<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996
SECURITIES ACT REGISTRATION NO. 333-03257
INVESTMENT COMPANY ACT REGISTRATION NO. 811-7792
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
(Check Appropriate Box or Boxes)
/X/ Pre-Effective Amendment No. 1
/ / Post-Effective Amendment No.
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
333 West Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 917-7700
Copies to:
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James J. Wesolowski, Esq. Cathy G. O'Kelly
Vice President and Secretary Vedder, Price, Kaufman & Kammholz
333 West Wacker Drive 222 North LaSalle Street
Chicago, Illinois 60606 Chicago, Illinois 60601
(Name and Address of Agent for Service)
</TABLE>
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective
----------------
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.
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<PAGE> 2
CROSS REFERENCE SHEET
(as required by Rule 481(a))
PART A
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ITEM NO. ITEM CAPTION OF FORM N-14 LOCATION IN JOINT PROXY STATEMENT--PROSPECTUS
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Item 1. Beginning of Registration Statement and
Outside Front Cover Page of Prospectus... Cover Page
Item 2. Beginning and Outside Back Cover Page of
Prospectus............................... Cover Page; Table of Contents
Item 3. Synopsis Information and Risk Factors.... Summary; Risks and Special Considerations
Regarding the Reorganization
Item 4. Information about the Transaction........ Proposal No. 1--The Reorganization
Item 5. Information about the Registrant......... Available Information; Proposal No. 1--The
Reorganization; Proposal No. 2--Election of
Board Members of Each Fund; Management of the
Funds; Additional Information About the Funds
Item 6. Information about the Company being
Acquired................................. Available Information; Proposal No. 1--The
Reorganization; Proposal No. 2--Election of
Board Members of Each Fund; Management of the
Funds; Additional Information About the Funds
Item 7. Voting Information....................... The Annual Meetings; Proposal No. 1--The
Reorganization; Proposal No. 2--Election of
Board Members of Each Fund
Item 8. Interest of Certain Persons and
Experts.................................. Legal Opinions; Experts
Item 9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters............................. Not Applicable
PART B
LOCATION IN JOINT PROXY STATEMENT--PROSPECTUS
("PROSPECTUS") OR STATEMENT OF ADDITIONAL
INFORMATION ("SAI")(1)
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Item 10. Cover Page............................... SAI--Cover Page
Item 11. Table of Contents........................ SAI--Cover Page
Item 12. Additional Information about the
Registrant............................... Prospectus--Proposal No. 2--Election of Board
Members of Each Fund; Management of the Funds;
Additional Information About the Funds;
Experts; SAI--All Sections
Item 13. Additional Information about the Company
being Acquired........................... Prospectus--Proposal No. 2--Election of Board
Members of Each Fund; Management of the Funds;
Additional Information About the Funds;
Experts; SAI--All Sections
Item 14. Financial Statements..................... SAI--Index to Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
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(1) Some of the information to be included in Part B is contained in the
Prospectus.
<PAGE> 3
NUVEEN LOGO
June 17, 1996
DEAR SHAREHOLDER:
We are pleased to invite you to the Annual Meetings of Shareholders of Nuveen
Insured Premium Income Municipal Fund, Inc. and Nuveen Insured Premium Income
Municipal Fund 2. The meetings are scheduled for Thursday, July 25, 1996, at
10:30 a.m., Chicago time, in the 6th floor auditorium of The Northern Trust
Company, 50 South LaSalle Street, Chicago, Illinois.
At the Annual Meetings, you will be asked to consider and approve a very
important proposal. Subject to shareholder approval, Nuveen Insured Premium
Income Municipal Fund 2, (the "Acquiring Fund") will acquire substantially all
of the assets and assume substantially all of the liabilities of Nuveen Insured
Premium Income Municipal Fund, Inc. (the "Acquired Fund") in exchange for newly
issued shares of the Acquiring Fund, which will be distributed to the
shareholders of the Acquired Fund.
The reorganization should lead to efficiencies of scale, providing benefits such
as:
- Reduced Management Fees
- Lower Administrative Expenses
- Improved Portfolio Management Flexibility
- Increased Trading Liquidity
You will also be asked to elect Board Members and ratify the selection of
independent auditors.
The attached Joint Proxy Statement--Prospectus has been prepared to give you
information about these proposals.
WHETHER OR NOT YOU PLAN TO JOIN US, PLEASE COMPLETE, DATE AND SIGN YOUR PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED.
We appreciate your continued support and confidence in Nuveen and our family of
investments.
Very truly yours,
Timothy R. Schwertfeger
Timothy R. Schwertfeger
President
<PAGE> 4
NOTICE OF ANNUAL MEETINGS 333 West Wacker Drive
OF SHAREHOLDERS Chicago, Illinois
JULY 25, 1996 60606
(312) 917-7700
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND, INC.
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
June 17, 1996
TO THE SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders of each of Nuveen
Insured Premium Income Municipal Fund, Inc. (the "Acquired Fund") and Nuveen
Insured Premium Income Municipal Fund 2 (the "Acquiring Fund" and, together with
the Acquired Fund, the "Funds"), will be held in the 6th floor auditorium of The
Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois, on Thursday,
July 25, 1996, at 10:30 a.m., Chicago time, for the following purposes:
1. To approve an Agreement and Plan of Reorganization and Liquidation (the
"Agreement") between the Acquiring Fund and the Acquired Fund, whereby the
Acquiring Fund would acquire substantially all of the assets of the Acquired
Fund in exchange for up to 18,000,000 common shares and 4,400 Municipal Auction
Rate Cumulative Preferred Shares, Series T and Series TH, of the Acquiring Fund
and the Acquiring Fund's assumption of substantially all of the liabilities of
the Acquired Fund, and, to approve or disapprove, in the case of the Acquiring
Fund common shareholders, the issuance of such common shares of the Acquiring
Fund pursuant to the Agreement.
2. To elect six (6) board members, with four board members to be elected by
the holders of Preferred and Common Shares voting together and two board members
to be elected by holders of Preferred Shares only.
3. To ratify the selection of Ernst & Young LLP as independent auditors for
the fiscal year ending October 31, 1996.
4. To transact such other business as may properly come before the Annual
Meeting.
As more fully described in the accompanying Joint Proxy Statement--Prospectus,
shareholders of the Acquired Fund who do not vote to approve the Agreement and
who comply with certain other requirements of Minnesota law may, as an
alternative to receiving the consideration specified in the Agreement, dissent
from the transactions provided for therein and obtain the payment in cash of the
"fair value" of their shares, as defined under Minnesota law. The full text of
Minnesota Statutes, Sections 302A.471 and 302A.473, which set forth the
procedures to be followed by shareholders who choose to dissent under Minnesota
law, is included as Annex B to the Joint Proxy Statement--Prospectus and should
be read in its entirety.
Shareholders of record at the close of business on May 28, 1996 are entitled to
notice of and to vote at that Fund's Annual Meeting.
IN ORDER TO AVOID DELAY AND ADDITIONAL EXPENSE FOR YOUR FUND, AND TO ASSURE THAT
YOUR SHARES ARE REPRESENTED, IF YOU DO NOT EXPECT TO BE PRESENT IN PERSON AT THE
ANNUAL MEETING, YOU ARE REQUESTED TO FILL IN, SIGN AND MAIL THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
James J. Wesolowski
Secretary
<PAGE> 5
JOINT PROXY STATEMENT
MEETINGS OF SHAREHOLDERS TO BE HELD JULY 25, 1996
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND, INC.
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
PROSPECTUS
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
This Joint Proxy Statement--Prospectus is being furnished to the shareholders of
Nuveen Insured Premium Income Municipal Fund, Inc. (the "Acquired Fund") and
Nuveen Insured Premium Income Municipal Fund 2 (the "Acquiring Fund" and,
together with the Acquired Fund, the "Funds") in connection with the
solicitation of proxies by the Acquiring Fund's Board of Trustees and the
Acquired Fund's Board of Directors for use at each Fund's Annual Meeting of
Shareholders to be held on Thursday, July 25, 1996, at 10:30 a.m., Chicago time,
and at any and all adjournments thereof. At the Acquiring Fund's Annual Meeting,
common shareholders of the Acquiring Fund will be asked to approve the issuance
of up to 18,000,000 common shares of the Acquiring Fund pursuant to an Agreement
and Plan of Reorganization and Liquidation dated as of May 1, 1996 by and
between the Acquiring Fund and the Acquired Fund (the "Agreement"), and common
and preferred shareholders of the Acquiring Fund will be asked to approve the
Agreement. At the Acquired Fund's Annual Meeting, common and preferred
shareholders of the Acquired Fund will be asked to approve the Agreement. The
Agreement provides for (a) the Acquiring Fund's acquisition of substantially all
of the assets of the Acquired Fund in exchange for newly issued common shares
and Municipal Auction Rate Cumulative Preferred Shares ("MuniPreferred(R)")
(collectively, "Acquiring Fund Shares") and the Acquiring Fund's assumption of
substantially all of the liabilities of the Acquired Fund and (b) the
liquidation of the Acquired Fund and the distribution of the Acquiring Fund
common shares and shares of Acquiring Fund MuniPreferred held by the Acquired
Fund to its common and preferred shareholders, respectively. The transactions
contemplated by the Agreement are referred to herein as the "Reorganization."
The number of Acquiring Fund common shares to be issued to the Acquired Fund
would be that number having an aggregate per share net asset value equal to the
aggregate value of the net assets of the Acquired Fund transferred to the
Acquiring Fund. Shares of Acquiring Fund MuniPreferred would be issued to the
Acquired Fund on the basis of one newly issued share of Acquiring Fund
MuniPreferred, Series T and Series TH, for each share of Acquired Fund
MuniPreferred Series T and Series TH, respectively, outstanding. The value of
the Acquired Fund's net assets shall be calculated net of the liquidation
preference (including accumulated and unpaid dividends) of all outstanding
shares of Acquired Fund MuniPreferred.
In addition, at the Annual Meetings, (a) common and preferred shareholders of
each Fund will be asked to consider and vote upon the election of four (4)
directors or trustees ("Board Members") and the ratification of the selection of
independent auditors for their respective Funds and (b) preferred shareholders
of each Fund will be asked to consider and vote upon the election of two (2)
Board Members. Shareholders of the Acquired Fund are being asked to vote on
these additional matters in case the Reorganization is not consummated and the
Acquired Fund remains a separate entity.
The Funds are both closed-end, diversified management investment companies, with
identical investment objectives and policies; primarily to provide current
interest income exempt from regular Federal income taxes and secondarily to
enhance portfolio value relative to the municipal bond market. The principal
executive office of each Fund is located at 333 West Wacker Drive, Chicago,
Illinois 60606, and the telephone number of each Fund is (312) 917-7700. The
shares of each Fund are listed on the New York Stock Exchange ("NYSE"); reports,
proxy statements and other information concerning the Funds can be inspected at
the offices of the NYSE. See "Additional Information."
This Joint Proxy Statement--Prospectus sets forth concisely the information that
shareholders of the Funds should know before voting on the proposals described
above. It should be read and retained for future reference. A Statement of
Additional Information dated June 17, 1996 containing additional information
about the Funds has been filed with the Securities and Exchange Commission (the
"Commission") and is hereby incorporated by reference in its entirety into this
Joint Proxy Statement--Prospectus. A copy of the Statement of Additional
Information may be obtained without charge by mailing a written request to
either of the Funds, Attention: Administration, 333 West Wacker Drive, Chicago,
Illinois 60606, or by calling (800) 257-8787.
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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 ON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT --
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT--PROSPECTUS IS JUNE 17, 1996.
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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SUMMARY......................................... 1
The Annual Meetings......................... 1
The Reorganization.......................... 1
Reasons for the Reorganization.............. 2
Dissenting Shareholders' Rights of
Appraisal................................. 2
Tax Consequences of the Reorganization...... 2
Comparison of the Acquiring Fund and the
Acquired Fund............................. 2
General................................ 2
Investment Objectives and Policies..... 2
Management of the Funds................ 3
Dividends and Distributions............ 3
Comparative Fee Table.................. 3
RISKS AND SPECIAL CONSIDERATIONS REGARDING THE
REORGANIZATION................................ 4
THE ANNUAL MEETINGS............................. 5
General..................................... 5
Voting; Proxies............................. 5
AVAILABLE INFORMATION........................... 6
PROPOSAL NO. 1--THE REORGANIZATION.............. 6
General..................................... 6
Terms of the Reorganization................. 7
Reasons for the Reorganization.............. 8
Votes Required.............................. 9
Vote of Common Shareholders as a
Separate Class....................... 9
Votes of Preferred Shareholders as a
Separate Class....................... 9
Combined Votes of Common and Preferred
Shareholders......................... 10
Rating Agency Considerations................ 10
Description of Common Shares Issued by the
Acquiring Fund............................ 10
General................................ 10
Distributions.......................... 10
Dividend Reinvestment Plan............. 11
Odd Lot Holdings....................... 12
Comparison of Rights of Holders of Common
Shares of the Acquiring Fund and the
Acquired Fund............................. 12
Description of MuniPreferred Issued by the
Acquiring Fund............................ 12
General................................ 12
Dividends and Dividend Periods......... 13
Designation of Special Rate Periods.... 16
Voting Rights.......................... 16
Redemption............................. 17
Liquidation............................ 17
Rating Agency Guidelines............... 17
The Auction................................. 18
General................................ 18
Auction Procedures..................... 19
Secondary Market Trading and Transfer
of Acquiring Fund MuniPreferred...... 20
Comparison of Rights of Holders of
MuniPreferred of the Acquiring Fund and
the Acquired Fund......................... 20
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PAGE
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Comparison of the Investment Objectives and
Policies of the Acquiring Fund and the
Acquired Fund............................. 20
General................................ 20
Portfolio Investments.................. 21
Municipal Obligations.................. 22
Investment Restrictions................ 22
Certain Provisions in the Acquiring Fund's
Declaration of Trust...................... 23
Surrender and Exchange of Acquired Fund
Share Certificates........................ 23
Expenses Associated with the
Reorganization............................ 24
Dissenting Shareholders' Rights of
Appraisal................................. 24
General................................ 24
Procedure.............................. 24
Tax Consequences of the Reorganization...... 26
Exchange of Acquired Fund Shares Solely
for Acquiring Fund Shares.............. 26
Fractional Common Share Interests......... 26
Dissenting Shareholders................... 26
Capitalization.............................. 27
Comparative Performance Information......... 27
PROPOSAL NO. 2--ELECTION OF BOARD MEMBERS OF
EACH FUND..................................... 27
PROPOSAL NO. 3--SELECTION OF INDEPENDENT
AUDITORS FOR THE FUNDS........................ 31
MANAGEMENT OF THE FUNDS......................... 31
Board Members and Officers.................. 31
Investment Adviser.......................... 32
Portfolio Management........................ 32
ADDITIONAL INFORMATION ABOUT THE FUNDS.......... 33
Financial Highlights........................ 33
General Information and History............. 33
Repurchase of Common Shares; Conversion to
Open-End Fund............................. 34
Custodian, Transfer Agent, Dividend
Disbursing Agent and Redemption Agent..... 35
Tax Matters Associated with Investment in
the Funds................................. 36
LEGAL OPINIONS.................................. 36
EXPERTS......................................... 36
SHAREHOLDER PROPOSALS........................... 36
GENERAL......................................... 37
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION AND
LIQUIDATION................................... A-1
ANNEX B
SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA
BUSINESS CORPORATION ACT RELATING TO THE
ACQUIRED FUND DISSENTING SHAREHOLDERS' RIGHTS
OF APPRAISAL.................................. B-1
ANNEX C
GLOSSARY OF TERMS............................... C-1
</TABLE>
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SUMMARY
The following is a summary of certain information contained in this Joint Proxy
Statement--Prospectus. This summary is qualified in its entirety by the more
detailed information contained herein and in the attached Annexes. Shareholders
should read the entire Joint Proxy Statement--Prospectus. Certain capitalized
terms used but not defined in this summary are defined elsewhere in the text of
this Joint Proxy Statement--Prospectus or in Annex C hereto.
THE ANNUAL MEETINGS
This Joint Proxy Statement--Prospectus is being furnished to the shareholders of
each of the Funds in connection with the solicitation by the Boards of the Funds
of proxies to be voted at the Annual Meetings. Holders of record of shares of
each Fund as of the close of business on May 28, 1996 will be entitled to notice
of and to vote at their Fund's Annual Meeting, as described elsewhere in this
Joint Proxy Statement--Prospectus. Holders of outstanding common shares of the
Acquiring Fund will be asked to approve the issuance of additional Acquiring
Fund common shares pursuant to the Agreement, and holders of outstanding common
and preferred shares of each Fund will be asked to approve the Agreement. Common
and preferred shareholders of each Fund also will be asked to consider and vote
upon the election of four (4) Board Members, and the ratification of the
selection of independent auditors for their respective Funds. In addition,
preferred shareholders of each Fund will be asked to consider and vote upon the
election of two (2) Board Members. Shareholders of the Acquired Fund are being
asked to vote on these additional matters in case the Reorganization is not
consummated and the Acquired Fund remains a separate entity. The details of each
proposal to be voted on by the shareholders of each Fund and the vote required
for approval of each proposal are set forth under the description of each
proposal in this Joint Proxy Statement-- Prospectus.
THE REORGANIZATION
The Agreement provides that, subject to the satisfaction of certain conditions,
including shareholder approval and confirmation of the ratings assigned by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's, a division of
the McGraw Hill Companies ("S&P") to the shares of Acquiring Fund MuniPreferred,
(a) the Acquiring Fund would acquire substantially all of the assets of the
Acquired Fund in exchange for newly issued common shares and newly issued shares
of MuniPreferred of the Acquiring Fund and the Acquiring Fund's assumption of
substantially all of the liabilities of the Acquired Fund, and (b) the Acquired
Fund would liquidate and distribute to its shareholders pro rata by class the
Acquiring Fund Shares received. The number of Acquiring Fund common shares to be
issued to the Acquired Fund would be that number having an aggregate per share
net asset value equal to the aggregate value of the assets of the Acquired Fund
transferred to, net of the Acquired Fund's liabilities assumed by, the Acquiring
Fund as of the time such assets and liabilities are transferred and assumed (the
"Effective Time"). The value of the Acquired Fund's net assets shall be
calculated net of the liquidation preference (including accumulated and unpaid
dividends) of all outstanding shares of Acquired Fund MuniPreferred. Shares of
Acquiring Fund MuniPreferred would be issued to the Acquired Fund on the basis
of one newly issued share of Acquiring Fund MuniPreferred, Series T or Series
TH, for each share of Acquired Fund MuniPreferred, Series T or Series TH,
respectively, outstanding as of the Effective Time.
The Initial Rate Period of the shares of Acquiring Fund MuniPreferred, Series T
and Series TH, will be a period consisting of the number of days following the
day on which the Effective Time occurs that would have remained in the rate
period of the shares of Acquired Fund MuniPreferred, Series T and Series TH, in
effect immediately prior to the Effective Time. The dividend rate for the shares
of Acquiring Fund MuniPreferred, Series T and Series TH, for the Initial Rate
Period thereof will be the dividend rate in effect immediately prior to the
Effective Time for the shares of Acquired Fund MuniPreferred, Series T and
Series TH, respectively. The initial Auction for the shares of Acquiring Fund
MuniPreferred, Series T and Series TH, will be held on the day on which the
auction next succeeding the Effective Time would have been held for the shares
of Acquired Fund MuniPreferred, Series T and Series TH, respectively. The shares
of Acquiring Fund MuniPreferred are subject to mandatory and optional redemption
under certain circumstances. See "Proposal No. 1--The
Reorganization--Description of MuniPreferred Issued by the Acquiring
Fund--Redemption."
As a result of the Reorganization, the assets of the Acquiring Fund and the
Acquired Fund would be combined and the shareholders of the Acquired Fund would
become shareholders of the Acquiring Fund. The investment objectives and
policies and Board Members and officers of the larger combined entity would be
virtually identical to, and the general portfolio characteristics of the larger
combined entity would be substantially similar to, those of each of the separate
Funds.
The Agreement may be terminated and the Reorganization abandoned, whether before
or after approval by the Funds' shareholders, at any time prior to the Effective
Time (a) by the written consent of the Boards of both Funds, (b) by either Fund
if any condition to that Fund's obligations under the Agreement has not been
satisfied or waived and it reasonably appears that such condition will not be
satisfied or (c) by either Fund if the Reorganization has not occurred by
January 31, 1997. If the proposals relating to the Agreement are approved, the
Effective Time is expected to be the close of business on September 9, 1996.
The Board of each Fund, including the Board Members of that Fund who are not
"interested persons," as that term is defined by the 1940 Act, has approved the
Reorganization based on its conclusion that the Reorganization is in the best
1
<PAGE> 8
interests of the shareholders of that Fund and that the interests of those
shareholders would not be diluted as a result of the Reorganization.
ACCORDINGLY, THE BOARD OF EACH FUND RECOMMENDS THAT THE SHAREHOLDERS OF THAT
FUND VOTE FOR THE APPROVAL OF THE PROPOSAL RELATING TO THE AGREEMENT. See
"Proposal No. 1--The Reorganization."
REASONS FOR THE REORGANIZATION
In approving the Reorganization, the respective Boards of the Funds, which
consist of the same individuals, identified certain benefits that are likely to
result from the Reorganization, including reduced management fees per share,
lower administrative expenses, greater efficiency and flexibility in portfolio
management and a more liquid trading market for common shares of the combined
Fund. The larger combined Fund that would result from the Reorganization would
have a significantly larger asset base than either individual Fund has
currently. Based on data presented by management of the Funds, the Boards
believe that administrative expenses of a larger combined Fund comprised of the
assets of both Funds would be less than the aggregate expenses of the individual
Funds, resulting in a lower expense ratio for the combined Fund and
corresponding higher earnings for its common shareholders. Based upon the fiscal
year ended October 31, 1995, the expense ratios for the Acquiring Fund and the
Acquired Fund were 0.83% and 0.82%, respectively. The pro-forma expense ratio
for the combined Fund for that period would have been 0.81%.
