting to the unpaid balance as unreasonable, in each case
prior to the date of such settlement.
10
<PAGE>
(d) Merrill Lynch agrees, unless Merrill Lynch has requested
pursuant to Section 9(c) hereof that the Fund cease using such trademark or
Merrill Lynch's consent to use such trademark shall have been revoked pursuant
to Section 9(c) hereof, (i) to indemnify and hold harmless the Fund and the
Adviser and their respective officers, trustees and directors from and against
any losses, claims, damages or liabilities to which they or any of them may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon their failure to have
the requisite legal authority to use the registered trademark of "RP" in
connection with the Shares, and (ii) to reimburse each of the indemnified
persons specified in clause (i) above for any legal or other expenses reasonably
incurred by such person in investigating, defending or preparing to defend any
such action or claim. Notice of any action in respect of which indemnity may be
sought pursuant to this Section shall be given to Merrill Lynch as promptly as
reasonably practicable, but failure to so notify Merrill Lynch shall not relieve
Merrill Lynch from liability hereunder to the extent it is not materially
prejudiced as a result thereof and in any event shall not relieve Merrill Lynch
from any liability which it may have otherwise than on account of this indemnity
agreement. No settlement or compromise of any such action shall be made without
the consent of Merrill Lynch, which consent shall not be unreasonably withheld.
Merrill Lynch may participate at its own expense in the defense of any such
action; provided, however, that counsel to Merrill Lynch shall not (except with
the consent of the indemnified persons specified in clause (i) above) also be
counsel to the indemnified persons specified in clause (i) above. In no event
shall Merrill Lynch be liable for the fees and expenses of more than one counsel
(in addition to local counsel) separate from its own counsel for all parties
indemnified in this Section 8(d) 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.
(e) The indemnity agreement contained in clauses (a), (b), (c)
and (d) of this Section shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Indemnified Person,
and shall survive the termination or cancellation of this Agreement and the
remarketing of the Shares hereunder.
Section 9. Termination of Remarketing Agreement;
Termination of Use of Trademark.
(a) This Agreement shall terminate as to the Remarketing Agent
and its obligations hereunder with respect to the Shares on the effective date
of the resignation or removal of the Remarketing Agent pursuant to Section 4
hereof. The obligations of the parties under this Agreement with respect to
11
<PAGE>
the Shares (other than those provided in Sections 2(b)(i), 2(h), 2(i), 2(j),
4(d), 8 and 10) will be suspended during a Non-Payment Period with respect to
the Shares.
(b) In addition, the Remarketing Agent may terminate this
Agreement and all of its obligations hereunder with respect to the Shares, by
notifying the Fund, the Securities Depository, and the Paying Agent of its
election to do so, if any of the conditions referred to or set forth in Section
7 hereof with respect to the Shares have not been met or satisfied in full and
such failure shall have continued for a period of 30 days after the Remarketing
Agent has given notice thereof to the Fund specifying the condition which has
not been met and requiring it to be met.
(c) Notwithstanding any other provision of this Agreement, in
the event of a Material Change, the Fund shall, within 60 days following receipt
of the written request of Merrill Lynch, cease using the term "RP" and shall
take any and all actions that Merrill Lynch shall reasonably request to
discontinue the use of said term. Upon the occurrence of a Material Change, any
consent granted by Merrill Lynch pursuant to Section 4(d) hereof shall, 60 days
following written notice from Merrill Lynch, be revoked and of no further
effect.
Section 10. Remarketing Agent's Performance; Duty of Care. The
duties and obligations of the Remarketing Agent shall be determined solely by
the express provisions of this Remarketing Agreement and the By-laws. No implied
covenants or obligations shall be read into this Remarketing Agreement or the
By-laws. In the absence of bad faith on the part of the Remarketing Agent, the
Remarketing Agent may conclusively rely upon any document furnished to it, which
purports to conform to the requirements of this Remarketing Agreement and the
By-laws as to the truth of the statements expressed in any of such documents.
The Remarketing Agent shall be protected in acting upon any document or
communication reasonably believed by it to have been signed, presented or made
by the proper party or parties. The Remarketing Agent shall not incur any
liability to the Fund or to any Beneficial Owner or Holder of Shares or any
other person in its individual capacity or as Remarketing Agent for any action
or failure to act in connection with a Remarketing or otherwise, except as a
result of its gross negligence or willful misconduct on its part.
Section 11. Books and Records. The Remarketing Agent shall
keep such books and records with respect to the performance of its duties
hereunder as shall be consistent with prudent industry practice and shall make
such books and records available for inspection by the Fund on reasonable notice
during normal business hours.
12
<PAGE>
Section 12. Governing Law and Time. This Remarketing Agreement
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made and to be performed in said State. Except
where otherwise provided, specified times of day refer to New York time.