The Boards also considered the possible adverse effects and estimated costs of
combining the Funds and determined that the Reorganization is likely to provide
benefits to the shareholders of each Fund that outweigh such possible adverse
effects and the costs presented by the Reorganization. See "Proposal No. 1--The
Reorganization--Reasons for the Reorganization."
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Shareholders of the Acquiring Fund have no dissenters' rights of appraisal with
respect to the Reorganization. However, under Minnesota law, shareholders of the
Acquired Fund who do not vote to approve the Agreement may elect to have the
"fair value" of their shares (determined in accordance with Minnesota law)
judicially appraised and paid to them, provided that (a) the Acquired Fund
participates in the Reorganization and (b) such Acquired Fund shareholders
comply with the provisions of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporation Act, which are attached hereto as Annex B. Any deviation
from such requirements may result in the loss of dissenters' rights. See
"Proposal No. 1--The Reorganization--Dissenting Shareholders' Rights of
Appraisal" and Annex B.
TAX CONSEQUENCES OF THE REORGANIZATION
The Funds have received an opinion of Vedder, Price, Kaufman & Kammholz to the
effect that the proposed Reorganization will qualify as a tax-free
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, neither Fund will recognize gain or loss for
Federal income tax purposes as a result of the Reorganization. In addition,
shareholders of the Acquired Fund who receive Acquiring Fund Shares pursuant to
the Reorganization will recognize no gain or loss, except with respect to the
cash received for a fractional Acquiring Fund common share interest, if any. See
"Proposal No. 1--The Reorganization--Tax Consequences of the Reorganization."
COMPARISON OF THE ACQUIRING FUND AND THE ACQUIRED FUND
GENERAL
The Acquiring Fund and the Acquired Fund are both closed-end, diversified
management investment companies. The Acquiring Fund common shares are listed and
trade on the NYSE under the symbol NPX and the Acquired Fund common shares are
listed and trade on the NYSE under the symbol NPE. The Acquiring Fund is
organized as a business trust under the laws of the Commonwealth of
Massachusetts. The Acquired Fund is organized as a corporation under the laws of
the State of Minnesota. The common shares of each Fund have equal voting rights
and equal rights with respect to the payment of dividends and distribution of
assets upon liquidation and have no preemptive, conversion or exchange rights or
rights to cumulative voting. All outstanding shares of Acquiring Fund
MuniPreferred and Acquired Fund MuniPreferred are rated "aaa" by Moody's and AAA
by S&P. The shares of Acquiring Fund MuniPreferred issued to the Acquired Fund
pursuant to the Reorganization will have rights and preferences, including
liquidation preferences, that are substantially similar to those of the
outstanding shares of Acquired Fund MuniPreferred. See "Proposal No. 1--The
Reorganization."
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Funds are identical. Each Fund's primary
investment objective is current income exempt from regular Federal income tax
and each Fund's secondary investment objective is the enhancement of portfolio
value relative to the municipal bond market through investments in tax-exempt
Municipal Obligations that, in the opinion of the Adviser, are underrated or
undervalued or that represent municipal markets that are undervalued. See
"Proposal No. 1--The Reorganization--Comparison of the Investment Objectives and
Policies of the Acquiring Fund and the Acquired Fund."
The investment policies of the Funds are virtually identical. Except to the
extent it invests in temporary investments, each Fund, as a fundamental policy,
invests all of its assets in tax-exempt Municipal Obligations which are either
covered by insurance guaranteeing the timely payment of principal and interest
thereon or backed by an escrow or trust account
2
<PAGE> 9
containing sufficient U.S. Government or U.S. Government agency securities to
ensure timely payment of principal and interest. As of April 30, 1996, the
dollar-weighted average portfolio maturities of the Funds were 19.65 years for
the Acquiring Fund and 19.23 years for the Acquired Fund and the durations were
9.17 years for the Acquiring Fund and 6.66 years for the Acquired Fund. The
portfolio characteristics of the Acquiring Fund, after the Reorganization, would
reflect the blended characteristics of the constituent Funds. Compared to the
Acquiring Fund, the combined portfolio would have a lower yield, shorter
maturity and higher credit quality. Compared to the Acquired Fund, the combined
portfolio would have a higher yield, longer maturity and lower credit quality.
See "Risks and Special Considerations Regarding the Reorganization" and
"Proposal No. 1--The Reorganization--Comparison of the Investment Objectives and
Policies of the Acquiring Fund and the Acquired Fund."
MANAGEMENT OF THE FUNDS
The Acquiring Fund and the Acquired Fund have the same Board Members and
officers. In addition, the Adviser acts as the investment adviser for, and
manages the investment and reinvestment of the assets of, each Fund. Pursuant to
an Investment Management Agreement between the Adviser and each Fund, each Fund
pays an annual management fee for the services and facilities furnished by the
Adviser on a monthly basis at the following annual rates: are .6500% of average
daily net assets for net assets of up to $125 million, .6375% for net assets in
excess of $125 million (but less than $250 million), .6250% for net assets in
excess of $250 million (but less than $500 million) and .6125% for net assets in
excess of $500 million (but less than $1 billion). See "Management of the
Funds."
DIVIDENDS AND DISTRIBUTIONS
The Funds have identical dividend policies with respect to the payment of
dividends on their common shares. Each Fund's present policy, which may be
changed by its Board, is to make regular monthly cash distributions to holders
of its common shares at a level rate that reflects the past and projected
performance of such Fund, which over time will result in the distribution of all
net investment income of such Fund. While the Adviser expects the level of
monthly distributions to remain relatively stable due to the similar composition
of each Fund's portfolio, the level of distributions over the life of each Fund
may be affected to the extent adjustments are made to such portfolio. Holders of
common shares of each Fund may elect to have all distributions automatically
reinvested in common shares of that Fund at the prevailing market price, plus
customary brokerage charges, pursuant to that Fund's Dividend Reinvestment Plan.
See "Proposal No. 1--The Reorganization--Description of Common Shares Issued by
the Acquiring Fund--Distributions" and "--Dividend Reinvestment Plan" and
"Additional Information About the Funds--Tax Matters Associated with Investment
in the Funds."
The dividend rates on shares of each Fund's MuniPreferred, including the shares
of Acquiring Fund MuniPreferred, Series T and Series TH, issued pursuant to the
Reorganization, are determined on the basis of auctions, which typically are
held weekly. See "Proposal No. 1--The Reorganization--Description of
MuniPreferred Issued by the Acquiring Fund" and "--The Auction" and the
Statement of Additional Information.
COMPARATIVE FEE TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ACQUIRING ACQUIRED
FUND FUND
PRO-FORMA
ACQUIRING
FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ANNUAL EXPENSES
(as a percentage of net assets)
Management Fees 0.64% 0.64% 0.63%
Other Expenses 0.19 0.18 0.18
Total Annual Expenses 0.83 0.82 0.81
- -------------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE:
The following table illustrates the expenses on a $1,000 investment based upon
the fees and expenses shown above and assuming a 5% annual return.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Acquiring Fund $8 $26 $46 $103
Acquired Fund 8 26 46 101
Pro-Forma Acquiring Fund 8 26 45 100
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The purpose of the comparative fee table is to assist you in understanding the
various costs and expenses of investing in shares of the Funds. The information
in the table is based upon annualized expenses for the fiscal year ended October
31, 1995. The figures in the Example are not necessarily indicative of past or
future expenses, and actual expenses may be greater or less than those shown.
The Funds' actual rate of return may be greater or less than the hypothetical 5%
annual return shown in the Example.
3
<PAGE> 10
RISKS AND SPECIAL CONSIDERATIONS REGARDING THE REORGANIZATION
The Boards of each of the Acquiring Fund and the Acquired Fund have identified
certain benefits to the respective shareholders of each Fund as a result of the
Reorganization. The portfolio characteristics of the Acquiring Fund, after the
Reorganization, would reflect the blended characteristics of the constituent
Funds. Compared to the Acquiring Fund, the combined portfolio would have a lower
yield, shorter maturity and higher credit quality. Compared to the Acquired
Fund, the combined portfolio would have a higher yield, longer maturity and
lower credit quality. The following risks and special considerations should be
considered by shareholders of each Fund in their evaluation of the
Reorganization:
1. Each of the Fund's portfolios of Municipal Obligations has different
maturity and yield characteristics, due in part to the different market
conditions existing at the time each Fund was organized. As of April 30,
1996 the yield for the Acquiring Fund's portfolio was 5.80% and for the
Acquired Fund's portfolio was 5.56%. The yield provided for each Fund
represents the average yield of the bonds in the portfolio derived by
weighing each bond's "yield to worst" by the market value of the bond. The
"yield to worst" of a bond is the lower of the yield to maturity and the
yield to call of that bond. Additionally, as of April 30, 1996 the
dollar-weighted average portfolio maturity of the Acquiring Fund was 19.65
years and of the Acquired Fund was 19.23 years and the duration was 9.17
years for the Acquiring Fund and 6.66 years for the Acquired Fund. Both
dollar-weighted average maturity and duration reflect the sensitivity of a
Fund to interest rate fluctuations, whereby a Fund with a longer maturity
and duration reacts more strongly to interest rate changes than a Fund with
a shorter maturity and duration. The average dollar-weighted maturity of a
Fund is the dollar-weighted average of the stated maturities of all debt
instruments held by the Fund. Duration is the weighted present value of
principal and interest payments expressed in years and may more accurately
measure a Fund's sensitivity to incremental changes in interest rates than
average maturity. For example, a Fund with a duration of 5.0 years should
have half the interest rate sensitivity of a Fund with a duration of 10.0
years, because the Fund with the shorter duration will receive payments
(and can reinvest at prevailing interest rates) twice as quickly. Assuming
the Reorganization had occurred on April 30, 1996, the portfolio yield,
dollar-weighted average portfolio maturity and duration of the combined
Funds would have been 5.70%, 19.37 years and 8.16 years, respectively.
2. Although the investment portfolio of each Fund must satisfy the same
standards of credit quality and diversification, the securities owned by
each Fund are different, resulting in certain differences in the
composition of each Fund's portfolio. Of the Municipal Obligations owned by
the Acquiring Fund as of April 30, 1996 (excluding temporary investments),
90% are rated in the highest grade by Moody's or S&P, 91% in the highest
two grades, 100% in the highest three grades, and 0% are unrated. Of the
Municipal Obligations owned by the Acquired Fund, as of April 30, 1996
(excluding temporary investments), 98% are in the highest grade, 98% in the
highest two grades, 100% in the highest three grades, and 0% are unrated.
See Annex A to the Statement of Additional Information for a general
description of Moody's and S&P's ratings of Municipal Obligations.
3. There are differences in concentration among the categories of
industries and tax-exempt issuers of the Municipal Obligations held in the
portfolios of the Funds. For the Acquiring Fund, as of April 30, 1996, the
highest concentration of Municipal Obligations was in the general
obligation, housing, pollution control, and transportation categories
accounting for 26.0%, 15.4%, 13.0%, and 10.1% of such Fund's portfolio,
respectively. For the Acquired Fund, as of April 30, 1996, the highest
concentration was in the pollution control, general obligation,
transportation and housing categories accounting for 17.3%, 14.9%, 14.2%,
11.6% and % of such Fund's portfolio, respectively.
4. During the periods since the inception of the Funds, common shares of
both Funds have generally traded at discounts to net asset value, with deep
discounts being reflected at times. Since the termination of common share
price stabilization following each Fund's initial public offering, common
share prices for the Acquiring Fund have fluctuated between a maximum
premium of 5.78% and a maximum discount of 15.3%; and common share prices
for the Acquired Fund have fluctuated between a maximum premium of 3.81%
and a maximum discount of 14.75% as determined by the closing price at the
end of each week. As of April 30, 1996, the Acquiring Fund common shares
were trading at a discount to net asset value of 11.35%, and the Acquired
Fund common shares were trading at a discount to net asset value of 8.32%.
It is not possible to state whether the Acquiring Fund common shares will
trade at a premium or discount to net asset value following the
Reorganization, or what the extent of any such premium or discount might
be.
5. With respect to the outstanding shares of MuniPreferred of each Fund, as
of April 30, 1996, the 1940 Act MuniPreferred Asset Coverage was 265% for
the Acquiring Fund and 295% for the Acquired Fund. If the Reorganization
had occurred as of that date, the 1940 Act MuniPreferred Asset Coverage of
the combined Fund would have been 277%, which exceeds the minimum asset
coverage required by the 1940 Act and rating agency guidelines. See
"Proposal No. 1--The Reorganization--Description of MuniPreferred Issued by
the Acquiring Fund--Rating Agency Guidelines."
Based upon the foregoing, as well as the anticipated benefits of the
Reorganization described below, the Board of each Fund determined that the
Reorganization presents no significant risks to such Fund and is likely to
provide benefits to the
4
<PAGE> 11
shareholders of such Fund that outweigh the costs and any risks presented by the
Reorganization. See "Proposal No. 1--The Reorganization--Reasons for the
Reorganization."
THE ANNUAL MEETINGS
GENERAL
This Joint Proxy Statement--Prospectus is furnished in connection with the
solicitation by the Boards of the Funds of proxies to be voted at the Funds'
Annual Meetings to be held in the 6th floor auditorium of The Northern Trust
Company, 50 South LaSalle Street, Chicago, Illinois, on Thursday, July 25, 1996
at 10:30 a.m., Chicago time, and at any and all adjournments of such Annual
Meetings. The cost of preparing, printing and mailing the enclosed proxy,
accompanying notice and Joint Proxy Statement--Prospectus, and all other costs
in connection with the solicitation of proxies, to the extent they are not
incremental costs related to the Reorganization, will be paid by the Funds pro
rata based on the number of each Fund's shareholder accounts. Incremental costs
related to the Reorganization will be paid by the Funds based upon estimated
savings to each Fund as a result of expected reduced management fees and
operating expenses resulting from the Reorganization. Additional solicitation
may be made by letter, telephone or telegraph by officers of the Funds, by
officers or employees of the Adviser or Nuveen, or by dealers and their
representatives. The Funds have engaged Tritech Services to assist in the
solicitation of proxies at a total estimated cost of $12,000.
The Board of each Fund has fixed the close of business on May 28, 1996 as the
record date (the "Record Date") for determining holders of such Fund's common
shares and shares of MuniPreferred entitled to notice of and to vote at that
Fund's Annual Meeting. Each shareholder will be entitled to one vote for each
common share or share of MuniPreferred held. At the close of business on the
Record Date, (a) the Acquiring Fund had outstanding 20,642,068 common shares and
shares of MuniPreferred as follows: Series M--2,080 shares; Series W--2,080
shares; and Series F--2,196 shares, and (b) the Acquired Fund had outstanding
15,128,458 common shares and shares of MuniPreferred as follows: Series T--2,200
shares and Series TH--2,200 shares. This Joint Proxy Statement--Prospectus is
first being mailed to shareholders of the Funds on or about June 17, 1996. EACH
FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS OCTOBER 31, 1995 ANNUAL REPORT
AND APRIL 30, 1996 SEMI-ANNUAL REPORT (WHICH WILL BE AVAILABLE ON OR BEFORE JUNE
30, 1996) UPON REQUEST. SUCH WRITTEN OR ORAL REQUEST SHOULD BE DIRECTED TO SUCH
FUND AT 333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606 OR BY CALLING
1-800-257-8787.
VOTING; PROXIES
Common shares and shares of MuniPreferred of the Acquiring Fund entitled to vote
at the Acquiring Fund's Annual Meeting that are represented by properly executed
proxies will, unless such proxies have been revoked, be voted in accordance with
the shareholder's instructions indicated on such proxies. If no contrary
instructions are indicated, all such shares will be voted FOR approval of the
Agreement (and, in the case of Acquiring Fund common shares, for approval of the
issuance of the Acquiring Fund common shares pursuant to the Agreement), FOR the
election of the four Board Member nominees and FOR ratification of the Acquiring
Fund's selection of independent auditors. In addition, such shares of Acquiring
Fund MuniPreferred will be voted FOR the election of the two Board Member
nominees to be elected solely by the holders of shares of Acquiring Fund
MuniPreferred.
Common shares and shares of MuniPreferred of the Acquired Fund entitled to vote
at the Acquired Fund's Annual Meeting that are represented by properly executed
proxies will, unless such proxies have been revoked, be voted in accordance with
the shareholder's instructions indicated on such proxies. If no contrary
instructions are indicated, all such shares will be voted FOR approval of the
Agreement, FOR the election of the four Board Member nominees and FOR
ratification of the Acquired Fund's selection of independent auditors. In
addition, such shares of Acquired Fund MuniPreferred will be voted FOR the
election of the two Board Member nominees to be elected solely by the holders of
shares of Acquired Fund MuniPreferred.
A quorum of shareholders is required to take action at each Annual Meeting. A
majority of the shares entitled to vote at each Annual Meeting, represented in
person or by proxy, will constitute a quorum of shareholders at that Annual
Meeting, except that for the election of the two nominees to be elected by
holders of MuniPreferred, 33 1/3% of the MuniPreferred shares entitled to vote
and represented in person or by proxy will constitute a quorum. Votes cast by
proxy or in person at each Annual Meeting will be tabulated by the inspectors of
election appointed for that Annual Meeting. The inspectors of election will
determine whether or not a quorum is present at that Annual Meeting. The
inspectors of election will treat abstentions and "broker non-votes" (i.e.,
shares held by brokers or nominees, typically in "street name," as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have discretionary
voting power on a particular matter) as present for purposes of determining a
quorum.
For purposes of determining the approval of the matters submitted to
shareholders for a vote, in the case of the Acquiring Fund, (i) abstentions and
broker non-votes will have the same effect as a vote against the Agreement
(except that for the common shareholders voting as a separate class on the
issuance of up to 18,000,000 additional common shares, abstentions and broker
non-votes will not be treated as voting upon the proposal), (ii) abstentions and
broker non-votes will have no effect on the election of Board Members (the
persons receiving the largest number of votes will be elected), and
5
<PAGE> 12
(iii) abstentions and broker non-votes will have the same effect as a vote
against the ratification of the selection of independent auditors. In the case
of the Acquired Fund, (i) abstentions and broker non-votes will have the same
effect as a vote against the Agreement, (ii) abstentions and broker non-votes
will have the same effect as a vote against the election of Board Members, and
(iii) abstentions and broker non-votes will have the same effect as a vote
against ratification of the selection of independent auditors.
Shares of a series of MuniPreferred of a Fund held in "street name" for which
voting instructions have not been received as of one business day before the
meeting, or, if adjourned, one business day before the day to which the meeting
is adjourned, and that would otherwise be treated as "broker non-votes" may,
pursuant to Rule 452 of the NYSE, be voted by the broker on each item in the
same proportion as the votes cast by all MuniPreferred shareholders of that
series of that Fund who have voted on the item.
The details of each proposal to be voted on by the shareholders of each Fund and
the vote required for approval of each proposal are set forth under the
description of each proposal below. Shareholders of either Fund who execute
proxies may revoke them at any time before they are voted by filing with their
Fund a written notice of revocation, by delivering a duly executed proxy bearing
a later date or by attending the meeting and voting in person.
AVAILABLE INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended (the "1940 Act"), and in accordance therewith is
required to file reports, proxy statements and other information with the
Commission. Any such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Northeast Regional Office, Suite 1300, Seven World Trade
Center, New York, New York 10048 and Midwest Regional Office, Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies
of such materials can be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The shares of the Acquiring
Fund and the Acquired Fund are listed on the NYSE, and such reports, proxy
statements and other information concerning the Funds can also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Acquiring Fund has filed with the Commission a registration statement on
Form N-14 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the Acquiring Fund shares to be issued pursuant
to the Reorganization. This Joint Proxy Statement--Prospectus and the related
Statement of Additional Information does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Acquiring Fund shares to be issued pursuant to
the Reorganization, reference is hereby made to the Registration Statement.
Statements contained in the Joint Proxy Statement--Prospectus and the related
Statement of Additional Information as to the content of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document included as an
Annex hereto or filed as an exhibit to the Registration Statement.
The information in this Joint Proxy Statement--Prospectus concerning the
Acquiring Fund has been furnished by the Acquiring Fund, and the information
concerning the Acquired Fund has been furnished by the Acquired Fund. This Joint
Proxy Statement--Prospectus constitutes a prospectus of the Acquiring Fund with
respect to the Acquiring Fund Shares issued pursuant to the Reorganization.
PROPOSAL NO. 1--THE REORGANIZATION
The terms and conditions of the Reorganization are set forth in the Agreement
and Plan of Reorganization and Liquidation. Significant provisions of the
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as Annex A
to this Joint Proxy Statement--Prospectus.
GENERAL
The Agreement sets forth the terms of the Reorganization, under which (a) the
Acquiring Fund would acquire substantially all of the assets of the Acquired
Fund in exchange for newly issued common shares and newly issued shares of
MuniPreferred, Series T and Series TH, of the Acquiring Fund and the Acquiring
Fund's assumption of substantially all of the liabilities of the Acquired Fund;
and (b) the Acquired Fund would liquidate and distribute to its shareholders pro
rata by class the Acquiring Fund Shares received. As a result of the
Reorganization, the assets of the Acquiring Fund and the Acquired Fund would be
combined and the shareholders of the Acquired Fund would become shareholders of
the Acquiring Fund. The investment objectives and policies and board members and
officers of the Acquiring Fund are virtually identical to those of the Acquired
Fund, and the general portfolio characteristics of the Acquiring Fund, after the
Reorganization, would be substantially similar to, those of each of the separate
Funds. If the proposals relating to the Agreement are approved, the Effective
Time is expected to be the close of business on September 9, 1996. Following the
Reorganization, the Acquired
6
<PAGE> 13
Fund would terminate its registration as an investment company under the 1940
Act by filing a Form N-8F with the Commission.
TERMS OF THE REORGANIZATION
If the Reorganization is approved and the other conditions are satisfied or
waived, at the Effective Time the Acquiring Fund will acquire substantially all
of the assets of the Acquired Fund, including cash (other than cash used to pay
certain Reorganization expenses of the Acquired Fund, to pay shareholders
exercising dissenters' rights, if any, and to make a final distribution of net
tax-exempt income, net ordinary taxable income and net capital gains to the
shareholders of the Acquired Fund accrued as of the Effective Time), cash
equivalents, Municipal Obligations and other securities, receivables and other
property owned by the Acquired Fund. In exchange, the Acquiring Fund would
assume from the Acquired Fund all debts, liabilities, obligations and duties of
the Acquired Fund (other than certain expenses incurred by the Acquired Fund in
connection with the Reorganization, the payment of amounts to shareholders
exercising dissenters' rights, if any, and the Acquired Fund's obligation to
distribute any net tax-exempt income, net ordinary taxable income and net
capital gains accrued as of the Effective Time), and the Acquiring Fund would
issue to the Acquired Fund common shares and shares of MuniPreferred, Series T
and Series TH, of the Acquiring Fund. The number of Acquiring Fund common shares
to be issued to the Acquired Fund would be that number having an aggregate per
share net asset value equal to the aggregate value of the Acquired Fund's assets
transferred to, net of the Acquired Fund's liabilities assumed by, the Acquiring
Fund as of the Effective Time. The value of the Acquired Fund's net assets shall
be calculated net of the liquidation preference (including accumulated and
unpaid dividends) of all outstanding shares of Acquired Fund MuniPreferred.
Shares of Acquiring Fund MuniPreferred would be issued to the Acquired Fund on
the basis of one newly issued share of Acquiring Fund MuniPreferred, Series T
and Series TH, for each share of Acquired Fund MuniPreferred, Series T and
Series TH, respectively, outstanding as of the Effective Time.
The value of the Acquired Fund's assets to be acquired and liabilities to be
assumed by the Acquiring Fund, and the net asset value per common share to be
issued by the Acquiring Fund, will be determined by The Chase Manhattan Bank,
N.A. ("Chase"), the custodian for each Fund, as of the Effective Time. Net asset
value per Acquiring Fund common share shall be computed by dividing the value of
the Acquiring Fund's total assets, less liabilities and less the aggregate
liquidation preference of all outstanding shares of Acquiring Fund MuniPreferred
and any accumulated and unpaid dividends thereon, by the number of Acquiring
Fund common shares outstanding. In determining net asset value per Acquiring
Fund common share and the value of the Acquired Fund's assets, Chase utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the Boards of the respective Funds. The pricing service values portfolio
securities at the mean between the quoted bid and asked price or the yield
equivalent when quotations are readily available. Securities for which
quotations are not readily available (which constitute a majority of the
securities held by the Funds) are valued at fair value as determined by the
pricing service using methods which include consideration of yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market conditions. The
pricing service may employ electronic data processing techniques or a matrix
system, or both, to determine valuations. The procedures of the pricing service
and its valuations are reviewed periodically by the officers of each Fund under
the general supervision of that Fund's Board. The number of Acquiring Fund
common shares to be issued to the Acquired Fund pursuant to the Reorganization
will be calculated based upon the determinations of Chase.
In the event the Reorganization is consummated, as soon as practicable after the
Effective Time, the Acquired Fund will liquidate and distribute pro rata to its
common shareholders of record the Acquiring Fund common shares it receives, and
pro rata by class to its preferred shareholders of record the shares of
Acquiring Fund MuniPreferred it receives. Such liquidation and distribution will
be accomplished by opening accounts on the books of the Acquiring Fund in the
names of the shareholders of the Acquired Fund and transferring to those
shareholder accounts the Acquiring Fund Shares previously credited on those
books to the account of the Acquired Fund. Each common shareholder account will
receive the respective pro rata number of Acquiring Fund common shares (rounded
down, in the case of fractional Acquiring Fund common shares, to the next
largest number of whole Acquiring Fund common shares) due such Acquired Fund
common shareholder, and each preferred shareholder account will receive one
newly issued share of Acquiring Fund MuniPreferred, Series T or Series TH, for
each share of Acquired Fund MuniPreferred, Series T or Series TH, respectively,
held by such preferred shareholder.
No fractional Acquiring Fund common shares will be issued. In lieu thereof, the
Acquired Fund's transfer agent, Chase, will aggregate all fractional Acquiring
Fund common shares and sell the resulting whole Acquiring Fund common shares on
the NYSE for the account of all shareholders of fractional interests, and each
such shareholder will be entitled to his or her pro rata share of the proceeds
of such sale upon surrender of his or her Acquired Fund common share
certificates.
Dividends will accumulate on shares of Acquired Fund MuniPreferred, Series T and
Series TH, up to and including the day on which the Effective Time occurs and
will be paid, together with the dividends then payable in respect of the shares
of Acquiring Fund MuniPreferred, Series T and Series TH, respectively, to the
holders thereof on the Dividend Payment Date in respect of the Initial Rate
Period of such shares. The Initial Rate Period of the shares of Acquiring Fund
MuniPreferred, Series T and Series TH, will be a period consisting of the number
of days following the day on which the Effective Time occurs that would have
remained in the rate period of the shares of Acquired Fund MuniPreferred, Series
T and Series TH, respectively, in effect immediately prior to the Effective
Time. The dividend rate for the shares of Acquiring Fund
7
<PAGE> 14
MuniPreferred, Series T and Series TH, for such Initial Rate Period thereof will
be the dividend rate in effect immediately prior to the Effective Time for the
shares of Acquired Fund MuniPreferred, Series T and Series TH, respectively. The
initial Auction for the shares of Acquiring Fund MuniPreferred, Series T and
Series TH, issued pursuant to the Reorganization will be held on the day on
which the auction next succeeding the Effective Time would have been held for
the shares of Acquired Fund MuniPreferred, Series T and Series TH, respectively,
but for the Reorganization.
Following the Reorganization, every common shareholder of the Acquired Fund
would own common shares of the Acquiring Fund that, except for cash payments
received in lieu of fractional Acquiring Fund common shares, will have an
aggregate per share net asset value immediately after the Effective Time equal
to the aggregate per share net asset value of that shareholder's Acquired Fund
common shares immediately prior to the Effective Time. See "Description of
Common Shares Issued by the Acquiring Fund" for a description of the rights of
such shareholders. Since the Acquiring Fund common shares issued to the common
shareholders of the Acquired Fund would be issued at net asset value in exchange
for net assets of the Acquired Fund having a value equal to the aggregate per
share net asset value of those Acquiring Fund common shares so issued, the net
asset value of the Acquiring Fund common shares should remain virtually
unchanged by the Reorganization. Thus, the Reorganization should result in no
dilution of net asset value of any common shareholder's holdings. See "Pro Forma
Financial Information" in the Statement of Additional Information. However, as a
result of the Reorganization, common shareholders of both Funds would hold
reduced percentages of ownership in the larger combined entity than they held in
the Acquiring Fund or the Acquired Fund, as the case may be.
Following the Reorganization, every preferred shareholder of the Acquired Fund
would own the same number of shares of Acquiring Fund MuniPreferred, Series T or
Series TH, as he or she held of Acquired Fund MuniPreferred, Series T or Series
TH, respectively, and the shares of Acquiring Fund MuniPreferred, Series T or
Series TH, would have rights and preferences substantially similar to those of
the shares of Acquired Fund MuniPreferred, Series T or Series TH, respectively.
Holders of shares of Acquiring Fund MuniPreferred, Series T or Series TH, would
be entitled to receive, on the date that, but for the Reorganization, would have
been the next dividend payment date in respect of the shares of Acquired Fund
MuniPreferred, Series T or Series TH, respectively, dividends accumulated in
respect of the shares of Acquired Fund MuniPreferred, Series T or Series TH,
respectively, (up to and including the day on which the Effective Time occurs),
and in respect of such shares of Acquiring Fund MuniPreferred, Series T or
Series TH (for an Initial Rate Period beginning the day after the day on which
the Effective Time occurs), which together equal the amount of dividends that
would have been paid on such date with respect to the shares of Acquired Fund
MuniPreferred, Series T or Series TH, respectively, but for the Reorganization.
See "Description of MuniPreferred Issued by the Acquiring Fund" and "Comparison
of Rights of Holders of MuniPreferred of the Acquiring Fund and the Acquired
Fund."
See "Surrender and Exchange of Acquired Fund Share Certificates" for a
description of the procedures to be followed by Acquired Fund shareholders to
obtain certificates representing their Acquiring Fund Shares (and cash in lieu
of fractional Acquiring Fund common shares, if any).
Under the terms of the Agreement, the Reorganization is conditioned upon (a)
approval by the shareholders of the Acquiring Fund and the Acquired Fund, as
described under "Votes Required" below, (b) the Funds' receipt of written advice
from Moody's and S&P (i) confirming that consummation of the Reorganization will
not impair the "aaa" and AAA ratings assigned to the outstanding shares of
Acquiring Fund MuniPreferred, Series M, Series W, or Series F and (ii) assigning
"aaa" or AAA ratings to the shares of Acquiring Fund MuniPreferred, Series T and
Series TH, issued pursuant to the Reorganization, (c) the Funds' receipt of an
opinion to the effect that the Reorganization will qualify as a tax-free
reorganization under the Code (which opinion has already been received), (d) the
absence of legal proceedings challenging the Reorganization and (e) the Funds'
receipt of certain routine certificates and legal opinions. See "Rating Agency
Considerations" and "Tax Consequences of the Reorganization."
The Agreement may be terminated and the Reorganization abandoned, whether before
or after approval by the Funds' shareholders, at any time prior to the Effective
Time (a) by the written consent of the Boards of both Funds, (b) by either Fund
if any condition to that Fund's obligations under the Agreement has not been
satisfied or waived and it reasonably appears that such condition will not be
satisfied or (c) by either Fund if the Reorganization has not occurred by
January 31, 1997.
REASONS FOR THE REORGANIZATION
The respective Boards of the Acquiring Fund and the Acquired Fund, which consist
of the same individuals, have concluded that the Reorganization is in the best
interests of the shareholders of their respective Funds and unanimously
recommend that the shareholders of their respective Funds vote FOR approval of
the proposals relating to the Agreement.
In approving the Reorganization, the Boards identified certain benefits that are
likely to result from combining the Funds, including reduced per share
management fees, lower administrative expenses, greater efficiency and
flexibility in portfolio management and a more liquid trading market for common
shares of the combined Fund. The Boards also considered the possible adverse
effects and estimated costs of combining the Funds. See "Risks and Special
Considerations Regarding the Reorganization."
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<PAGE> 15
Common shareholders of both Funds should benefit from a lower investment
management rate as a result of the Reorganization. As of April 30, 1996, the
Acquiring Fund had net assets of approximately $421 million and the Acquired
Fund had net assets of approximately $324 million. Management projections
estimate that the Acquiring Fund will have net assets in excess of $745 million
upon completion of the Reorganization. Under the Acquiring Fund's Investment
Management Agreement, the management fees payable by the Acquiring Fund are
.6500% of average daily net assets for net assets of up to $125 million, .6375%
for net assets in excess of $125 million (but less than $250 million), .6250%
for net assets in excess of $250 million (but less than $500 million) and .6125%
for net assets in excess of $500 million (but less than $1 billion). If the
Reorganization is completed, approximately $245 million of net assets of the
Acquiring Fund will be subject to management fees at a lower rate.
Based upon data presented by management of the Funds, the Boards believe that
administrative expenses of a larger combined Fund comprised of the assets of
both Funds will be less than the aggregate expenses of the individual Funds,
resulting in a lower expense ratio for the combined Fund and corresponding
higher earnings for its common shareholders. For the fiscal year ended October
31, 1995, the expense ratios for the Acquiring Fund and the Acquired Fund were
0.83% and 0.82%, respectively. The pro-forma expense ratio for the combined Fund
for that period would have been 0.81%.
The larger asset base resulting from combining the Funds should also provide
benefits in portfolio management. The Acquiring Fund after the Reorganization
should be able to purchase larger amounts of Municipal Obligations at more
favorable prices than either of the Funds individually and, with this greater
purchasing power, be in a better position to request improvements in the terms
of Municipal Obligations (e.g., added indenture provisions covering call
protection, sinking funds or audits for the benefit of large holders) prior to
purchase.
The Reorganization would result in the Acquiring Fund's having a significantly
larger number of common shares outstanding, and a significantly larger number of
common shareholders, than either individual Fund. Data prepared by management of
the Funds indicates that market prices of common shares of smaller funds are
likely to experience greater spreads between the bid and the offer than market
prices of common shares of larger funds, and that increasing the size of the
Acquiring Fund by combining it with the Acquired Fund should result in a higher
average daily trading volume, a narrower average spread between the bid and the
offer and reduced price volatility for its common shares. There can be no
assurance that the Reorganization will produce these anticipated benefits.
However, the Boards believe that these results, if obtained, would benefit
holders of common shares by affording them a more liquid trading market for
their shares and the opportunity for more favorable price execution in trading
the common shares.
In approving the Reorganization, the respective Boards determined that the
Reorganization should result in no dilution of the interests of the respective
Funds' existing shareholders. See "Pro Forma Financial Information" in the
Statement of Additional Information. Although the Reorganization is expected to
result in a reduction in net asset value per Acquiring Fund common share (and
per Acquired Fund common share equivalent) of approximately $0.01 as a result of
the estimated costs of the Reorganization, management of the Funds has advised
the Boards that it expects that such costs will be recovered within
approximately 22 months after the Effective Time. See "Expenses Associated with
the Reorganization."
In approving the Reorganization, the Boards considered a report of the Funds'
management indicating that the Reorganization should not have a materially
adverse overall effect on the financial status and ongoing performance of either
Fund, and considered such measures as gross portfolio yield, net portfolio
earnings rate as a percentage of net asset value, monthly net earnings, monthly
dividends, dividend rates as a percentage of the initial offering and market
price, management fees, expense ratios and undistributed net investment income
balances. The Boards also examined the relative credit strength, maturity
characteristics, preferred share asset coverages, mix of type and purpose, and
yield of the Funds' portfolios of Municipal Obligations and the costs involved
in the Reorganization. The Boards noted the many similarities between the Funds,
including their identical investment objectives, virtually identical investment
policies, common management and substantially similar portfolios of Municipal
Obligations. Based on these factors, the Boards determined that the
Reorganization is likely to provide benefits to the shareholders of each Fund,
as discussed above, that outweigh the possible adverse effects and the costs
(including relatively minor legal, accounting and administrative costs, some of
which have already been incurred in evaluating and analyzing the Reorganization)
presented by the Reorganization.
VOTES REQUIRED
VOTE OF COMMON SHAREHOLDERS AS A SEPARATE CLASS
Common shareholders of the Acquiring Fund are being asked to approve the
issuance of up to 18,000,000 additional common shares of the Acquiring Fund
pursuant to the Agreement. Adoption of this proposal requires the affirmative
vote of the holders of at least a majority of the Acquiring Fund common shares
voting on the proposal, provided that the total vote cast on the proposal
represents over 50% of all Acquiring Fund common shares entitled to vote on the
proposal.
VOTES OF PREFERRED SHAREHOLDERS AS A SEPARATE CLASS
Preferred shareholders of each Fund are being asked to approve the Agreement as
a "plan of reorganization" under the 1940 Act. Section 18(a)(2)(D) of the 1940
Act provides that the terms of preferred shares issued by a registered
closed-end investment company must contain provisions requiring approval by the
vote of a majority of such shares, voting as a class, of
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<PAGE> 16
any plan of reorganization adversely affecting such shares. The 1940 Act makes
no distinction between a plan of reorganization that has an adverse effect as
opposed to a materially adverse effect. While the respective Boards do not
believe that the holders of shares of MuniPreferred of either Fund would be
materially adversely affected by the Reorganization, it is possible that there
may be insignificant adverse effects (such as where the asset coverage with
respect to the shares of Acquiring Fund MuniPreferred issued pursuant to the
Reorganization is slightly more or less than the asset coverage with respect to
the shares of Acquired Fund MuniPreferred for which they are exchanged). Each
Fund is seeking approval of the Agreement by the holders of shares of each
series of that Fund's MuniPreferred, each such series voting separately as a
class. Such approval requires the affirmative vote of the holders of at least a
majority of the outstanding shares of that Fund's MuniPreferred entitled to vote
on the proposal, each such series voting separately as a class.
Preferred shareholders of the Acquired Fund are also being asked to approve the
Agreement pursuant to Minnesota law. Such approval requires the affirmative vote
of the holders of at least a majority of the outstanding shares of the Acquired
Fund MuniPreferred entitled to vote on the proposal, each such series voting
separately as a class.
COMBINED VOTES OF COMMON AND PREFERRED SHAREHOLDERS
Consummation of the Reorganization is also subject to approval of the Agreement
by the common and preferred shareholders of each Fund. Adoption of this proposal
requires the affirmative vote of the holders of at least a majority of the
outstanding common shares and shares of MuniPreferred of that Fund entitled to
vote on the proposal, voting together as a single class.
RATING AGENCY CONSIDERATIONS
It is a condition to the Funds' obligations to consummate the Reorganization
that the Acquiring Fund obtain written confirmation from both Moody's and S&P
that (a) the issuance of shares of Acquiring Fund MuniPreferred, Series T and
Series TH, pursuant to the Reorganization will not impair the "aaa" and AAA
ratings, respectively, assigned by such rating agencies to the outstanding
shares of Acquiring Fund MuniPreferred, Series M, Series W and Series F, and (b)
the shares of Acquiring Fund MuniPreferred, Series T and Series TH, issued
pursuant to the Reorganization will be rated "aaa" by Moody's or AAA by S&P. The
Acquiring Fund will not issue additional shares of MuniPreferred, and the
Reorganization will not be consummated, unless the Acquiring Fund has obtained
such confirmation from Moody's and S&P. The Acquiring Fund expects to obtain the
necessary confirmation.
DESCRIPTION OF COMMON SHARES ISSUED BY THE ACQUIRING FUND
GENERAL
The Declaration of Trust (the "Declaration") of the Acquiring Fund authorizes
the issuance of an unlimited number of common shares in a single class, par
value $.01 per share. As of May 28, 1996, there were issued and outstanding
20,642,068 common shares of the Acquiring Fund. If the Reorganization is
approved, at the Effective Time the Acquiring Fund will issue additional common
shares. The number of such additional Acquiring Fund common shares will be based
on the relative aggregate per share net asset values of the Acquiring Fund and
the Acquired Fund, in each case as of the Effective Time. Based on the relative
per share net asset values as of May 28, 1996 the Acquiring Fund would have
issued approximately 16,843,530 additional common shares if the Reorganization
had occurred as of that date.
The terms of the Acquiring Fund common shares to be issued pursuant to the
Reorganization will be identical to the terms of the Acquiring Fund common
shares that are then outstanding. All of the Acquiring Fund common shares have
equal rights with respect to the payment of dividends and the distribution of
assets upon liquidation. The Acquiring Fund common shares are, when issued,
fully paid and, subject to the matters set forth under "Certain Provisions in
the Acquiring Fund's Declaration of Trust" below, non-assessable and have no
preemptive, conversion or exchange rights or right to cumulative voting. The
Acquiring Fund will not be permitted to declare, pay or set apart for payment
any cash dividend or distribution on the Acquiring Fund common shares, unless
(a) cumulative dividends on all outstanding shares of Acquiring Fund
MuniPreferred have been paid in full and (b) the Acquiring Fund meets the asset
coverage test described in the Statement of Additional Information under
"Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--Restrictions on Dividends and Other Payments." This latter
limitation on the Acquiring Fund's ability to make distributions on common
shares could under certain circumstances impair the ability of the Acquiring
Fund to maintain its qualification for taxation as a regulated investment
company under the Code. See "Tax Matters Associated with Investment in the
Funds" under "Additional Information About the Funds" below and in the Statement
of Additional Information.
DISTRIBUTIONS
It is each Fund's present policy, which may be changed by its Board, to make
regular monthly cash distributions to the holders of its common shares of net
investment income at a level rate that reflects past and projected performance
of the Fund, which over time will result in the distribution of all net
investment income of the Fund (net investment income remaining after the payment
of dividends on shares of MuniPreferred, when such shares are outstanding), and
to distribute at least annually net capital gains, if any, to the extent such
net capital gains are not necessary to satisfy the dividend,
10
<PAGE> 17
redemption or liquidation preferences of shares of MuniPreferred. Each Fund's
distribution level is determined by the Board of the Fund after giving
consideration to a number of factors, including the Fund's undistributed net
investment income and historical and projected investment income, expenses and
dividend payments on shares of MuniPreferred. Net income for each Fund consists
of all interest income accrued on portfolio assets less all expenses of the
Fund. Expenses of each Fund are accrued each day.
To permit each Fund to maintain a more stable monthly distribution, the Fund may
from time to time distribute less than the entire amount of net investment
income earned in a particular period. Such undistributed net investment income
would be available to supplement future distributions, including distributions
which might otherwise have been reduced by a decrease in such Fund's monthly net
income due to fluctuations in investment income or expenses, or due to an
increase in the dividend rate on the outstanding shares of MuniPreferred. As a
result, the distributions paid by each Fund for any particular monthly period
may be more or less than the amount of net investment income actually earned by
the Fund during such period. Undistributed net investment income is added to
each Fund's net asset value, and, correspondingly, distributions from
undistributed net investment income are deducted from the Fund's net asset
value.