Section 13. Term of Agreement. Unless otherwise terminated in
accordance with the provisions hereof, this Agreement shall remain in full force
and effect from the date hereof with respect to the Shares until the first day
thereafter on which no such Shares are outstanding. Regardless of any
termination of this Agreement pursuant to any of the provisions hereof, the
obligations of the Fund pursuant to Section 3 hereof and the Fund and the
Adviser pursuant to Section 8 hereof and of the Remarketing Agent pursuant to
Sections 2(j), 4(d) and 8 hereof shall remain operative and in full force and
effect until fully satisfied.
Section 14. Successors and Assigns. The rights and obligations
of the Fund and the Adviser hereunder may not be assigned or delegated to any
other person without the prior written consent of the Remarketing Agent. The
rights and obligations of the Remarketing Agent hereunder may not be assigned or
delegated to any other person without the prior written consent of the Fund.
This Agreement shall inure to the benefit of and be binding upon the Fund, the
Adviser and the Remarketing Agent and their respective successors and assigns,
and will not confer any benefit upon any other person, partnership, association
or corporation other than persons, if any, controlling any Remarketing Agent
within the meaning of Section 15 of the Securities Act of 1933, as amended, or
Section 20 of the Exchange Act, or any Indemnified Person to the extent provided
in Section 8 hereof. The terms "successors" and "assigns" shall not include any
purchaser of Shares merely because of such purchase.
Section 15. Headings. The section headings herein are for
convenience of reference only, and it is agreed that such section headings are
not a part of this Agreement and will not be used in the interpretation of any
provisions of this Agreement.
Section 16. Severability. If any provision of this Agreement
shall be held or deemed to be or shall, in fact, be invalid, inoperative or
unenforceable as applied in any particular case in any or all jurisdiction or
jurisdictions, because it conflicts with any provision of any constitution,
statute, rule of public policy, or for any other reason, such circumstances
shall not have the effect of rendering the provision in question invalid,
inoperative or unenforceable in any other case, circumstance or jurisdiction, or
of rendering any other provision or provisions of this Agreement invalid,
inoperative or unenforceable to any extent whatsoever.
13
<PAGE>
Section 17. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be regarded
as an original and all of which shall constitute one and the same
document.
Section 18. Remarketing Agent Not Acting as Underwriter. It is
understood and agreed by the parties hereto that the only obligations of the
Remarketing Agent hereunder are as set forth in Sections 2, 8 and 11 hereof.
When engaged in remarketing any tendered Shares, the Remarketing Agent shall act
only as agent for and on behalf of each owner of the Shares so tendered. The
Remarketing Agent shall not act as underwriter for the tendered Shares and shall
in no way be obligated to advance its own funds to purchase any tendered Shares
(except in its individual capacity as purchaser of those Shares it may elect, in
accordance with Section 5 hereof, to purchase, in its sole discretion) or to
otherwise expend or risk its own funds or incur or become exposed to financial
liability in the performance of its duties hereunder.
Section 19. Amendment. This Agreement may be amended by any
instrument in writing signed by all of the parties hereto so long as this
Agreement as amended is not inconsistent with the By-laws in effect as of the
date of any such amendment.
Section 20. 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 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 21. Benefits. Nothing herein, express or implied,
shall give to any person, other than the Fund, the Remarketing Agent and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim hereunder. In particular, and without limiting the generality of
the foregoing, no Holder or Beneficial Owner of any Shares shall have or be
deemed to have any right in respect of, or shall in any event be entitled to
enforce or to seek recourse against any person in respect of, any provision of
this Agreement, and any and all rights of Holders of Shares or obligations of
the Fund in respect thereof arise only under and are governed solely by the
Agreement and Declaration of Trust and By-laws of the Fund as they are in effect
from time to time.
Section 22. Notices. Unless otherwise specified, any
notices, requests, consents or other communications given or made
14
<PAGE>
hereunder or pursuant hereto shall be made in writing and shall be deemed to
have been validly given or made when delivered or mailed, by registered or
certified mail, return receipt requested and postage prepaid, or by prepaid
courier service, addressed as follows: if to the Fund or the Adviser, to either
of them at One Post Office Square Boston, Massachusetts 02109. Attention: Mr.
John R. Verani, Vice President, and if to the Remarketing Agent, to Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch World Headquarters,
World Financial Center - North Tower, New York, New York 10281, Attention:
Remarketed Preferred Transactions Desk, 7th Floor; or to such other address as
any such party shall specify to the other party in writing.
15
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by one of its duly
authorized officers as of the date first above written.
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By:
---------------------------------
Authorized Signatory
PUTNAM INVESTMENT MANAGEMENT, INC.
By:
---------------------------------
Authorized Signatory
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By:
---------------------------------
Authorized Signatory
16
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by one of its duly
authorized officers as of the date first above written.
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By:
---------------------------------
Authorized Signatory
PUTNAM INVESTMENT MANAGEMENT, INC.
By:
---------------------------------
Authorized Signatory
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------
Authorized Signatory
17
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by one of its duly
authorized officers as of the date first above written.
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
By:
-------------------------------------
Authorized Signatory
PUTNAM INVESTMENT MANAGEMENT, INC.