For tax purposes, each Fund is currently required to allocate net capital gains
and other taxable income, if any, between common shares and shares of
MuniPreferred of the Fund in proportion to total distributions paid to each
class for the year in which such net capital gains or other taxable income is
realized. See "Tax Matters Associated with Investment in the Funds" under
"Additional Information About the Funds" below and in the Statement of
Additional Information.
Fund management does not expect the level of monthly distributions to the common
shareholders of the Acquiring Fund and the Acquired Fund to be affected by the
Reorganization. There can be no assurance, however, that a stable level of
distributions may be maintained over the life of a Fund.
DIVIDEND REINVESTMENT PLAN
Under each Fund's Dividend Reinvestment Plan (the "Plan"), each common
shareholder of the Fund may elect to have all dividends or capital gains
distributions, or both, automatically reinvested by Chase, as agent for the
common shareholders of the Fund (the "Plan Agent"), in additional common shares.
A Fund common shareholder may make this election by completing a Dividend
Reinvestment Plan Application Form. Common shareholders of the Acquired Fund who
participate in the Acquired Fund's Dividend Reinvestment Plan will automatically
be enrolled in the Plan upon consummation of the Reorganization and any unpaid
dividends at the time of the Reorganization will be reinvested in shares of the
Acquiring Fund as if subject to the Plan. Other common shareholders of the
Acquired Fund will be given the opportunity to enroll in the Plan following the
Effective Time. An Acquired Fund common shareholder who does not elect to
participate in the Plan will receive all dividends and capital gains
distributions in cash paid by check mailed directly to the record shareholder by
Chase, as dividend paying agent.
Under the Plan, the number of shares equivalent to the cash distribution is
determined as follows:
(a) If the Fund common shares are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will issue
new common shares at the then current market price; or
(b) If the Fund common shares are trading at a discount from net asset
value at the time of valuation, the Plan Agent will receive the dividend or
distribution in cash and apply it to the purchase of Fund common shares in
the open market, on the NYSE or elsewhere, for the participants' accounts.
As a result of increases in the market price prior to the time the Plan
Agent has completed its purchases, the average purchase price per share
paid by the Plan Agent may exceed the market price at the time of
valuation, resulting in the acquisition of fewer Fund common shares than if
the dividend or distribution had been paid in common shares issued by the
Fund. The Plan Agent will use all dividends and distributions received in
cash to purchase Fund common shares in the open market within 30 days of
the dividend payment date. Interest will not be paid on any uninvested cash
payments.
Participants in the Plan may withdraw from the Plan upon written or telephone
notice to the Plan Agent. When a participant withdraws from the Plan or upon
termination of the Plan, certificates for whole Fund common shares credited to
his or her account under the Plan will be issued and a cash payment will be made
for any fraction of a Fund common share credited to such account; or, if a
participant so desires, the Plan Agent will sell his or her Fund common shares
in the Plan and send the proceeds to the participant, less brokerage commissions
and a $2.50 service fee.
The Plan Agent maintains all Fund common shareholder accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by such common shareholders for tax records. The Fund common
shares in the account of each Plan participant are held by the Plan Agent in
non-certificated form in the name of the participant, and each such common
shareholder's proxy includes those Fund common shares received pursuant to the
Plan.
In the case of Fund common shareholders such as banks, brokers or nominees that
hold Fund common shares for others who are the beneficial owners, the Plan Agent
administers the Plan on the basis of the number of Fund common shares certified
from time to time by the record shareholders as representing the total amount
registered in the record common shareholder's name and held for the account of
beneficial owners who participate in the Plan.
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<PAGE> 18
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant pays a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions.
The automatic reinvestment of dividends and distributions does not relieve
participants of any income taxes that may be payable on dividends or
distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
each Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
Additional information about the Plan may be obtained from Chase, 770 Broadway,
New York, New York 10003.
ODD LOT HOLDINGS
In connection with the Reorganization, a common shareholder of the Acquired Fund
might receive a number of Acquiring Fund common shares in the Reorganization
which consists of or includes an "odd lot" (i.e., less than 100 shares). Such
odd lot holders may participate in the Acquiring Fund's Dividend Reinvestment
Plan for the limited purpose of purchasing a sufficient number of Acquiring Fund
common shares to bring their odd lot shares up to a 100-share "round lot." Each
such odd lot holder would send in the certificates representing his or her odd
lot shares and direct the Plan Agent to reinvest dividends only until a
sufficient number of Acquiring Fund common shares have been acquired to form a
round lot. When this is accomplished, (a) certificates representing the round
lot of Acquiring Fund common shares would be issued to the holder, (b) any
excess Acquiring Fund common shares or fractional Acquiring Fund common shares
would be sold and a check for the sale issued to the holder, and (c) dividend
reinvestment on behalf of such holder would be discontinued.
COMPARISON OF RIGHTS OF HOLDERS OF COMMON SHARES OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
Notwithstanding that the Acquiring Fund is organized as a business trust under
the laws of the Commonwealth of Massachusetts and the Acquired Fund is organized
as a corporation under the laws of the State of Minnesota, the common shares of
each Fund have equal voting rights and equal rights with respect to the payment
of dividends and distribution of assets upon liquidation and have no preemptive,
conversion or exchange rights or rights to cumulative voting. The provisions of
the Declaration of the Acquiring Fund are substantially similar to the
provisions of the Articles of the Acquired Fund, and both contain, among other
things, identical super-majority voting provisions, as described under "Certain
Provisions in the Acquiring Fund's Declaration of Trust" below. Under
Massachusetts law, however, shareholders of the Acquiring Fund do not have
dissenters' rights of appraisal. The full text of each Fund's Declaration or
Articles, as the case may be, is on file with the Commission and may be obtained
as described under "Available Information." The terms of the Acquiring Fund's
Dividend Reinvestment Plan are identical to the terms of the Acquired Fund's
Dividend Reinvestment Plan.
DESCRIPTION OF MUNIPREFERRED ISSUED BY THE ACQUIRING FUND
The following is a brief description of the terms of the shares of the Acquiring
Fund MuniPreferred, including the shares of Acquiring Fund MuniPreferred, Series
T and Series TH, to be issued pursuant to the Reorganization. This description
assumes that the Reorganization will be consummated and that the Acquiring Fund
will issue shares of its MuniPreferred pursuant to the Reorganization. This
description does not purport to be complete and is subject to and qualified in
its entirety by reference to the more detailed description of the shares of
Acquiring Fund MuniPreferred in the Statement of Additional Information and in
the form of Statement Establishing and Fixing the Rights and Preferences of
Municipal Auction Rate Cumulative Preferred Shares of the Acquiring Fund (the
"Acquiring Fund Statement") filed as an exhibit to the Registration Statement.
Capitalized terms used but not defined herein have the meanings given them above
or in Annex C to this Joint Proxy Statement--Prospectus.
GENERAL
The Acquiring Fund's Declaration authorizes the issuance of an unlimited number
of preferred shares, par value $.01 per share, which may be issued from time to
time in such series and with such designations, preferences and other rights,
qualifications, limitations and restrictions as are determined in a resolution
of the Acquiring Fund's Board. The Acquiring Fund currently has outstanding
shares of MuniPreferred as follows: Series M--2,080; Series W--2,080; and Series
F--2,196. If the Reorganization is approved, at the Effective Time, the
Acquiring Fund will issue to the Acquired Fund 2,200 shares of MuniPreferred,
Series T and 2,200 shares of MuniPreferred, Series TH, which the Acquired Fund
will then distribute to the holders of shares of Acquired Fund MuniPreferred,
Series T and Series TH, respectively. All shares of Acquiring Fund MuniPreferred
issued pursuant to the Reorganization will have a liquidation preference of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared).
The shares of Acquiring Fund MuniPreferred, Series T and Series TH, issued
pursuant to the Reorganization will rank on a parity with shares of any other
series of Acquiring Fund MuniPreferred, and with any other series of preferred
shares of the Acquiring Fund as to the payment of dividends and the distribution
of assets upon liquidation. All shares of Acquiring Fund MuniPreferred carry one
vote per share on all matters on which such shares are entitled to be voted.
Shares of Acquiring
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Fund MuniPreferred are, when issued, fully paid and, subject to the matters set
forth under "Certain Provisions in the Acquiring Fund's Declaration of Trust"
below, non-assessable and have no preemptive, conversion or exchange rights or
rights to cumulative voting.
DIVIDENDS AND DIVIDEND PERIODS
GENERAL. The Initial Rate Period of the shares of Acquiring Fund MuniPreferred,
Series T and Series TH, issued pursuant to the Reorganization will be a period
consisting of the number of days following the day on which the Effective Time
occurs that would have remained in the rate period of the shares of Acquired
Fund MuniPreferred, Series T or Series TH, in effect immediately prior to the
Effective Time. Any Subsequent Rate Period of shares of Acquiring Fund
MuniPreferred, Series T and Series TH, as well as any Subsequent Rate Period of
shares of outstanding Acquiring Fund MuniPreferred, Series M, Series W and
Series F will be a Minimum Rate Period (7 Rate Period Days), unless the
Acquiring Fund, subject to certain conditions, designates such Subsequent Rate
Period as a Special Rate Period. See "Designation of Special Rate Periods"
below.
Dividends on shares of each series of Acquiring Fund MuniPreferred shall be
payable, when, as and if declared by the Acquiring Fund's Board out of funds
legally available therefor in accordance with the Acquiring Fund's Declaration,
including the Acquiring Fund's Statement and applicable law, on shares of (a)
Acquiring Fund MuniPreferred, Series M, on each Tuesday; (b) Acquiring Fund
MuniPreferred Series T, on the first Wednesday following the end of the Initial
Rate Period thereof, and thereafter on each Wednesday; (c) Acquiring Fund
MuniPreferred, Series W, on each Thursday; (d) Acquiring Fund MuniPreferred,
Series TH, on the first Friday following the end of the Initial Rate Period
thereof, and thereafter on each Friday; and (e) Acquiring Fund MuniPreferred,
Series F, on each Monday; provided, however, that (i) if the Monday or the
Tuesday on which dividends would otherwise be payable as set forth above is not
a Business Day, then such Dividends shall be payable on such shares on the first
Business Day that falls after such Monday or Tuesday, as the case may be; (ii)
if the Wednesday, Thursday or Friday on which dividends would otherwise be
payable as set forth above is not a Business Day, then such dividends shall be
payable on such shares on the first Business Day that falls prior to such
Wednesday, Thursday or Friday, as the case may be; and (iii) the Acquiring Fund
may specify different Dividend Payment Dates in respect of any Special Rate
Period of more than 28 Rate Period Days.
The amount of dividends per share payable on shares of each series of Acquiring
Fund MuniPreferred on any date on which dividends shall be payable on shares of
such series shall be computed by multiplying the Applicable Rate for shares of
such series in effect for such Dividend Period or Dividend Periods or part
thereof for which dividends have not been paid by a fraction, the numerator of
which shall be the number of days in such Dividend Period or Dividend Periods or
part thereof and the denominator of which shall be 365 if such Dividend Period
consists of 7 Rate Period Days and 360 for all other Dividend Periods, and
applying the rate obtained against $25,000.
Dividends will be paid through the Securities Depository on each Dividend
Payment Date in accordance with its normal procedures, which currently provide
for it to distribute dividends in next-day funds to Agent Members, who in turn
are expected to distribute such dividend payments to the persons for whom they
are acting as agents. Each of the current Broker-Dealers, however, has indicated
to the Acquiring Fund that such Broker-Dealer or the Agent Member designated by
such Broker-Dealer will make such dividend payments available in same-day funds
on each Dividend Payment Date to customers that use such Broker-Dealer or its
designee as Agent Member.
Dividends on the shares of Acquiring Fund MuniPreferred, Series T and Series TH,
issued pursuant to the Reorganization shall accumulate from the day following
the day on which the Effective Time occurs. The dividend rate for such shares
for the Initial Rate Period thereof will be the dividend rate in effect
immediately prior to the Effective Time for the shares of Acquired Fund
MuniPreferred, Series T and Series TH, respectively. For each Subsequent Rate
Period of shares of Acquiring Fund MuniPreferred, Series M, Series T, Series W,
Series TH or Series F, the dividend rate will be the Applicable Rate for shares
of such series that the Auction Agent advises the Acquiring Fund results from an
Auction, except as provided below. The Applicable Rate that results from an
Auction for shares of either series of Acquiring Fund MuniPreferred will not be
greater than the Maximum Rate, which is:
(a) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period, the
product of (i) the Reference Rate on such Auction Date for the next Rate
Period of shares of such series and (ii) the Rate Multiple on such Auction
Date, unless shares of such series have or had a Special Rate Period (other
than a Special Rate Period of 28 Rate Period Days or fewer) and an Auction
at which Sufficient Clearing Bids existed has not yet occurred for a
Minimum Rate Period of shares of such series after such Special Rate
Period, in which case the higher of:
(A) the dividend rate on shares of such series for the then-ending Rate
Period; and
(B) the product of (x) the higher of (I) the Reference Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to the then-ending Rate Period of
shares of such series, if such then-ending Rate Period was more than 364
Rate Period
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Days, and (II) the Reference Rate on such Auction Date for a Rate Period
equal in length to such Special Rate Period of shares of such series, if
such Special Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period equal in
length to such Special Rate Period, if such Special Rate Period was more
than 364 Rate Period Days and (y) the Rate Multiple on such Auction
Date; or
(b) in the case of any Auction Date which is the Auction Date immediately
prior to the first day of any proposed Special Rate Period, the product of
(i) the highest of (x) the Reference Rate on such Auction Date for a Rate
Period equal in length to the then-ending Rate Period of shares of such
series, if such then-ending Rate Period was 364 Rate Period Days or fewer,
or the Treasury Note Rate on such Auction Date for a Rate Period equal in
length to the then-ending Rate Period of shares of such series, if such
then-ending Rate Period was more than 364 Rate Period Days, (y) the
Reference Rate on such Auction Date for the Special Rate Period for which
the Auction is being held if such Special Rate Period is 364 Rate Period
Days or fewer or the Treasury Note Rate on such Auction Date for the
Special Rate Period for which the Auction is being held if such Special
Rate Period is more than 364 Rate Period Days, and (z) the Reference Rate
on such Auction Date for Minimum Rate Periods and (ii) the Rate Multiple on
such Auction Date.
If an Auction for any Subsequent Rate Period of shares of either series of
Acquiring Fund MuniPreferred is not held for any reason other than as described
below, the dividend rate on shares of such series for such Subsequent Rate
Period will be the Maximum Rate for shares of such series on the Auction Date
for such Subsequent Rate Period.
If the Acquiring Fund fails to pay in a timely manner to the Auction Agent the
full amount of any dividend on, or the redemption price of, any shares of either
series of Acquiring Fund MuniPreferred during any Rate Period thereof (other
than any Special Rate Period of more than 364 Rate Period Days or any Rate
Period succeeding any Special Rate Period of more than 364 Rate Period Days
during which such a failure occurred that has not been cured), and, prior to
12:00 Noon on the third Business Day next succeeding the date such failure
occurred, such failure shall have been cured and the Acquiring Fund shall have
paid a late charge, as described more fully under "Description of MuniPreferred
Issued by the Acquiring Fund--Dividends--Determination of Dividend Rate" in the
Statement of Additional Information, no Auction will be held in respect of
shares of such series for the first Subsequent Rate Period thereof thereafter
and the dividend rate for shares of such series for such Subsequent Rate Period
will be the Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period.
If the Acquiring Fund fails to pay in a timely manner to the Auction Agent the
full amount of any dividend on, or the redemption price of, any shares of either
series of Acquiring Fund MuniPreferred during any Rate Period thereof (other
than any Special Rate Period of more than 364 Rate Period Days or any Rate
Period succeeding any Special Rate Period of more than 364 Rate Period Days
during which such a failure occurred that has not been cured), and, prior to
12:00 Noon on the third Business Day next succeeding the date on which such
failure occurred, such failure shall not have been cured or the Acquiring Fund
shall not have paid a late charge, as described more fully under "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--Determination of Dividend
Rate" in the Statement of Additional Information, no Auction will be held in
respect of shares of such series for the first Subsequent Rate Period thereof
thereafter (or for any Rate Period thereof thereafter to and including the Rate
Period during which such failure is so cured and such late charge so paid), and
the dividend rate for shares of such series for each such Subsequent Rate Period
shall be a rate per annum equal to the Maximum Rate on the Auction Date for
shares of such series for each such Subsequent Rate Period (but with the
prevailing rating for shares of such series, for purposes of determining such
Maximum Rate, being deemed to be "Below 'ba3'/BB-").
If the Acquiring Fund fails to pay in a timely manner to the Auction Agent the
full amount of any dividend on, or the redemption price of, any shares of either
series of Acquiring Fund MuniPreferred during a Special Rate Period thereof of
more than 364 Rate Period Days, or during any Rate Period thereof succeeding any
Special Rate Period of more than 364 Rate Period Days during which such a
failure occurred that has not been cured, and such failure shall not have been
cured or the Acquiring Fund shall not have paid a late charge, as described more
fully under "Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--Determination of Dividend Rate" in the Statement of Additional
Information, no Auction will be held in respect of shares of such series for
such Subsequent Rate Period thereof (or for any Rate Period thereof thereafter
to and including the Rate Period during which such failure is so cured and such
late charge so paid), and the dividend rate for shares of such series for each
such Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate
for shares of such series on the Auction Date for each such Subsequent Rate
Period (but with the prevailing rating for shares of such series, for purposes
of determining such Maximum Rate, being deemed to be "Below 'ba3'/BB-").
A failure to pay dividends on or the redemption price of shares of either series
of Acquiring Fund MuniPreferred shall have been cured with respect to any Rate
Period thereof if, within the respective time periods described under
"Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--Determination of Dividend Rate" in the Statement of Additional
Information, the Acquiring Fund shall have paid to the Auction Agent (a) all
accumulated and unpaid dividends on the shares of such series and (b) without
duplication, the redemption price for shares, if any, of such series for which
notice of redemption has been mailed by the Acquiring Fund; provided, however,
that the foregoing clause (b) shall not apply to the Acquiring Fund's failure to
pay the redemption price in respect of shares of Acquiring Fund MuniPreferred
when the related notice of redemption provides that redemption of such shares is
subject to one or more conditions precedent and any such
14
<PAGE> 21
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such notice of redemption.
GROSS-UP PAYMENTS. Holders of shares of Acquiring Fund MuniPreferred are
entitled to receive, when, as and if declared by the Acquiring Fund's Board, out
of funds legally available therefor in accordance with the Acquiring Fund's
Declaration, including the Acquiring Fund Statement and applicable law,
dividends in an amount equal to the aggregate Gross-up Payments in accordance
with the following:
If, in the case of any Minimum Rate Period or any Special Rate Period of 28 Rate
Period Days or fewer, the Acquiring Fund allocates any net capital gains or
other income taxable for Federal income tax purposes to a dividend paid on
shares of Acquiring Fund MuniPreferred without having given advance notice
thereof to the Auction Agent as described under "The Auction--Auction
Procedures" (a "Taxable Allocation") below solely by reason of the fact that
such allocation is made retroactively as a result of the redemption of all or a
portion of the outstanding shares of Acquiring Fund MuniPreferred or the
liquidation of the Acquiring Fund, the Acquiring Fund will, prior to the end of
the calendar year in which such dividend was paid, provide notice thereof to the
Auction Agent and direct the Acquiring Fund's dividend disbursing agent to send
such notice with a Gross-up Payment to each holder of shares (initially Cede &
Co., as nominee of the Securities Depository) that was entitled to such dividend
payment during such calendar year at such holder's address as the same appears
or last appeared on the record books of the Acquiring Fund.
If, in the case of any Special Rate Period of more than 28 Rate Period Days, the
Acquiring Fund makes a Taxable Allocation to a dividend paid on shares of
Acquiring Fund MuniPreferred, the Acquiring Fund shall, prior to the end of the
calendar year in which such dividend was paid, provide notice thereof to the
Auction Agent and direct the Acquiring Fund's dividend disbursing agent to send
such notice with a Gross-up Payment to each holder of shares that was entitled
to such dividend payment during such calendar year at such holder's address as
the same appears or last appeared on the record books of the Acquiring Fund.
The Acquiring Fund shall not be required to make Gross-up Payments with respect
to any net capital gains or other taxable income determined by the Internal
Revenue Service to be allocable in a manner different from that allocated by the
Acquiring Fund.
A "Gross-up Payment" means payment to a holder of shares of Acquiring Fund
MuniPreferred of an amount which, when taken together with the aggregate amount
of Taxable Allocations made to such holder to which such Gross-up Payment
relates, would cause such holder's dividends in dollars (after Federal, income
tax consequences) from the aggregate of such Taxable Allocations and the related
Gross-up Payment to be equal to the dollar amount of the dividends which would
have been received by such holder if the amount of the aggregate Taxable
Allocations had been excludable from the gross income of such holder. Such
Gross-up Payment shall be calculated: (a) without consideration being given to
the time value of money; (b) assuming that no holder of shares of Acquiring Fund
MuniPreferred is subject to the Federal alternative minimum tax with respect to
dividends received from the Acquiring Fund; and (c) assuming that each Taxable
Allocation and each Gross-up Payment (except to the extent such Gross-up Payment
is designated as an exempt-interest dividend under Section 852(b)(5) of the Code
or successor provisions) would be taxable in the hands of each holder of shares
of Acquiring Fund MuniPreferred at the maximum marginal regular Federal income
tax rate, if any, applicable to ordinary income (taking into account the Federal
income tax deductibility of state taxes paid or incurred) or net capital gains,
as applicable, or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income or net capital gains, as applicable, whichever is
greater, in effect during the calendar year in question.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. Except as otherwise described
herein, for so long as any shares of Acquiring Fund MuniPreferred are
outstanding, the Acquiring Fund may not declare, pay or set apart for payment
any dividend or other distribution (other than a dividend or distribution paid
in, or in options, warrants or rights to subscribe for or purchase, its common
shares) in respect of its common shares or call for redemption, redeem, purchase
or otherwise acquire for consideration any of its common shares (except by
conversion into or exchange for shares of the Acquiring Fund ranking junior to
the shares of Acquiring Fund MuniPreferred as to the payment of dividends and
the distribution of assets upon liquidation), unless (a) full cumulative
dividends on shares of each series of Acquiring Fund MuniPreferred through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent; (b) the Acquiring Fund shall have redeemed the full number of shares of
Acquiring Fund MuniPreferred required to be redeemed by any provision for
mandatory redemption pertaining thereto; and (c) immediately after such
transaction the Discounted Value of the Acquiring Fund's portfolio would at
least equal the MuniPreferred Basic Maintenance Amount in accordance with
guidelines of the rating agency or agencies then rating the shares of Acquiring
Fund MuniPreferred.
Except as set forth in the next sentence, no dividends shall be declared or paid
or set apart for payment on the shares of any class or series of Acquiring Fund
shares ranking, as to the payment of dividends, on a parity with shares of
Acquiring Fund MuniPreferred for any period unless full cumulative dividends
have been or contemporaneously are declared and paid on the shares of each
series of Acquiring Fund MuniPreferred through its most recent Dividend Payment
Date. When dividends are not paid in full upon the shares of each series of
Acquiring Fund MuniPreferred through its most recent Dividend Payment Date or
upon the shares of any other class or series of shares ranking on a parity as to
the payment of dividends with shares
15
<PAGE> 22
of Acquiring Fund MuniPreferred through their most recent respective dividend
payment dates, all dividends declared upon shares of Acquiring Fund
MuniPreferred and any such other class or series of shares ranking on a parity
as to the payment of dividends with shares of Acquiring Fund MuniPreferred shall
be declared pro rata so that the amount of dividends declared per share on
shares of Acquiring Fund MuniPreferred and such other class or series of shares
shall in all cases bear to each other the same ratio that accumulated dividends
per share on the shares of Acquiring Fund MuniPreferred and such other class or
series of shares bear to each other.
DESIGNATION OF SPECIAL RATE PERIODS
The Acquiring Fund, at its option, may designate any succeeding Subsequent Rate
Period of shares of either series of Acquiring Fund MuniPreferred as a Special
Rate Period consisting of a specified number of Rate Period Days evenly
divisible by seven and not more than 1,820 (approximately 5 years), subject to
certain adjustments. A designation of a Special Rate Period shall be effective
only if, among other things, (a) the Acquiring Fund shall have given certain
notices to the Auction Agent, (b) an Auction for shares of such series shall
have been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction and (c) if the Acquiring Fund shall
have mailed a notice of redemption with respect to any shares of such series,
the redemption price with respect to such shares shall have been deposited with
the Auction Agent.
VOTING RIGHTS
In addition to voting rights described under "Certain Provisions in the
Acquiring Fund's Declaration of Trust" and "Additional Information About the
Funds--Investment Objectives and Policies" below and in the Statement of
Additional Information under "Investment Objectives and Policies--Investment
Restrictions," holders of Acquiring Fund preferred shares, including shares of
Acquiring Fund MuniPreferred, voting as a separate class, are entitled to elect
(a) two trustees of the Acquiring Fund at all times and (b) a majority of the
trustees if at any time dividends on Acquiring Fund preferred shares shall be
unpaid in an amount equal to two years dividends thereon, and to continue to be
so represented until all dividends in arrears shall have been paid or otherwise
provided for. In all other cases, trustees shall be elected by holders of
Acquiring Fund common shares and preferred shares (including shares of Acquiring
Fund MuniPreferred), voting together as a single class. Except as otherwise
specified under "Certain Provisions in the Acquiring Fund's Declaration of
Trust" below, the Acquiring Fund may not, among other things, without the
approval of the holders of a "majority of the outstanding" shares of Acquiring
Fund MuniPreferred, voting as a separate class, approve any plan of
reorganization adversely affecting shares of Acquiring Fund MuniPreferred.
The Acquiring Fund may not, without the affirmative vote of the holders of at
least a majority of the shares of Acquiring Fund MuniPreferred outstanding at
the time (voting separately as one class): (a) authorize, create or issue any
class or series of shares ranking prior to or on a parity with the Acquiring
Fund MuniPreferred with respect to the payment of dividends or the distribution
of assets upon liquidation or increase the authorized amount of any series of
Acquiring Fund MuniPreferred or (b) amend, alter or repeal the provisions of the
Acquiring Fund's Declaration, including the Acquiring Fund Statement, whether by
merger, consolidation or otherwise, so as to affect any preference, right or
power of shares of Acquiring Fund MuniPreferred or the holders thereof. The
Acquiring Fund may not, without the affirmative vote of the holders of at least
66 2/3% of the shares of Acquiring Fund MuniPreferred outstanding at the time
(voting separately as one class) file a voluntary application for relief under
Federal bankruptcy law or any similar application under state law for so long as
the Acquiring Fund is solvent and does not foresee becoming insolvent.
Notwithstanding clause (a) of the first sentence of this paragraph, but subject
to the written confirmation from Moody's or S&P, or both, as appropriate, that
any such action would not impair the ratings then assigned to outstanding
Acquiring Fund MuniPreferred, the Acquiring Fund, without the vote or consent of
the holders of Acquiring Fund MuniPreferred, may from time to time authorize and
create, and the Acquiring Fund may from time to time issue additional shares of
any series of MuniPreferred or, classes or series of preferred stock ranking on
a parity with shares of Acquiring Fund MuniPreferred with respect to the payment
of dividends and the distribution of assets upon liquidation of the Acquiring
Fund; provided, however, that if Moody's or S&P is not then rating the shares of
MuniPreferred, the aggregate liquidation preference of all preferred stock of
the Acquiring Fund outstanding after any such issuance, exclusive of accumulated
and unpaid dividends, may not exceed $268,900,000 (after giving effect to the
Reorganization). For purposes of clause (b) of the first sentence of this
paragraph, (i) none of the actions permitted by the exception to clause (a) of
the first sentence of this paragraph will be deemed to affect such preferences,
rights or powers and (ii) the authorization, creation and issuance of classes or
series of stock ranking junior to shares of Acquiring Fund MuniPreferred with
respect to the payment of dividends and the distribution of assets upon
liquidation of the Acquiring Fund, will be deemed to affect such preferences,
rights or powers only if Moody's or S&P is then rating shares of Acquiring Fund
MuniPreferred and such issuance would, at the time thereof, cause the Acquiring
Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage or the
MuniPreferred Basic Maintenance Amount. If any action set forth above would
adversely affect the rights of one or more series of Acquiring Fund
Munipreferred in a manner different from any other series of Acquiring Fund
MuniPreferred, the Acquiring Fund will not approve any such action without the
affirmative vote of the holders of at least a majority of the shares of each
such series of Acquiring Fund MuniPreferred (voting separately as a class).
16
<PAGE> 23
REDEMPTION
MANDATORY REDEMPTION. In the event the Acquiring Fund does not timely cure a
failure to maintain (a) a Discounted Value of its portfolio equal to the
MuniPreferred Basic Maintenance Amount or (b) the 1940 Act MuniPreferred Asset
Coverage, in each case in accordance with the requirements of the rating agency
or agencies then rating the shares of Acquiring Fund MuniPreferred, shares of
Acquiring Fund MuniPreferred will be subject to mandatory redemption on a date
specified by the Acquiring Fund's Board, out of funds legally available therefor
in accordance with the Acquiring Fund's Declaration, including the Acquiring
Fund Statement and applicable law, at the redemption price of $25,000 per share
plus an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to (but not including) the date fixed for redemption. Any
such redemption will be limited to the number of shares of Acquiring Fund
MuniPreferred necessary to restore the required Discounted Value or the 1940 Act
MuniPreferred Asset Coverage, as the case may be.
OPTIONAL REDEMPTION. Shares of Acquiring Fund MuniPreferred of each series are
redeemable, at the option of the Acquiring Fund:
(a) as a whole or from time to time in part, on the second Business Day
preceding any Dividend Payment Date for shares of such series, out of funds
legally available therefor in accordance with the Acquiring Fund's
Articles, including the Acquiring Fund Statement and applicable law, at the
redemption price of $25,000 per share plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) to (but
not including) the date fixed for redemption; provided, however, that (i)
shares of such series may not be redeemed in part if after such partial
redemption fewer than 500 shares of such series would remain outstanding
and (ii) the notice establishing a Special Rate Period of shares of such
series, as delivered to the Auction Agent and filed with the Secretary of
the Acquiring Fund, may provide that shares of such series shall not be
redeemable during the whole or any part of such Special Rate Period (except
as provided in clause (b) below) or shall be redeemable during the whole or
any part of such Special Rate Period only upon payment of such redemption
premium or premiums as shall be specified therein; and
(b) as a whole but not in part, out of funds legally available therefor in
accordance with the Acquiring Fund's Declaration, including the Acquiring
Fund Statement and applicable law, on the first day following any Dividend
Period thereof included in a Rate Period of more than 364 Rate Period Days
if, on the date of determination of the Applicable Rate for shares of such
series for such Rate Period, such Applicable Rate equalled or exceeded on
such date of determination the Treasury Note Rate for such Rate Period, at
a redemption price of $25,000 per share plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) to (but
not including) the date fixed for redemption.
Notwithstanding the foregoing, if any dividends on shares of either series of
Acquiring Fund MuniPreferred (whether or not earned or declared) are in arrears,
no shares of such series shall be redeemed unless all outstanding shares of such
series are simultaneously redeemed, and the Acquiring Fund shall not purchase or
otherwise acquire any shares of such series; provided, however, that the
foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series pursuant to the successful completion of an otherwise
lawful purchase or exchange offer made on the same terms to, and accepted by,
holders of all outstanding shares of such series.
LIQUIDATION
Subject to the rights of holders of any series or class or classes of shares
ranking on a parity with shares of Acquiring Fund MuniPreferred with respect to
the distribution of assets upon liquidation of the Acquiring Fund, upon a
liquidation of the Acquiring Fund, whether voluntary or involuntary, the holders
of shares of Acquiring Fund MuniPreferred then outstanding will be entitled to
receive and to be paid out of the assets of the Acquiring Fund available for
distribution to its shareholders, before any payment or distribution shall be
made on the Acquiring Fund common shares, an amount equal to the liquidation
preference with respect to such shares ($25,000 per share), plus an amount equal
to all dividends thereon (whether or not earned or declared) accumulated but
unpaid to (but not including) the date of final distribution in same-day funds,
together with any applicable Gross-up Payments in connection with the
liquidation of the Acquiring Fund. After the payment to the holders of shares of
Acquiring Fund MuniPreferred of the full preferential amounts provided for as
described herein, the holders of shares of Acquiring Fund MuniPreferred as such
shall have no right or claim to any of the remaining assets of the Acquiring
Fund.
Neither the sale of all or substantially all the property or business of the
Acquiring Fund, nor the merger or consolidation of the Acquiring Fund into or
with any other corporation nor the merger or consolidation of any corporation
into or with the Acquiring Fund, shall be a liquidation, whether voluntary or
involuntary, for the purposes of the foregoing paragraph.
RATING AGENCY GUIDELINES
The Acquiring Fund is required under Moody's and S&P guidelines to maintain
assets having in the aggregate a Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount. Moody's and S&P have each established
separate guidelines for determining Discounted Value as described in the
Statement of Additional Information under "Description of MuniPreferred Issued
by the Acquiring Fund--Rating Agency Guidelines." To the extent any particular
portfolio holding does not satisfy the applicable rating agency's guidelines,
all or a portion of such holding's value will not be included in the
17
<PAGE> 24
calculation of Discounted Value (as defined by such rating agency). The Moody's
and S&P guidelines do not impose any limitations on the percentage of the
Acquiring Fund's assets that may be invested in holdings not eligible for
inclusion in the calculation of the Discounted Value of the Acquiring Fund's
portfolio. The amount of such assets included in the portfolio at any time may
vary depending upon the rating, diversification and other characteristics of the
eligible assets included in the portfolio, although it is not anticipated that
in the normal course of business the value of such assets would exceed 20% of
the Acquiring Fund's total assets. The MuniPreferred Basic Maintenance Amount
includes the sum of (a) the aggregate liquidation preference of shares of
Acquiring Fund MuniPreferred then outstanding and (b) certain accrued and
projected payment obligations of the Acquiring Fund.
The Acquiring Fund is also required under rating agency guidelines to maintain,
with respect to shares of Acquiring Fund MuniPreferred, as of the last Business
Day of each month in which any such shares are outstanding, asset coverage of at
least 200% with respect to senior securities which are shares, including
Acquiring Fund MuniPreferred (or such other asset coverage as may in the future
be specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are shares of a closed-end investment company as a condition of
declaring dividends on its common shares) ("1940 Act MuniPreferred Asset
Coverage"). Based on the composition of the respective portfolios of the
Acquiring Fund and the Acquired Fund and market conditions as of April 30, 1996,
1940 Act MuniPreferred Asset Coverage with respect to shares of Acquiring Fund
MuniPreferred, assuming the issuance on the date thereof of all shares of
Acquiring Fund MuniPreferred contemplated to be issued pursuant to the
Reorganization, would have been computed as follows:
<TABLE>
<S> <C> <C> <C> <C>
Value of Acquiring Fund assets less liabilities
not constituting senior securities $745,386,521
- ------------------------------------------------------ = ------------------ = 277%
Senior securities representing indebtedness plus $268,900,000
liquidation
value of the shares of Acquiring Fund MuniPreferred
</TABLE>
In the event the Acquiring Fund does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the MuniPreferred Basic Maintenance
Amount or (b) the 1940 Act MuniPreferred Asset Coverage, in each case in
accordance with the requirements of the rating agency or agencies then rating
the shares of Acquiring Fund MuniPreferred, the Acquiring Fund will be required
to redeem shares of Acquiring Fund MuniPreferred as described under
"Redemption-- Mandatory Redemption" above.
The Acquiring Fund may, but is not required to, adopt any modifications to the
guidelines that may hereafter be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
under "Rating Agency Considerations" above or a withdrawal of ratings
altogether. In addition, any rating agency providing a rating for the shares of
Acquiring Fund MuniPreferred may, at any time, change or withdraw any such
rating. The Acquiring Fund's Board may, without shareholder approval, amend,
alter or repeal any or all of the definitions and related provisions which have
been adopted by the Acquiring Fund pursuant to the rating agency guidelines in
the event the Acquiring Fund receives written confirmation from Moody's or S&P,
or both, as appropriate, that any such amendment, alteration or repeal would not
impair the ratings then assigned by Moody's and S&P to shares of Acquiring Fund
MuniPreferred.
As recently described by Moody's and S&P, a preferred share rating is an
assessment of the capacity and willingness of an issuer to pay preferred share
obligations. The ratings on the shares of Acquiring Fund MuniPreferred are not
recommendations to purchase, hold or sell those shares, inasmuch as the ratings
do not comment as to market price or suitability for a particular investor. The
rating agency guidelines described above also do not address the likelihood that
an owner of shares of Acquiring Fund MuniPreferred will be able to sell such
shares in an Auction or otherwise. The ratings are based on current information
furnished to Moody's and S&P by the Acquiring Fund and the Adviser and
information obtained from other sources. The ratings may be changed, suspended
or withdrawn as a result of changes in, or the unavailability of, such
information.
A rating agency's guidelines will apply to shares of Acquiring Fund
MuniPreferred only so long as such rating agency is rating such shares. The
Acquiring Fund will pay certain fees to Moody's or S&P, or both, for rating
shares of Acquiring Fund MuniPreferred.
THE AUCTION
GENERAL
The Acquiring Fund Statement provides that, except as otherwise described
herein, the Applicable Rate for the shares of each series of Acquiring Fund
MuniPreferred, including the shares of Acquiring Fund MuniPreferred, Series T
and Series TH, to be issued pursuant to the Reorganization, for each Rate Period
after the Initial Rate Period thereof shall be equal to the rate per annum that
the Auction Agent advises has resulted on the Business Day preceding the first
day of such Subsequent Rate Period (an "Auction Date") from implementation of
the auction procedures (the "Auction Procedures") set forth in the Acquiring
Fund Statement and summarized below, in which persons determine to hold or offer
to sell or, based on dividend rates bid by them, offer to purchase or sell
shares of such series. Each periodic implementation of the Auction Procedures is
referred to herein as an "Auction." See "Description of the Auctions for
MuniPreferred Issued by the Acquiring Fund" in the
18
<PAGE> 25
Statement of Additional Information for a more complete description of the
Auction process and Annex B to the Statement of Additional Information for the
Auction Procedures.
AUCTION PROCEDURES
Prior to the Submission Deadline on each Auction Date for shares of a series of
Acquiring Fund MuniPreferred, each customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of such series (a "Beneficial Owner") may submit orders
("Orders") with respect to shares of such series to that Broker-Dealer as
follows:
- - Hold Order--indicating its desire to hold shares of such series without regard
to the Applicable Rate for shares of such series for the next Rate Period
thereof.
- - Bid--indicating its desire to sell shares of such series at $25,000 per share
if the Applicable Rate for shares of such series for the next Rate Period
thereof is less than the rate specified in such Bid (also known as a
hold-at-a-rate order).
- - Sell Order--indicating its desire to sell shares of such series at $25,000 per
share without regard to the Applicable Rate for shares of such series for the
next Rate Period thereof.
A Beneficial Owner may submit different types of Orders to its Broker-Dealer
with respect to shares of a series of Acquiring Fund MuniPreferred then held by
such Beneficial Owner. A Beneficial Owner of shares of such series that submits
a Bid with respect to shares of such series to its Broker-Dealer having a rate
higher than the Maximum Rate for such shares on the Auction Date therefor will
be treated as having submitted a Sell Order with respect to shares of such
series to its Broker-Dealer. A Beneficial Owner of shares of such series that
fails to submit an Order with respect to such shares of such series to its
Broker-Dealer will be deemed to have submitted a Hold Order for shares of such
series to its Broker-Dealer; provided, however, that if a Beneficial Owner of
shares of such series fails to submit an Order with respect to shares of such
series to its Broker-Dealer for an Auction relating to a Rate Period of more
than 28 Rate Period Days, such Beneficial Owner will be deemed to have submitted
a Sell Order with respect to such shares to its Broker-Dealer. A Sell Order
shall constitute an irrevocable offer to sell the shares of Acquiring Fund
MuniPreferred subject thereto. A Beneficial Owner that offers to become the
Beneficial Owner of additional shares of Acquiring Fund MuniPreferred is, for
purposes of such offer, a Potential Beneficial Owner as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of shares of a
series of Acquiring Fund MuniPreferred but that wishes to purchase shares of
such series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series (in each case, a "Potential
Beneficial Owner"), may submit Bids to its Broker-Dealer in which it offers to
purchase shares of such series at $25,000 per share if the Applicable Rate for
shares of such series for the next Rate Period thereof is not less than the rate
specified in such Bid. A Bid placed by a Potential Beneficial Owner of shares of
such series specifying a rate higher than the Maximum Rate for shares of such
series on the Auction Date therefor will not be accepted.
The Broker-Dealers in turn will submit the Orders of their respective customers
who are Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating themselves (unless otherwise permitted by the Acquiring Fund) as
Existing Holders in respect of shares subject to Orders submitted or deemed
submitted to them by Beneficial Owners and as Potential Holders in respect of
shares subject to Orders submitted to them by Potential Beneficial Owners.
However, neither the Acquiring Fund nor the Auction Agent will be responsible
for a Broker-Dealer's failure to comply with the foregoing. Any Order placed
with the Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder
or a Potential Holder will be treated in the same manner as an Order placed with
a Broker-Dealer by a Beneficial Owner or Potential Beneficial Owner. Similarly,
any failure by a Broker-Dealer to submit to the Auction Agent an Order in
respect of any shares of Acquiring Fund MuniPreferred held by it or customers
who are Beneficial Owners will be treated in the same manner as a Beneficial
Owner's failure to submit to its Broker-Dealer an Order in respect of shares of
Acquiring Fund MuniPreferred held by it. A Broker-Dealer may also submit Orders
to the Auction Agent for its own account as an Existing Holder or Potential
Holder, provided it is not an affiliate of the Acquiring Fund.
If Sufficient Clearing Bids for shares of a series of Acquiring Fund
MuniPreferred exist (that is, the number of shares of such series subject to
Bids submitted or deemed submitted to the Auction Agent by Broker-Dealers as or
on behalf of Potential Holders with rates equal to or lower than the Maximum
Rate for shares of such series is at least equal to the number of shares of such
series subject to Sell Orders submitted or deemed submitted to the Auction Agent
by Broker-Dealers as or on behalf of Existing Holders), the Applicable Rate for
shares of such series for the next succeeding Rate Period thereof will be the
lowest rate specified in the Submitted Bids which, taking into account such rate
and all lower rates bid by Broker-Dealers as or on behalf of Existing Holders
and Potential Holders, would result in Existing Holders and Potential Holders
owning all the shares of such series available for purchase in the Auction. If
Sufficient Clearing Bids for shares of a series of Acquiring Fund MuniPreferred
do not exist, the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof will be the Maximum Rate for shares of such
series on the Auction Date therefor. In such event, Beneficial Owners of shares
of such series that have submitted or are deemed to have submitted Sell Orders
may not be able to sell in such Auction all shares of such series subject to
such Sell Orders. If Broker-Dealers submit or are deemed to have submitted to
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the Auction Agent Hold Orders with respect to all Existing Holders of shares of
a series of Acquiring Fund MuniPreferred, the Applicable Rate for shares of such
series for the next succeeding Rate Period thereof will be the All Hold Order
Rate.