By:
-------------------------------------
Authorized Signatory
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------
Authorized Signatory
18
<PAGE>
EXHIBIT A
---------
[Remarketing Agent to
Paying Agent - to be used only for transfers
made other than pursuant to a Remarketing]
PUTNAM MUNICIPAL OPPORTUNITIES TRUST
REMARKETED PREFERRED SHARES OF BENEFICIAL INTEREST,
SERIES [B] [C] ("RP"(R))
TRANSFER FORM
The undersigned hereby notifies you that:
-----------------------------------------
(Print name of existing beneficial owner)
has sold ______ Shares of Series [B] [C] RP to
-----------------------------------------
(Print name of new beneficial owner)
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By:
-------------------------------------
Authorized Signatory
- -------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
19
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
(617) 951-7000
Fax: (617) 951-7050
May 30, 1997
Putnam Municipal Opportunities Trust
One Post Office Square
Boston, MA 02109
Ladies and Gentlemen:
We have acted as counsel to Putnam Municipal Opportunities Trust (the
"Trust") in connection with the Registration Statement of the Trust on Form N-2
(File No. 333-25453) (the "Registration Statement") under the Securities Act of
1933, as amended (the "Act"), relating to the proposed sale of an aggregate of
1620 Remarketed Preferred Shares, Series B, without par value, and 1620
Remarketed Preferred Shares, Series C, without par value, of the Trust (the
"Shares"). The Shares are to be sold pursuant to a Purchase Agreement
substantially in the form filed as an exhibit to the Registration Statement (the
"Purchase Agreement") among the Trust, Putnam Investment Management, Inc., and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
We have examined the Trust's Agreement and Declaration of Trust and Amended
and Restated Bylaws, and are familiar with the actions taken by the Trust in
connection with the issuance and sale of the Shares. We have also examined such
other documents and records as we have deemed necessary for the purposes of this
opinion.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a duly organized and validly existing unincorporated
association under the laws of The Commonwealth of Massachusetts.
2. The Shares have been duly authorized and, when the Shares are issued and
paid for in accordance with the Purchase Agreement, the Shares will be validly
issued, fully paid, and nonassessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of
-1-
3214572.02
<PAGE>
Putnam Municipal Opportunities Trust -2- May 30, 1997
Trust disclaims shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate, or undertaking entered into or executed by the Trust or
its Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the property of the Trust for all loss and expense of any
shareholder of the Trust held personally liable solely by reason of his being or
having been a shareholder. Thus, the risk of a shareholder's incurring financial
loss on account of being a shareholder is limited to circumstances in which the
Trust itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Act. We consent
to the filing of this opinion with and as part of the Registration Statement and
to the references to our firm in the related prospectus under the captions
"Taxation" and "Legal Matters."
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
JZM/jc:3214572.02
-2-
3214572.02
[LETTERHEAD OF COOPERS & LYBRAND L.L.P.]
Consent of Independent Accountants
To the Trustees of
Putnam Municipal Opportunities Trust
We consent to the inclusion in this Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-2 under the Securities Act of 1933 (File
No.333-25453) of our report dated June 18, 1996 on our audit of the financial
Statements and financial highlights contained in the Prospectus included as part
of this Pre-Effective Amendment. We also consent to the reference to our firm
under the heading "Experts" in the Prospectus included as part of this
Pre-Effective Amendment.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 27, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam
Municipal Opportunities Trust Class A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 250,342,381
<INVESTMENTS-AT-VALUE> 255,304,192
<RECEIVABLES> 8,847,669
<ASSETS-OTHER> 76,464
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 264,228,325
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,965,693
<TOTAL-LIABILITIES> 1,965,693
<SENIOR-EQUITY> 40,000,000
<PAID-IN-CAPITAL-COMMON> 226,378,559
<SHARES-COMMON-STOCK> 16,157,092
<SHARES-COMMON-PRIOR> 16,157,092
<ACCUMULATED-NII-CURRENT> 140,090
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (9,217,828)
<ACCUM-APPREC-OR-DEPREC> 4,961,811
<NET-ASSETS> 262,262,632
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,188,225
<OTHER-INCOME> 0
<EXPENSES-NET> 1,228,410
<NET-INVESTMENT-INCOME> 7,959,815
<REALIZED-GAINS-CURRENT> 796,979
<APPREC-INCREASE-CURRENT> 4,146,583
<NET-CHANGE-FROM-OPS> 12,903,377
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,997,478)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,143,235
<ACCUMULATED-NII-PRIOR> 940,417
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (10,014,807)
<GROSS-ADVISORY-FEES> 926,251
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,258,326
<AVERAGE-NET-ASSETS> 219,010,470
<PER-SHARE-NAV-BEGIN> 13.50
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> 0.50
<PER-SHARE-DISTRIBUTIONS> 0.50
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.75
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam
Municipal Opportunities Trust Class A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 252,414,395
<INVESTMENTS-AT-VALUE> 253,077,748
<RECEIVABLES> 6,777,932
<ASSETS-OTHER> 188,922
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 260,044,602
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,925,205
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</TABLE>