The Auction Procedures include a pro rata allocation of shares for purchase and
sale, which may result in an Existing Holder continuing to hold or selling, or a
Potential Holder purchasing, a number of shares of a series of Acquiring Fund
MuniPreferred that is fewer than the number of shares of such series specified
in its Order. To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as Existing Holders or Potential
Holders in respect of customer Orders will be required to make appropriate pro
rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next Business Day (also a
Dividend Payment Date) after the Auction Date through the Securities Depository.
Purchasers will make payment through their Agent Members in same-day funds to
the Securities Depository against delivery to their respective Agent Members.
The Securities Depository will make payment to the sellers' Agent Members in
accordance with the Securities Depository's normal procedures, which now provide
for payment against delivery by their Agent Members in same-day funds. The
settlement procedures to be used with respect to Auctions for shares of
Acquiring Fund MuniPreferred are set forth in Annex C to the Statement of
Additional Information.
The first Auction for shares of Acquiring Fund MuniPreferred, Series T and
Series TH, will be held on the Business Day first preceding the Dividend Payment
Date for the Initial Rate Period of such series. See "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends and Dividend
Periods--General." Thereafter, Auctions for shares of such series will normally
be held every Tuesday and Thursday, respectively, and each Subsequent Rate
Period of shares of such series will normally begin on the following Wednesday
and Friday, respectively.
Whenever the Acquiring Fund intends to include any net capital gains or other
income taxable for Federal income tax purposes in any dividend on shares of
Acquiring Fund MuniPreferred, the Acquiring Fund shall, in the case of Minimum
Rate Periods or Special Rate Periods of 28 Rate Period Days or fewer, and may,
in the case of any other Special Rate Period, notify the Auction Agent of the
amount to be so included not later than the Dividend Payment Date next preceding
the Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Acquiring
Fund, it will be required in turn to notify each Broker-Dealer, who, on or prior
to such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its customers who are Beneficial Owners and Potential
Beneficial Owners believed by it to be interested in submitting an Order in the
Auction to be held on such Auction Date.
SECONDARY MARKET TRADING AND TRANSFER OF ACQUIRING FUND MUNIPREFERRED
The Broker-Dealers maintain a secondary trading market in shares of Acquiring
Fund MuniPreferred outside of Auctions, but are not obligated to do so, and may
discontinue such activity at any time. There can be no assurance that such
secondary trading market in shares of Acquiring Fund MuniPreferred will provide
owners with liquidity of investment. The shares of Acquiring Fund MuniPreferred
are not registered on any stock exchange or on the National Association of
Securities Dealers Automated Quotations System. Investors who purchase shares in
an Auction for a Special Rate Period should note that because the dividend rate
on such shares will be fixed for the length of such Rate Period, the value of
the shares may fluctuate in response to changes in interest rates, and may be
more or less than their original cost if sold on the open market in advance of
the next Auction therefor, depending upon market conditions.
Unless otherwise permitted by the Acquiring Fund, a Beneficial Owner or an
Existing Holder may sell, transfer or otherwise dispose of shares of a series of
Acquiring Fund MuniPreferred only in whole shares and only pursuant to a Bid or
Sell Order placed with the Auction Agent in accordance with the Auction
Procedures or to a Broker-Dealer; provided, however, that in the case of all
transfers other than pursuant to Auctions, (i) any such Beneficial Owner or any
such Existing Holder that is not a Broker-Dealer shall advise its Broker-Dealer
of such transfer, who in turn shall advise the Auction Agent of such transfer
and (ii) any such Existing Holder that is a Broker-Dealer shall advise the
Auction Agent of such transfer.
COMPARISON OF RIGHTS OF HOLDERS OF MUNIPREFERRED OF THE
ACQUIRING FUND AND THE ACQUIRED FUND
The terms of the shares of Acquiring Fund MuniPreferred, Series T and Series TH,
issued pursuant to the Reorganization will be substantially similar to the
outstanding shares of Acquired Fund MuniPreferred, Series T and Series TH,
except that under the Acquired Fund Statement, the Board of the Acquired Fund
does not have the authority to issue additional shares of an existing series of
Acquired Fund MuniPreferred without the approval of holders of shares of such
existing series and the Acquiring Fund does not have dissenters' rights of
appraisal.
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF
THE ACQUIRING FUND AND THE ACQUIRED FUND
GENERAL
Each Fund's primary investment objective is to provide, through investment in a
professionally managed portfolio of tax-exempt Municipal Obligations, current
income exempt from regular Federal income tax, consistent with the Fund's
investment policies. The secondary investment objective of each Fund is the
enhancement of portfolio value relative to the
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municipal bond market through investments in tax-exempt Municipal Obligations
that, in the opinion of the Adviser, are underrated or undervalued or that
represent municipal market sectors that are undervalued. This secondary
investment objective will ordinarily involve purchase by each Fund of (1)
underrated or undervalued uninsured Municipal Objections, which would then be
covered by insurance, or (2) undervalued insured Municipal Obligations. See
"Portfolio Investments." Underrated Municipal Obligations are those whose
ratings do not, in the Adviser's opinion, reflect their true value. Municipal
Obligations may be underrated because of the time that has elapsed since their
most recent rating, or because of positive factors that may not have been fully
taken into account by rating agencies, or for other similar reasons. Municipal
Obligations that are undervalued or that represent undervalued municipal market
sectors are Municipal Obligations that, in the Adviser's opinion, are worth more
than the value assigned to them in the marketplace. Municipal Obligations of
particular types or purposes (e.g., hospital bonds, industrial revenue bonds or
bonds issued by a particular municipal issuer) may be undervalued because there
is a temporary excess of supply in that market sector, or because of a general
decline in the market price of Municipal Obligations of the market sector for
reasons that do not apply to the particular Municipal Obligations that are
considered undervalued. Each Fund's investment in underrated or undervalued
Municipal Obligations will be based on the Adviser's belief that the prices of
such Municipal Obligations should ultimately reflect their true value.
Accordingly, "enhancement of portfolio value relative to the municipal bond
market" refers to each Fund's objective of attempting to realize above-average
capital appreciation in a rising market, and to experience less than average
capital losses in a declining market. Thus, each Fund's secondary investment
objective is not intended to suggest that capital appreciation is itself an
objective of each Fund. Instead, each Fund will seek enhancement of portfolio
value relative to the municipal bond market by prudent selection of Municipal
Obligations, regardless of which direction the market may move. Each Fund's
policy of investing in insured Municipal Obligations may limit the extent to
which it will be able to achieve its secondary investment objective. Any capital
appreciation realized by a Fund will generally result in the distribution of
taxable capital gains to Fund shareholders. Each Fund is currently required to
allocate net capital gains and other income taxable for Federal income tax
purposes, if any, proportionately between its common shares and shares of
MuniPreferred. See "Tax Matters Associated with Investment in the Funds" and
"Proposal No. 1--The Reorganization--The Auction--Auction Procedures."
PORTFOLIO INVESTMENTS
Except to the extent either Fund invests in temporary investments as described
below and more fully in the Statement of Additional Information, each Fund will,
as a fundamental policy, invest all of its assets in tax-exempt Municipal
Obligations which are either covered by insurance guaranteeing the timely
payment of principal and interest thereon or backed by an escrow or trust
account containing sufficient U.S. Government or U.S. Government agency
securities to ensure timely payment of principal and interest. Municipal
Obligations backed by an escrow account or trust account will not constitute
more than 20% of each Fund's assets.
Each insured Municipal Obligation held by a Fund will either be covered by a
separate insurance policy applicable to a specific security, whether obtained by
the issuer of the security or by a third party at the time of original issuance
("Original Issue Insurance") or by the Fund or a third party subsequent to the
time of original issuance ("Secondary Market Insurance"), or covered by a master
municipal obligation guaranty insurance policy purchased by a Fund ("Portfolio
Insurance"). Each Fund, depending on the availability of such policies on terms
favorable to the Fund, may determine not to obtain Portfolio Insurance and to
emphasize investments in Municipal Obligations insured under Original Issue
Insurance or Secondary Market Insurance. Original Issue Insurance, Secondary
Market Insurance and Portfolio Insurance do not guarantee (1) the payment of
principal of and interest on Municipal Obligations on an accelerated basis in
the event of a default thereunder, (2) the value of the common shares of a Fund
or (3) the market value of a Fund's Municipal Obligations. Municipal Obligations
insured under Original Issue Insurance or Secondary Market Insurance are insured
for the remaining term of the security, whereas Municipal Obligations insured
under Portfolio Insurance remain insured only so long as they are held by a
Fund. In any event, each Fund has obtained and in the future will only obtain
Portfolio Insurance issued by insurers whose claims-paying ability is rated
"Aaa" by Moody's or "AAA" by S&P. There is no limitation on the percentage of
each Fund's assets that may be invested in Municipal Obligations insured by an
insurer. A more detailed description of each Fund's portfolio investments and
bond insurance is included under "Investment Objectives and Policies of the
Funds-- Portfolio Investments" and "--Bond Insurance" in the Statement of
Additional Information.
The foregoing investment objectives and policies are fundamental policies of
each Fund and may not be changed without the approval of the holders of a
"majority of the outstanding" common shares and preferred shares of that Fund,
including shares of that Fund's MuniPreferred, voting together as a single
class, and of the holders of a "majority of the outstanding" preferred shares of
the Fund, including shares of that Fund's MuniPreferred, voting as a separate
class. For purposes of the foregoing, "Investment Restrictions" below, and the
first paragraph under "Proposal No. 1--The Reorganization-- Description of
MuniPreferred Issued by the Acquiring Fund--Voting Rights" above, "majority of
the outstanding," when used with respect to particular shares of a Fund, means
(a) 67% or more of the shares present at a meeting, if the holders of more than
50% of the shares are present or represented by proxy, or (b) more than 50% of
the shares, whichever is less.
Each Fund emphasizes investments in Municipal Obligations with long-term
maturities in order to maintain an average portfolio maturity of 20-30 years,
but the average maturity may be shortened from time to time depending on market
conditions. Moreover, during temporary defensive periods, and in order to keep
cash on hand fully invested, each Fund may
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invest any percentage of its assets in temporary investments, the income on
which may be either tax-exempt or taxable. Each Fund intends to invest in
taxable temporary investments only in the event that suitable tax-exempt
temporary investments are not available at reasonable prices and yields. Among
the taxable temporary investments in which the Funds may invest are repurchase
agreements.
A substantial portion of the income produced by each Fund may be includable in
alternative minimum taxable income in respect of that Fund.
MUNICIPAL OBLIGATIONS
"Municipal Obligations" are debt obligations issued by states, cities and local
authorities, and certain possessions and territories of the United States, to
obtain funds for various public purposes, including the construction and
maintenance of such public facilities as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Obligations may be issued include the
refinancing of outstanding obligations and the obtaining of funds for general
operating expenses and for loans to other public institutions and facilities. In
addition, certain industrial development, private activity and pollution control
bonds may be included within the term Municipal Obligations if the interest paid
thereon qualifies as exempt from regular Federal income tax. The two principal
classifications of Municipal Obligations are "general obligation" and "revenue"
bonds. General obligation bonds are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds (e.g., industrial development bonds) are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source.
Also included within the general category of Municipal Obligations are
participations in lease obligations or installment purchase contract obligations
of municipal authorities or entities.
The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal Obligation
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The market value of Municipal Obligations will vary
with changes in prevailing interest rate levels and as a result of changing
evaluations of the ability of their issuers to meet interest and principal
payments.
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and delivery beyond the regular
settlement date. On such transactions the payment obligation is fixed at the
time the buyer enters into the commitment. This involves an element of risk to a
Fund when it is the buyer because at the time of delivery the market value of
the Municipal Obligations may be less than such Fund's payment obligation. Each
Fund is required under the rules of the Commission to maintain in a segregated
account liquid assets, consisting of cash, U.S. government securities or other
high grade debt obligations, equal in value to the purchase price due on the
settlement date. Income generated by assets in such a segregated account of a
Fund may be taxable to shareholders of that Fund.
INVESTMENT RESTRICTIONS
Except as described below, neither Fund, as a fundamental policy, may, without
the approval of the holders of a "majority of the outstanding" common shares and
preferred shares of such Fund, including shares of its MuniPreferred, voting
together as a single class, and of the holders of a "majority of the
outstanding" preferred shares of such Fund, including shares of its
MuniPreferred, voting as a separate class:
(1) Issue senior securities, as defined in the 1940 Act, other than
preferred shares, except to the extent such issuance might be involved with
respect to borrowings described under subparagraph (3) under "Investment
Objectives and Policies--Investment Restrictions" in the Statement of
Additional Information or with respect to transactions involving futures
contracts or the writing of options within the limits described in the
Statement of Additional Information under "Certain Trading Strategies of
the Funds--Financial Futures and Options Transactions;"
(2) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitation shall not apply
to Municipal Obligations other than those Municipal Obligations backed only
by the assets and revenues of non-governmental users, nor shall it apply to
Municipal Obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities;
(3) Invest in securities other than Municipal Obligations and temporary
investments as described in the Statement of Additional Information under
"Investment Objectives and Policies--Portfolio Investments," or purchase
financial futures and options except for futures and options that represent
no more than 10% of the Fund's total assets and are otherwise within the
limits described in the Statement of Additional Information under "Certain
Trading Strategies of the Funds--Financial Futures and Options
Transactions;" or
(4) Invest more than 5% of its total assets in securities of any one
issuer, except that this limitation shall not apply to securities of the
U.S. government, its agencies and instrumentalities or to the investment of
25% of its total assets.
Notwithstanding subparagraphs (1) and (3) above, restrictions imposed by Moody's
or S&P, or both, on engaging in futures and options transactions, as described
in the Statement of Additional Information under "Certain Trading Strategies of
the
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Funds--Financial Futures and Options Transactions," are not fundamental policies
and may be changed by a Fund from time to time without shareholder approval;
provided, however, that if Moody's or S&P, or both, are rating the shares of
that Fund's MuniPreferred, that Fund must receive written confirmation from
Moody's or S&P, or both, as appropriate, that such change would not impair the
ratings then assigned by Moody's and S&P to such shares. See "Investment
Objectives and Policies--Investment Restrictions" in the Statement of Additional
Information for a description of additional fundamental investment policies of
each Fund.
CERTAIN PROVISIONS IN THE ACQUIRING FUND'S DECLARATION OF TRUST
Under Massachusetts law, shareholders of the Acquiring Fund could, under certain
circumstances, be held personally liable for the obligations of that Fund.
However, the Acquiring Fund's Declaration contains an express disclaimer of
shareholder liability for acts or obligations of the Acquiring Fund and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Acquiring Fund or the trustees. The
Acquiring Fund's Declaration further provides for indemnification out of the
assets and property of that Fund for all loss and expense of any shareholder
held personally liable for the obligations of the Acquiring Fund. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Acquiring Fund would be unable to meet its
obligations. The Acquiring Fund believes that the likelihood of such
circumstances is remote.
The Acquiring Fund's Declaration provides that the obligations of that Fund are
not binding upon the trustees individually, but only upon the assets and
property of the Acquiring Fund, and that the trustees shall not be liable for
errors of judgment or mistakes of fact or law. Nothing in the Acquiring Fund's
Declaration, however, protects a trustee against any liability 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.
The Acquiring Fund's Declaration includes provisions that could have the effect
of limiting the ability of other entities or persons to acquire control of the
Acquiring Fund. Specifically, the Acquiring Fund's Declaration requires the
affirmative vote of the holders of at least 66 2/3% of the Acquiring Fund's
common shares and preferred shares (including shares of Acquiring Fund
MuniPreferred) outstanding at the time, voting together as a single class,
except as described below, to authorize any of the following transactions:
(a) conversion of the Acquiring Fund from a closed-end to an open-end
investment company,
(b) a merger or consolidation of the Acquiring Fund with any corporation or
a reorganization or recapitalization of the Acquiring Fund,
(c) a sale, lease or transfer of all or substantially all of the Acquiring
Fund's assets (other than in the regular course of the Acquiring Fund's
investment activities), or
(d) termination of the trust established by the Acquiring Fund's
Declaration,
unless such transaction has been authorized by the affirmative vote of 66 2/3%
of the total number of trustees fixed in accordance with the Acquiring Fund's
Declaration or By-Laws, in which case the affirmative vote of the holders of at
least a majority of the Acquiring Fund's common shares and preferred shares
(including shares of Acquiring Fund MuniPreferred outstanding at the time),
voting together as a single class, is required. In the case of the conversion of
the Acquiring Fund to an open-end investment company, or in the case of any of
the foregoing transactions constituting a plan of reorganization which adversely
affects the holders of preferred shares of the Acquiring Fund (including shares
of Acquiring Fund MuniPreferred), the action in question will also require the
approval of the holders of 66 2/3% of the preferred shares of the Acquiring Fund
(including shares of Acquiring Fund MuniPreferred) outstanding at the time,
voting as a separate class; provided, however, that such separate class vote
shall be a majority vote if the transaction has been authorized by the
affirmative vote of 66 2/3% of the total number of trustees fixed in accordance
with the Acquiring Fund's Declaration or By-Laws. The vote required to approve
the conversion of the Acquiring Fund from a closed-end to an open-end investment
company or to approve a transaction constituting a plan of reorganization which
adversely affects the holders of preferred shares of the Acquiring Fund is
higher than that required by the 1940 Act. The Acquiring Fund's Board believes
that the provisions of the Acquiring Fund's Declaration relating to such higher
vote are in the best interests of the Acquiring Fund and its shareholders.
Reference should be made to the Acquiring Fund's Declaration on file with the
Commission for the full text of these provisions, which could have the effect of
depriving shareholders of the Acquiring Fund of an opportunity to sell their
shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Acquiring Fund.
SURRENDER AND EXCHANGE OF ACQUIRED FUND SHARE CERTIFICATES
After the Effective Time, each holder of an outstanding certificate or
certificates formerly representing common shares or shares of MuniPreferred of
the Acquired Fund ("Acquired Fund Shares") will be entitled to receive, upon
surrender of his or her certificates, a certificate or certificates representing
the number of Acquiring Fund Shares distributable with respect to such holder's
Acquired Fund Shares, together with cash in lieu of any fractional Acquiring
Fund common share. Promptly
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after the Effective Time, the Transfer Agent will mail to each holder of
certificates formerly representing Acquired Fund Shares a letter of transmittal
for use in surrendering his or her certificates for certificates representing
Acquiring Fund Shares and cash in lieu of any fractional Acquiring Fund common
share.
Please do not send in any share certificates at this time. Upon consummation of
the Reorganization, holders of Acquired Fund Shares will be furnished
instructions for exchanging their Acquired Fund Share certificates for Acquiring
Fund Share certificates and, if applicable, cash in lieu of fractional Acquiring
Fund common shares.
From and after the Effective Time, certificates formerly representing Acquired
Fund Shares will be deemed for all purposes to evidence ownership of the number
of full Acquiring Fund common shares or shares of Acquiring Fund MuniPreferred,
Series T or Series TH, as the case may be, distributable with respect to such
Acquired Fund Shares in the Reorganization, provided that until such Acquired
Fund Share certificates have been so surrendered, no dividends payable to the
holders of record of Acquiring Fund Shares as of any date subsequent to the
liquidation of the Acquired Fund are required to be paid to the holders of such
outstanding Acquired Fund Share certificates, unpaid dividends on Acquiring Fund
Shares to holders of record as of any date after the liquidation of the Acquired
Fund and prior to the exchange of certificates by any Acquired Fund shareholder
will be paid to such shareholder, without interest, at the time such shareholder
surrenders his or her Acquired Fund Share certificates for exchange.
From and after the Effective Time, there will be no transfers on the record
transfer books of the Acquired Fund. If, after the Effective Time, certificates
representing Acquired Fund Shares are presented to the Acquired Fund, they will
be cancelled and exchanged for certificates representing the Acquiring Fund
Shares and, if applicable, the cash in lieu of fractional Acquiring Fund common
shares distributable with respect to such Acquired Fund Shares in the
Reorganization.
EXPENSES ASSOCIATED WITH THE REORGANIZATION
In evaluating the Reorganization, management of the Funds estimated the amount
of expenses the Funds would incur to be $320,423, which includes additional
stock exchange listing fees, Commission registration fees, legal and accounting
fees and proxy and distribution costs. The aggregate amount of incremental
expenses due to the Reorganization (estimated to be $320,423) are to be
allocated between the Acquiring Fund (70.2%) and the Acquired Fund (29.8%) based
upon estimated savings to each Fund as a result of expected reduced operating
expenses resulting from the Reorganization.
Reorganization expenses of the Acquiring Fund and the Acquired Fund have been or
will be expensed prior to the Effective Time. Management of the Funds expects
that reduced operating expenses resulting from the Reorganization should allow
the Acquiring Fund to recover the projected costs of the Reorganization within
approximately 22 months after the Effective Time.
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Under Massachusetts law and the Declaration of the Acquiring Fund, shareholders
of the Acquiring Fund do not have dissenters' rights of appraisal with respect
to the Reorganization. Under Minnesota law, shareholders of the Acquired Fund
have dissenters' rights of appraisal with respect to the Reorganization.
GENERAL
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act provide
for rights of shareholders to dissent and obtain payment in cash of the "fair
value" of their shares, as defined in the statute, in the event of a sale of
substantially all of the assets of a Minnesota corporation. The procedures for
asserting dissenters' rights are set forth in such sections, the full texts of
which are reprinted as Annex B to this Joint Proxy Statement-Prospectus.
Shareholders of the Acquired Fund who wish to assert their dissenters' rights
must fully comply with the statutory requirements in order to preserve the right
to obtain payment for their shares under the statute. The following summary of
the applicable provisions of Section 302A.471 and 302A.473 is not intended to be
a complete statement of such provisions and is qualified in its entirety by
reference to such Sections.
PROCEDURE
Any shareholder of the Acquired Fund who wishes to dissent and obtain payment
for his or her shares (a) must file with the Acquired Fund prior to the
shareholder vote with respect to the Agreement at the Annual Meeting, a written
notice stating the shareholder's intention to demand payment of the fair value
of his or her shares if the Reorganization is effectuated and (b) must not vote
his or her shares in favor of approval of the Agreement. Such notice must be
filed at the offices of the Acquired Fund at Attention: Secretary, 333 West
Wacker Drive, Chicago, Illinois 60606. A vote against approval of the Agreement
does not in itself constitute the required written notice described in (a)
above. A shareholder must satisfy requirement (b) above either by voting against
approval of the Agreement in person or by proxy at the Annual Meeting or by
abstaining from voting his or her shares. The shareholder can so abstain by not
voting in favor of approval of the Agreement at the Annual Meeting and either
(i) not signing and returning the proxy card or (ii) marking the space
indicating "Abstain" on the proxy card. If a shareholder returns a signed proxy
card, unless such proxy card indicates that the shareholder wishes
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<PAGE> 31
to abstain or vote against approval of the Agreement, such shareholder's shares
will be voted in favor of approval of the Agreement, and such shareholder will
not be permitted to dissent.
A shareholder of the Acquired Fund may not assert dissenters' rights as to less
than all of the shares registered in such holder's name, except in the situation
in which certain shares are beneficially owned by another person but registered
in such holder's name. If a shareholder wishes to dissent with respect to shares
beneficially owned by another person, such shareholder must dissent with respect
to all such shares and disclose the name and address of the beneficial owner on
whose behalf the holder is dissenting. A beneficial owner who is not the
shareholder of record may assert dissenters' rights with respect to all of his
or her shares if the beneficial owner submits a written consent of the
shareholder of record at the time of or prior to the assertion of such
dissenters' rights.
If the Agreement is approved by the requisite shareholder vote, the Acquired
Fund will be required to mail a notice to each Acquired Fund shareholder who
filed a written notice of intent to demand payment and refrained from voting in
favor of approval of the Agreement. The notice shall state when and where a
demand for payment shall be sent and share certificates shall be deposited in
order to obtain payment. The notice shall also include a form to be completed by
the shareholder for demanding payment and certifying the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder is
dissenting, acquired the shares. In order to receive the fair value of his or
her shares, a dissenting shareholder must demand payment and deposit his or her
share certificates within 30 days after the notice is mailed by the Acquired
Fund. A shareholder who fails to demand payment or fails to deposit share
certificates, as required by such notice, shall have no right to receive payment
for his or her shares under the dissenters' rights provisions.
After the Reorganization takes effect or after receipt of a valid demand for
payment, whichever is later, the Acquired Fund shall remit to each shareholder
who has made such demand of the Acquired Fund and deposited his or her share
certificates, the amount that the Acquired Fund estimates to be the fair value
of the shares, plus any interest that may have accrued commencing five days
after the Effective Time up to and including the date of payment at the judgment
rate of interest then in effect under Minnesota law (currently 5% per annum).
The Acquired Fund shall also include with such remittance, along with certain
financial statements of the Acquired Fund, a brief description of the method
used to reach the estimated fair value of the shares of the Acquired Fund. As
used in Section 302A.473, the term "fair value of the shares" means the value of
the shares immediately before the Effective Time.
The Acquired Fund may withhold any remittance from a dissenting shareholder who
was not a shareholder (or who is dissenting on behalf of a person who was not a
beneficial owner) on April 24, 1996, the date of the first public announcement
of the Reorganization, if the Acquired Fund (a) provides to such shareholder,
along with the materials described in the preceding paragraph, a statement of
the reason for withholding the remittance and (b) offers to pay the fair value
of the shares, plus interest, if the dissenting shareholder agrees to accept
that amount in full satisfaction. The dissenting shareholder may decline the
offer and demand payment as described below. Failure to make such demand
entitles the dissenting shareholder only to the amount offered by the Acquired
Fund.
If a dissenting shareholder of the Acquired Fund believes that the amount
remitted (or the amount offered in the case of certain dissenting shareholders)
by the Acquired Fund is less than the fair value of his or her shares of the
Acquired Fund, plus interest, the shareholder may, within 30 days after the
mailing date of the remittance (or the offer), give written notice to the
Acquired Fund of his or her own estimate of the fair value of the shares of the
Acquired Fund, plus interest, and demand payment of the difference. If the
shareholder fails to do so, the shareholder is entitled only to the amount
remitted (or offered).
If the Acquired Fund receives a demand for supplemental payment from any
dissenting shareholder, it shall, within 60 days after receipt of such demand,
either (a) pay to the dissenter the amount demanded or agreed to by the
dissenter after settlement discussions or (b) file in a court of competent
jurisdiction in Hennepin County, Minnesota, a petition requesting that the court
determine the fair value of the shares, plus interest. All shareholders of the
Acquired Fund whose demands have not been settled with the Acquired Fund shall
be made parties to the proceeding. The court shall determine whether each such
dissenting shareholder has complied with all statutory requirements and shall
determine the fair value of the shares, taking into account any and all factors
the court finds relevant. If the court determines that the fair value of the
shares exceeds the Acquired Fund's estimate of the fair value of the shares of
the Acquired Fund, then the court will enter judgment in favor of such
dissenting shareholders in an amount by which the value determined by the court
exceeds the Acquired Fund's estimated value.
The costs and expenses of the proceeding, including the reasonable expense and
compensation of any appraisers appointed by the court, shall be determined by
the court and assessed against the Acquired Fund, except that the court may
assess part or all of such costs and expenses against any dissenting shareholder
whose action in demanding supplemental payment is found by the court to be
arbitrary, vexatious or not in good faith. If the court finds that the Acquired
Fund has failed to comply substantially with the statutory requirements, the
court may assess against the Acquired Fund all fees and expenses of any experts
or attorneys as the court deems equitable. In addition, fees and expenses may be
assessed against any party the court determines has acted arbitrarily,
vexatiously or not in good faith in bringing a proceeding for supplemental
payment.
25
<PAGE> 32
Cash received pursuant to the exercise of dissenters' rights may be subject to
Federal or state income tax. See "Tax Consequences of the
Reorganization--Dissenting Shareholders."
TAX CONSEQUENCES OF THE REORGANIZATION
The Funds have received the opinion of Vedder, Price, Kaufman & Kammholz,
counsel to the Funds, to the effect that the Reorganization will qualify as a
tax-free reorganization under Section 368(a)(1) of the Code. Accordingly,
neither Fund will recognize gain or loss for Federal income tax purposes as a
result of the Reorganization. The following discussion summarizes the
anticipated Federal income tax treatment to shareholders of the Acquired Fund.
EXCHANGE OF ACQUIRED FUND SHARES SOLELY FOR ACQUIRING FUND SHARES
A common shareholder of the Acquired Fund who receives common shares of the
Acquiring Fund pursuant to the Reorganization will recognize no gain or loss for
Federal income tax purposes, except with respect to the cash received for a
fractional Acquiring Fund common share interest, if any. See "Fractional Common
Share Interests" below. Likewise, a holder of shares of Acquired Fund
MuniPreferred who receives shares of Acquiring Fund MuniPreferred pursuant to
the Reorganization will recognize no gain or loss for Federal income tax
purposes.
The aggregate basis of the Acquiring Fund Shares received by a shareholder of
the Acquired Fund (including any fractional Acquiring Fund common share interest
to which he or she may be entitled) will be the same as the shareholder's
aggregate basis in the Acquired Fund Shares surrendered in exchange therefor,
decreased by any cash received and increased by the amount of gain recognized on
the exchange.
The holding period of the Acquiring Fund Shares received by a shareholder of the
Acquired Fund (including any fractional Acquiring Fund common share interest to
which he or she may be entitled) will include the period during which the
shareholder's Acquired Fund Shares were held, provided such Acquired Fund Shares
were held as a capital asset at the Effective Time.
For Federal income tax reasons, the Acquired Fund must declare a distribution to
its shareholders of all net tax-exempt income, net ordinary taxable income and
net capital gains, if any, prior to the end of its fiscal year, which
declaration will occur at or prior to the Effective Time.
FRACTIONAL COMMON SHARE INTERESTS
No fractional Acquiring Fund common shares will be issued pursuant to the
Reorganization. Cash payments received by an Acquired Fund shareholder in lieu
of a fractional Acquiring Fund common share will be treated as received by such
shareholder as a distribution in redemption by the Acquiring Fund of that
fractional common share interest and will be treated as a distribution in full
payment in exchange for the fractional Acquiring Fund common share interest,
resulting in a capital gain or loss for Federal income tax purposes (provided
the redemption is not substantially equivalent to a dividend), assuming the
Acquired Fund common shares exchanged for cash in lieu of the fractional
Acquiring Fund common share were held as a capital asset at the Effective Time.
DISSENTING SHAREHOLDERS
Cash payments received by an Acquired Fund shareholder as a result of the
exercise of his or her dissenters' rights of appraisal will be treated as
received by such shareholder as a distribution in redemption by the Acquired
Fund of his or her shares and will be treated as a distribution in full payment
in exchange for his or her shares, resulting in a capital gain or loss for
Federal income tax purposes, assuming the Acquired Fund Shares exchanged for
cash as a result of the exercise of his or her dissenters' rights were held as a
capital asset at the Effective Time.
THE FOREGOING IS INTENDED TO BE ONLY A SUMMARY OF THE PRINCIPAL FEDERAL INCOME
TAX CONSEQUENCES OF THE REORGANIZATION AND SHOULD NOT BE CONSIDERED TO BE TAX
ADVICE. THERE CAN BE NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE WILL CONCUR
ON ALL OR ANY OF THE ISSUES DISCUSSED ABOVE. ACQUIRED FUND SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES WITH RESPECT TO THE FOREGOING MATTERS AND ANY OTHER
CONSIDERATIONS WHICH MAY BE APPLICABLE TO THEM.
26
<PAGE> 33
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Funds as of
October 31, 1995 and the pro forma combined capitalization of the combined Fund
as if the Reorganization had occurred on that date. The table reflects a pro
forma exchange ratio of approximately 1.1091069 shares of the Acquiring Fund
issued for each share of the Acquired Fund. If the Reorganization is
consummated, the actual exchange ratio may vary from the ratio indicated below.
See "Pro Forma Financial Information" included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
ACQUIRING
ACQUIRING FUND ACQUIRED FUND FUND
(ACTUAL) (ACTUAL) (AS ADJUSTED)(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' Equity:
Common Shares, $.01 par value per share;
20,642,068 shares outstanding for Acquiring Fund
(Actual)
15,128,458 shares outstanding for Acquired Fund
(Actual)
37,421,145 shares outstanding for Acquiring Fund
(Adjusted) $ 206,421 $ 151,285 $ 374,212 (2)
Preferred shares, $25,000 stated value per share, at
liquidation value 158,900,000 110,000,000 268,900,000
Paid-in surplus 286,208,026 209,709,001 495,580,098 (3)
Undistributed net investment income 398,674 265,613 398,674 (4)
Net realized gain (loss) from investment transactions (22,439,291) (3,195,748) (25,635,039)(5)
Net unrealized appreciation of investments 4,634,529 11,913,791 16,548,320
- -------------------------------------------------------------------------------------------------------------------
Net Assets $427,908,359 $328,843,942 $756,166,265
===================================================================================================================
</TABLE>
- ------------
(1) The adjusted balances are presented as if the Reorganization were effective
as of October 31, 1995 for information purposes only. The actual Effective
Time of the Reorganization is expected to be September 9, 1996, at which
time the results would be reflective of the actual composition of
shareholders' equity at that date.
(2) Assumes the issuance of 16,779,077 Acquiring Fund Common shares in exchange
for the net assets of the Acquired Fund, which number is based on the net
asset value of the Acquiring Fund Common shares, and the net asset value of
the Acquired Fund, as of October 31, 1995, after adjustment for the
distributions referred to in (4) below. The issuance of such number of
Acquiring Fund Common shares would result in the distribution of 1.1091069
Acquiring Fund Common shares for each Common share of the Acquired Fund upon
liquidation of the Acquired Fund.
(3) Includes the impact of estimated Reorganization costs of $320,423.
(4) Assumes the Acquired Fund distributes all of its undistributed net
investment income ($265,613) to its shareholders.
(5) Assumes the Acquired Fund carries forward all of its net realized losses
from investment transactions ($3,195,748) to the Acquiring Fund, as
permitted under applicable tax regulations.
COMPARATIVE PERFORMANCE INFORMATION
Comparative investment performance for the Funds for certain periods ended April
30, 1996, are shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN ON MARKET VALUE TOTAL RETURN ON NET ASSET VALUE
------------------------------------------ ------------------------------------------
ONE THREE FIVE LIFE OF ONE THREE FIVE LIFE OF
YEAR YEARS YEARS FUND YEAR YEARS YEARS FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Acquiring Fund 12.75% N/A N/A (4.24)% 10.43% N/A N/A 1.93%
Acquired Fund 10.65% 2.08% N/A 1.89% 8.48% 5.43% N/A 6.25%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total Investment Return on Market Value is the average annual combination of
reinvested dividend income, reinvested capital gains distributions, if any, and
changes in price per share. Total Return on Net Asset Value is the average
annual combination of reinvested dividend income, reinvested capital gains
distributions, if any, and changes in net asset value per share. Life of Fund is
calculated from July 22, 1993 for the Acquiring Fund and December 17, 1992 from
the Acquired Fund. Past performance information is not necessarily indicative of
future results.
PROPOSAL NO. 2--ELECTION OF BOARD MEMBERS OF EACH FUND
Shareholders of each Fund are being asked to vote for the election of six (6)
Board Members of their Fund to serve until the next Annual Meeting and until
their successors have been duly elected and qualified or, in the case of the
Acquired Fund, until the earlier liquidation of the Acquired Fund. Under the
terms of the Acquiring Fund's Declaration and the Acquired Fund's Articles,
under normal circumstances holders of shares of that Fund's MuniPreferred are
entitled to elect two Fund Board Members, and the remaining Board Members are to
be elected by holders of that Fund's common shares and shares of MuniPreferred,
voting together as a single class.
It is the intention of the persons named in the enclosed proxy to vote the
shares represented thereby for the election of the nominees listed below unless
the proxy is marked otherwise, (See, however, "The Annual Meetings--Voting;
Proxies"
27
<PAGE> 34
above.) Each of the nominees listed below has agreed to serve as a Board Member
of each Fund if elected; however, should any nominee become unable or unwilling
to accept nomination or election, the proxies for each Fund will be voted for
one or more substitute nominees designated by each Fund's present Board.
Shareholders of each Fund will be entitled to one vote for each share held for
the election of Board Members. The affirmative vote of a plurality of the shares
present and entitled to vote at the Annual Meeting of the Acquiring Fund will be
required to elect the Board Members for the Acquiring Fund. The affirmative vote
of a majority of the shares present and entitled to vote at the Annual Meeting
of the Acquired Fund will be required to elect the Board Members of the Acquired
Fund.
Tables I and II below show each nominee's age, principal occupations and other
business affiliations, the year in which each nominee was first elected or
appointed a Board Member of each Fund and the number of common shares of the
Funds and of all Nuveen funds (excluding money market funds) which each nominee
beneficially owned as of April 30, 1996. All of the nominees, except Mr. Dean,
were last elected to each Board at the 1995 annual meeting of shareholders. Mr.
Dean will be standing for election by each Fund's shareholders for the first
time at the Annual Meeting to fill a vacancy that will occur upon the retirement
of Richard J. Franke from John Nuveen & Co. Incorporated and the Boards on June
30, 1996. Mr. Franke's contributions to the Funds are greatly appreciated. As of
April 30, 1996, Mr. Franke owned 25,500 common shares of each Fund. In addition
to the vacancy that will occur upon the retirement of Mr. Franke from the
Boards, there is currently another vacancy on the Boards. The Funds' nominating
committees are considering candidates for that vacancy. If the Reorganization is
consummated, the Board Members of the Acquired Fund will cease to serve as such
upon the liquidation of the Acquired Fund.
EACH FUND'S BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF THE NOMINEES NAMED BELOW.
TABLE I
NOMINEES FOR EACH FUND TO BE ELECTED BY ALL SHAREHOLDERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FULL COMMON SHARES
BENEFICIALLY OWNED
APRIL 30, 1996
---------------------------------
NAME, AGE AND PRINCIPAL OCCUPATIONS OF YEAR FIRST ELECTED ACQUIRING ACQUIRED ALL NUVEEN
NOMINEES AS OF APRIL 30, 1996(1) OR APPOINTED A BOARD MEMBER FUND(2) FUND(2) FUNDS(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lawrence H. Brown (61) 1993 0 0 3,637
Board Member of the Funds; retired in August 1989
as Senior Vice President of The Northern Trust
Company.
*Anthony T. Dean (51) Nominee 0 0 5,695
Director nominee of the Funds and President-elect
(effective July 1, 1996); President,
Chairman-elect (effective July 1, 1996) and
Trustee of the Select Tax-Free Portfolios advised
by Nuveen Institutional Advisory Corp. (since
July 1994); President-elect (effective July 1,
1996) and Executive Vice President and Director
of The John Nuveen Company (since March 1992),
John Nuveen & Co. Incorporated, Nuveen Advisory
Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October
1992).
Anne E. Impellizzeri (63) 1994 0 0 2,000
Board Member of the Funds; President and Chief
Executive Officer of Blanton-Peale, Institutes
of Religion and Health (since December 1990);
prior thereto, Vice President of New York City
Partnership (from 1987 to 1990) and Vice
President of Metropolitan Life Insurance Company
(from 1980 to 1987).
Peter R. Sawers (63) 1992--Acquired Fund 0 0 8,281
Board Member of the Funds; Adjunct Professor of 1993--Acquiring Fund
Business and Economics, University of Dubuque,
Iowa (since January 1991); Adjunct Professor,
Lake Forest Graduate School of Management, Lake
Forest, Illinois (since January 1992); prior
thereto, Executive Director, Towers Perrin
Australia (management consultant); Chartered
Financial Analyst; Certified Management
Consultant
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 35
TABLE II
NOMINEES FOR EACH FUND TO BE ELECTED
BY HOLDERS OF MUNIPREFERRED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FULL COMMON SHARES
BENEFICIALLY OWNED
APRIL 30, 1996
---------------------------------
NAME, AGE AND PRINCIPAL OCCUPATIONS OF YEAR FIRST ELECTED ACQUIRING ACQUIRED ALL NUVEEN
NOMINEES AS OF APRIL 30, 1996(1) OR APPOINTED A BOARD MEMBER FUND(2) FUND(2) FUNDS(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Margaret K. Rosenheim (69) 1992--Acquired Fund 0 0 5,329
Board Member of the Funds; Helen Ross Professor 1993--Acquiring Fund
of Social Welfare Policy, School of Social
Service Administration, University of Chicago.
*Timothy R. Schwertfeger (47) 1994 0 0 94,921
President and Board Member of the Funds (since
July 1994), Chairman-elect (effective July 1,
1996); Chairman-elect (effective July 1, 1996)
and Executive Vice President and Director of The
John Nuveen Company (since March 1992), John
Nuveen & Co. Incorporated, Nuveen Advisory Corp.
(since October 1992) and Nuveen Institutional
Advisory Corp. (since October 1992).
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) "Interested person" as defined in the Investment Company Act of 1940, as
amended, by reason of being an officer or director of the Funds' investment
adviser, Nuveen Advisory Corp.
(1) The Board Members and nominees, except Anthony T. Dean, are board members of
21 Nuveen open-end funds and 53 closed-end funds managed by Nuveen Advisory
Corp. ("NAC Funds"). Mr. Dean is a board member nominee of 18 closed-end NAC
Funds and is a board member of five closed-end funds managed by Nuveen
Institutional Advisory Corp. ("NIAC Funds"). Mr. Schwertfeger is a board member
nominee of each of the NIAC Funds.
(2) Nuveen Advisory Corp., of which Messrs. Dean, Franke and Schwertfeger are
directors, beneficially owned 7,118 common shares of each of Acquiring Fund and
Acquired Fund. No nominee beneficially owned any shares of MuniPreferred of the
Funds.
(3) The number shown reflects the aggregate number of common shares beneficially
owned in all of the NAC Funds referred to in note (1) above (excluding money
market funds).
The Board Members affiliated with John Nuveen & Co. Incorporated ("Nuveen") or
Nuveen Advisory Corp. (the "Adviser") serve without any compensation from the
Funds. Board Members who are not affiliated with Nuveen or the Adviser receive a
$45,000 annual retainer for serving as a board member of all funds sponsored by
Nuveen and managed by the Adviser and a $1,000 fee per day plus expenses for
attendance at all meetings held on a day on which a regularly scheduled Board
meeting is held, a $1,000 fee per day plus expenses for attendance in person or
a $500 fee per day plus expenses for attendance by telephone at a meeting held
on a day on which no regular Board meeting is held, and a $250 fee per day plus
expenses for attendance in person or by telephone at a meeting of the executive
committee. The annual retainer, fees and expenses are allocated among the funds
managed by the Adviser on the basis of relative net asset sizes. Each Fund has
adopted a Directors' Deferred Compensation Plan pursuant to which a Board Member
of that Fund may elect to have all or a portion of the Board Member's fee
deferred. Board Members may defer fees for any calendar year by the execution of
a Participation Agreement prior to the beginning of the calendar year during
which the Board Member wishes to begin deferral.
The tables below show, for each Board Member who is not affiliated with Nuveen
or the Adviser, the aggregate compensation paid by each Fund for its fiscal year
ended October 31, 1995 and the total compensation that Nuveen funds accrued for
each Board Member during the calendar year 1995, including any interest accrued
for Board Members on
29
<PAGE> 36
deferred compensation. The rate of earnings on deferred compensation is
equivalent to the average net earnings rate, computed on a quarterly basis, on
the shares of such Nuveen fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TOTAL
COMPENSATION
AGGREGATE COMPENSATION FROM THE NUVEEN FUNDS
NAME OF BOARD MEMBER FUNDS ACCRUED FOR
- ----------------------------------------------------------------------------------------------------------------
ACQUIRED ACQUIRING
FUND FUND BOARD MEMBERS(1)
------------------------------------
<S> <C> <C> <C>
Lawrence H. Brown $586 $702 $55,500
Anne E. Impellizzeri 586 702 63,000
Margaret K. Rosenheim 623 749 62,322(2)
Peter R. Sawers 586 702 55,500
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes compensation on the boards of the NAC Funds.
(2) Includes $1,572 in interest accrued on deferred compensation from prior
years.
Richard J. Franke, Timothy R. Schwertfeger and Margaret K. Rosenheim currently
serve as members of the executive committee of each Fund's Board. The executive
committee, which meets between regular meetings of the Board, is authorized to
exercise all of the powers of the Board. The executive committee of each Fund
held twelve meetings for the fiscal year ended October 31, 1995. All the
executive committee meetings for each Fund were held for the sole purpose of
declaring a dividend on the Fund's common shares.
Each Fund's Board has an audit committee composed of Lawrence H. Brown, Anne E.
Impellizzeri, Margaret K. Rosenheim and Peter R. Sawers, Board Members of each
Fund who are not "interested persons." The audit committee reviews the work and
any recommendations of each Fund's independent public auditors. Based on such
review, it is authorized to make recommendations to the Board. The audit
committee of each Fund held two meetings for the fiscal year ended October 31,
1995.
Nomination of those Board Members who are not "interested persons" of a Fund is
committed to a nominating committee composed of the Board Members who are not
"interested persons" of that Fund. It identifies and recommends individuals to
be nominated for election as non-interested Board Members. The nominating
committee of each Fund held one meeting for the fiscal year ended October 31,
1995. No policy or procedure has been established as to the recommendation of
Board Member nominees by shareholders.
The Board of each Fund held five meetings for the fiscal year ended October 31,
1995. During the last fiscal year, each Board Member attended 75% or more of
each Fund's Board meetings and the committee meetings (if a member thereof),
except that Mr. Franke was unable to attend certain executive committee meetings
held solely to declare dividends. His attendance at executive committee meetings
which he was scheduled to attend was less than 75%.
The Funds have the same executive officers. The following table sets forth
information as of April 30, 1996 with respect to each executive officer of the
Funds, other than executive officers who are Board Members and included in the
table relating to nominees for the Boards. Officers of the Funds receive no
compensation from the Funds. With respect to each Fund, the term of office of
all officers will expire at the next meeting of the Board of such Fund, which
Board meeting is presently scheduled to be held on July 25, 1996; however, as
previously mentioned, Mr. Franke will be retiring from the Board of Directors
effective June 30, 1996. In the case of the Acquired Fund, such term of office
will expire upon liquidation of the Acquired Fund in the event the
Reorganization is consummated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
POSITION AND OFFICES WITH THE
NAME, AGE AND PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS FUNDS
- -------------------------------------------------------------------------------------------------------
<S> <C>
William M. Fitzgerald, 32 Vice President
Vice President of Nuveen Advisory Corp. (since December 1995); (since 1996)
prior thereto, Assistant Vice President (from September 1992 to
December 1995) and Assistant Portfolio Manager (from June 1988 to
September 1992) of Nuveen Advisory Corp.
Kathleen M. Flanagan, 48 Vice President
Vice President of John Nuveen & Co. Incorporated. (since 1994)
Richard J. Franke, 64 Chairman of the Board
Chairman of the Board and Director of The John Nuveen Company (since each Fund's organization)
(since March 1992), John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. and Nuveen Institutional Advisory Corp.; formerly
Chairman of the Board and Board Member of the Nuveen Funds advised
by Nuveen Institutional Advisory Corp. (from inception to August
1994); Certified Financial Planner.
</TABLE>
30
<PAGE> 37
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
POSITION AND OFFICES WITH THE
NAME, AGE AND PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS FUNDS
- -------------------------------------------------------------------------------------------------------
<S> <C>
organization)Steven J. Krupa, 38 Vice President
Vice President of Nuveen Advisory Corp. (since each Fund's organization)
Anna R. Kucinskis, 50 Vice President
Vice President of John Nuveen & Co. Incorporated. (since each Fund's organization)
Larry W. Martin, 44 Vice President (since 1993) &
Vice President (since September 1992), Assistant Secretary and Assistant Secretary (since each
Assistant General Counsel of John Nuveen & Co. Incorporated; Vice Fund's organization)
President (since May 1993) and Assistant Secretary of Nuveen
Advisory Corp.; Vice President (since May 1993) and Assistant
Secretary (since January 1992) of Nuveen Institutional Advisory
Corp.; Assistant Secretary (since February 1993) of The John Nuveen
Company; Director of Nuveen/Duff & Phelps Investment Advisors
(since January 1995).
O. Walter Renfftlen, 56 Vice President & Controller
Vice President and Controller of The John Nuveen Company (since (since each Fund's organization)
March 1992), John Nuveen & Co. Incorporated, Nuveen Advisory
Corp. and Nuveen Institutional Advisory Corp. (since April 1990).
Thomas C. Spalding, Jr., 44 Vice President
Vice President of Nuveen Advisory Corp. and Nuveen Institutional (since each Fund's organization)
Advisory Corp. (since April 1990); Chartered Financial Analyst.
H. William Stabenow, 61 Vice President & Treasurer
Vice President and Treasurer of The John Nuveen Company (since (since each Fund's organization)
March 1992), John Nuveen & Co. Incorporated, Nuveen Advisory
Corp. and Nuveen Institutional Advisory Corp. (since January 1992).
James J. Wesolowski, 45 Vice President & Secretary
Vice President, General Counsel and Secretary of The John Nuveen (since each Fund's organization)
Company (since March 1992), John Nuveen & Co. Incorporated,
Nuveen Advisory Corp. and Nuveen Institutional Corp. (since April
1990).
Gifford R. Zimmerman, 39 Vice President (since 1993) &
Vice President (since September 1992); Assistant Secretary and Assistant Secretary (since each
Assistant General Counsel of John Nuveen & Co. Incorporated; Vice Fund's organization)
President (since May 1993) and Assistant Secretary of Nuveen
Advisory Corp.; Vice President (since May 1993) and Assistant
Secretary (since January 1992) of Nuveen Institutional Advisory
Corp.
- -------------------------------------------------------------------------------------------------------
</TABLE>
On April 30, 1996, Board Members and executive officers of the Funds as a group
beneficially owned 25,500 common shares of each Fund and no shares of
MuniPreferred. On April 30, 1996, Board Members, nominees and executive officers
of the Funds as a group beneficially owned 319,589 common shares of all funds
managed by the Adviser (excluding money market funds). As of April 30, 1996, no
shareholder owned more than 5% of any class of shares of any Fund.
Section 30(f) of the 1940 Act and Section 16(a) of the Exchange Act require the
Funds' Board Members and officers, investment adviser, affiliated persons of the
investment adviser and persons who own more than ten percent of a registered
class of either Fund's equity securities to file forms reporting their
affiliation with that Fund and reports of ownership and changes in ownership of
that Fund's shares with the Commission and the NYSE. These persons and entities
are required by Commission regulation to furnish each Fund with copies of all
Section 16(a) forms they file. Based on a review of these forms furnished to
each Fund, each Fund believes that for the fiscal year ended October 31, 1995,
all Section 16(a) filing requirements applicable to that Fund's Board Members
and officers, investment adviser and affiliated persons of the investment
adviser were complied with.
PROPOSAL NO. 3--SELECTION OF INDEPENDENT AUDITORS FOR THE FUNDS
The members of each Fund's Board who are not "interested persons" of that Fund
have unanimously selected Ernst & Young LLP, independent auditors, to audit the
books and records of that Fund for the fiscal year ending October 31, 1996.
Ernst & Young LLP has served each Fund in this capacity since each Fund was
organized and has no direct or indirect financial interest in any Fund except as
independent auditors. The selection of Ernst & Young LLP as independent auditors
of each Fund is being submitted to the shareholders of each Fund for
ratification, which requires the affirmative vote of a majority of the shares of
each Fund present and entitled to vote on the matter. A representative of Ernst
& Young LLP is expected to be present at the Annual Meetings and will be
available to respond to any appropriate questions raised at the Annual Meetings
and to make a statement if he or she wishes. EACH FUND'S BOARD UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE SELECTION OF THE
INDEPENDENT AUDITORS.
31
<PAGE> 38
MANAGEMENT OF THE FUNDS
BOARD MEMBERS AND OFFICERS
The same individuals constitute the Boards of both Funds, and the Funds have the
same officers. The management of each Fund, including general supervision of the
duties performed by the Adviser under the Investment Management Agreement for
each Fund, is the responsibility of its Board. There are currently six (6) Board
Members of each Fund, two of whom are "interested persons" (as defined in the
1940 Act) and four of whom are disinterested persons. The nominees of the
Acquiring Fund elected at the Acquiring Fund's Annual Meeting will serve as
Board Members of the Acquiring Fund whether or not the Reorganization is
approved. The nominees of the Acquired Fund elected at the Acquired Fund's
Annual Meeting will hold office until the earlier to occur of the Acquired
Fund's 1997 Annual Meeting of Shareholders or, if the Reorganization is
consummated, the earlier liquidation of the Acquired Fund.
INVESTMENT ADVISER
The Adviser, located at 333 West Wacker Drive, Chicago, Illinois, serves as
investment adviser and manager for each Fund. The Adviser is a wholly-owned
subsidiary of Nuveen, 333 West Wacker Drive, Chicago, Illinois 60606. Nuveen is
a subsidiary of The John Nuveen Company which in turn is approximately 78% owned
by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located at 385
Washington Street, St. Paul, Minnesota 55102, and is principally engaged in
providing property-liability insurance through subsidiaries. Nuveen acted as
co-managing underwriter for the Acquiring Fund in its initial public offering of
shares in July 1993 and its initial public offering of MuniPreferred in November
1993, and for the Acquired Fund in its initial public offering of shares in
December 1992 and its initial public offering of MuniPreferred in April 1993.
Under the Management Agreement, each Fund has agreed to pay an annual management
fee as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
MANAGEMENT FEE SCHEDULE
-------------------------------------------------
AVERAGE DAILY NET ASSETS RATE
-------------------------------------------------
<S> <C>
Up to $125 million .6500%
$125 to $250 million .6375
$250 to $500 million .6250
$500 million to $1 billion .6125
$1 billion to $2 billion .6000
$2 billion and over .5875
-------------------------------------------------
</TABLE>
The Acquiring Fund paid aggregate management fees of $2,595,700 for the fiscal
year ended October 31, 1995, for an effective management fee rate of 0.64%. The
Acquired Fund paid aggregate management fees of $2,026,982 for the fiscal year
ended October 31, 1995, for an effective management fee rate of 0.64%.
PORTFOLIO MANAGEMENT
The Adviser places orders for the purchase and sale of portfolio securities for
the accounts of the Funds. Consistent with Rule 10f-3 under the 1940 Act,
portfolio securities may be purchased from Nuveen or its affiliates.
Thomas C. Spalding, Jr., a Vice President of the Acquiring Fund, the Acquired
Fund and the Adviser, has general supervisory responsibility with respect to all
Nuveen-sponsored open-end and exchange-traded funds managed by the Adviser. Mr.
Spalding has been employed by Nuveen since 1976 and by the Adviser since 1978.
The day to day management of the Acquiring Fund is currently the responsibility
of John W. Gambla, an Assistant Portfolio Manager of the Adviser since July 1992
and portfolio manager of the Acquiring Fund since its inception. Mr. Gambla
currently manages seven Nuveen-sponsored investment companies.
The day to day management of the Acquired Fund is currently the responsibility
of Thomas J. O'Shaughnessy, an Assistant Portfolio Manager of the Adviser since
January 1991 and portfolio manager of the Acquired Fund since its inception. Mr.
O'Shaughnessy currently manages seven Nuveen-sponsored investment companies.
32
<PAGE> 39
ADDITIONAL INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
Selected data for a Common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
OPERATING PERFORMANCE
-------------------------
NET REALIZED DIVIDENDS FROM NET ORGANIZATION PER
AND INVESTMENT INCOME AND OFFERING COMMON
NET ASSET UNREALIZED --------------------------- COSTS AND NET SHARE
VALUE NET GAIN(LOSS) TO TO PREFERRED SHARE ASSET MARKET
BEGINNING INVESTMENT FROM COMMON PREFERRED UNDERWRITING VALUE END VALUE END
OF PERIOD INCOME INVESTMENTS++ SHAREHOLDERS SHAREHOLDERS+ DISCOUNTS OF PERIOD OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACQUIRING FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended 10/31,
1995 $10.990 $1.001 $2.079 $(.747) $(.293) $ -- $13.030 $11.375
1994 14.290 .978 (3.170) (.775) (.196) (.137) 10.990 9.875
7/22/93 to 10/31/93 14.050 .114 .228 (.064) -- (.038) 14.290 13.875
- ------------------------------------------------------------------------------------------------------------------------------------
ACQUIRED FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended 10/31,
1995 $12.560 $1.073 $1.956 $(.840) $(.279) $ -- $14.470 $12.750
1994 15.420 1.100 (2.824) (.946) (.190) -- 12.560 11.125
12/17/92 to 10/31/93 14.050 .779 1.453 (.584) (.095) (.183) 15.420 15.000
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------
TOTAL TOTAL RATIO OF NET
INVESTMENT RETURN NET ASSETS RATIO OF INVESTMENT
RETURN ON ON NET END OF EXPENSES TO INCOME TO PORTFOLIO
MARKET ASSET PERIOD (IN AVERAGE NET AVERAGE NET TURNOVER
VALUE** VALUE** THOUSANDS) ASSETS+++ ASSETS+++ RATE
- ---------------------------------------------------------------------------------------------------
<S> <<C> <C> <C> <C> <C> <C>
ACQUIRING FUND
- ---------------------------------------------------------------------------------------------------
Year ended 10/31,
1995 23.46% 26.20% $427,908 .83% 5.07% 30%
1994 (23.99) (18.24) 385,692 .83 4.83 25
7/22/93 to 10/31/93 (7.08) 2.16 295,074 .86* 3.16* --
- ---------------------------------------------------------------------------------------------------
ACQUIRED FUND
- ---------------------------------------------------------------------------------------------------
Year ended 10/31,
1995 22.67% 22.56% $328,844 .82% 5.12% 28%
1994 (20.42) (12.88) 300,008 .82 5.14 16
12/17/92 to 10/31/93 4.01 14.13 343,240 .81* 4.75* 10
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes in
stock price per share. Total Return on Net Asset Value is the combination of
reinvested dividend income, reinvested capital gains distributions, if any, and
changes in net asset value per share.
+ The amounts shown are based on Common share equivalents.
++ Net of taxes, if applicable.
+++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
GENERAL INFORMATION AND HISTORY
The Acquiring Fund and the Acquired Fund are closed-end, diversified management
investment companies. The Acquiring Fund was organized as a business trust under
the laws of the Commonwealth of Massachusetts on May 26, 1993. The Acquired Fund
was organized as a corporation under the laws of the State of Minnesota on
November 4, 1991. Each Fund is registered under the 1940 Act.
In July 1993 and the Acquiring Fund issued an aggregate of 20,000,000 common
shares in an initial public offering and commenced operations. In November 1993,
the Acquiring Fund issued 1,040, 1,040 and 1,098 shares of Acquiring Fund
MuniPreferred, Series M, Series W and Series F, each with a $.01 par value per
share, with a liquidation preference of $50,000 per share.
In December 1992 and February 1993, the Acquired Fund issued an aggregate of
15,070,000 common shares in an initial public offering and commenced operations.
In April 1993, the Acquired Fund issued 1,100 and 1,100 shares of Acquired Fund
MuniPreferred, Series T and Series TH, each with a $.01 par value per share,
with a liquidation preference of $50,000 per share.
The Board of each Fund approved a two for one stock split of each Fund's shares
of MuniPreferred effective as of the close of business on January 6, 1994, which
lowered the liquidation preference of each share from $50,000 to $25,000 and
doubled the number of outstanding shares of such Fund's MuniPreferred.
33
<PAGE> 40
The following table sets forth the number of outstanding common shares and
shares of MuniPreferred, and certain other share information, of each Fund as of
April 30, 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(3) (4)
AMOUNT HELD BY AMOUNT OUTSTANDING
(1) (2) FUND FOR ITS EXCLUSIVE OF AMOUNT
TITLE OF CLASS AMOUNT AUTHORIZED OWN ACCOUNT SHOWN UNDER(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACQUIRING FUND
Common shares Unlimited 0 20,642,068
Preferred shares Unlimited 0 6,356
ACQUIRED FUND
Common shares 200,000,000 0 15,128,458
Preferred shares 1,000,000 0 4,400
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Acquiring Fund common shares are listed and trade on the NYSE under the
symbol NPX. The Acquired Fund common shares are listed and trade on the NYSE
under the symbol NPE.
The following table sets forth the high and low sales prices for each Fund's
common shares as reported on the consolidated transaction reporting system for
the periods indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ACQUIRING FUND ACQUIRED FUND
------------------------------- -------------------------------
HIGH LOW HIGH LOW
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 First Quarter 13 5/8 11 3/8 15 12 5/8
Second Quarter 12 10 3/4 13 1/2 12 1/4
Third Quarter 11 3/4 10 1/4 13 1/8 11 3/4
Fourth Quarter 10 5/8 8 7/8 11 7/8 10 1/8
1995 First Quarter 11 1/4 10 1/8 12 3/4 11 3/4
Second Quarter 11 3/4 10 1/2 13 3/8 12 1/4
Third Quarter 11 3/4 10 3/4 13 1/4 12
Fourth Quarter 11 3/4 11 13 12 3/8
1996 First Quarter 12 11 1/4 13 5/8 12 1/2
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
On April 30, 1996, the closing sale prices of the Acquiring Fund common shares
and Acquired Fund common shares were $11.25 and $13, respectively. These prices
represent a discount to net asset value of the Acquiring Fund of 11.35% and a
discount to net asset value of the Acquired Fund of 8.32%.
During the period since the inception of the Funds, common shares of both Funds
have traded at prices above and below net asset value; however, the Funds have
generally traded at discounts to net asset value. Since the termination of
common share price stabilization following each Fund's initial public offering,
closing prices, computed at the end of each week, for the Acquiring Fund common
shares have fluctuated between a maximum premium of 5.78% and a maximum discount
of 15.3% and for the Acquired Fund common shares have fluctuated between a
maximum premium of 3.81% and a maximum discount of 14.75%. It is not possible to
state whether common shares of the combined Fund will trade at a premium or
discount to net asset value following the Reorganization, or what the extent of
any such premium or discount might be.
REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND
Each Fund is a closed-end investment company and as such holders of its common
shares will not have the right to cause such Fund to redeem their shares. Each
Fund's common shares trade in the open market at a price that is a function of
several factors, including net asset value and yield. The shares of each Fund
have traded at both premiums and discounts to net asset value. The Board of each
Fund has currently determined that, at least annually, it will consider actions
that might be taken to reduce or eliminate any material discount from net asset
value in respect of such Fund's common shares, which may include the repurchase
of such shares in the open market or in private transactions, the making of a
tender offer for such shares at net asset value or the conversion of such Fund
to an open-end investment company. There can be no assurance, however, that
either Fund's Board will decide to take any of these actions, or that share
repurchases or tender offers, if undertaken, will reduce market discount. In
addition, see "Proposal No. 1--The Reorganization--Description of MuniPreferred
Issued by the Acquiring Fund--Dividends--Restrictions on Dividends and Other
Payments" for a discussion of the limitations on each Fund's ability to engage
in certain transactions. The staff of the Commission currently requires that any
tender offer made by a closed-end investment company for its shares must be at a
price equal to the net asset value of such shares on the close of business on
the last day of the tender offer. Any service fees incurred in connection with
any tender offer made by a Fund would be borne by that Fund and would not reduce
the stated consideration to be paid to tendering shareholders.
34
<PAGE> 41
Subject to its investment limitations, either Fund may borrow to finance the
repurchase of its shares or to make a tender offer. Interest on any borrowings
to finance share repurchase transactions or the accumulation of cash by either
Fund in anticipation of share repurchases or tenders will reduce that Fund's net
income. Any share repurchase, tender offer or borrowing that might be approved
by a Fund's Board would have to comply with the Exchange Act and the 1940 Act
and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net asset
value will be made by a Fund's Board at the time it considers such issue, it is
each Board's present policy, which may be changed by such Board, not to
authorize repurchases of such Fund's common shares or a tender offer for such
shares if (a) such transactions, if consummated, would (i) result in the
delisting of such shares from the NYSE, or (ii) impair such Fund's status as a
regulated investment company under the Code (which would make such Fund a
taxable entity, causing its income to be taxed at the corporate level in
addition to the taxation of shareholders who receive dividends from such Fund)
or as a regulated closed-end investment company under the 1940 Act; (b) such
Fund would not be able to liquidate portfolio securities in an orderly manner
and consistent with its investment objectives and policies in order to
repurchase shares; or (c) there is, in such Board's judgment, any (i) material
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting such Fund, (ii) general
suspension of or limitation on prices for trading securities on the NYSE, (iii)
declaration of a banking moratorium by Federal or state authorities or any
suspension of payment by United States or New York State banks in which such
Fund invests, (iv) material limitation affecting such Fund or the issuers of its
portfolio securities by Federal or State authorities on the extension of credit
by lending institutions or on the exchange of foreign currency, (v) commencement
of war, armed hostilities or other international or national calamity directly
or indirectly involving the United States, or (vi) other event or condition
which would have a materially adverse effect (including any adverse tax effect)
on such Fund or its shareholders if shares of such Fund were repurchased. The
Board of each Fund may in the future modify these conditions in light of
experience.
For each Fund, conversion to an open-end company would require the approval of
the holders of such Fund's outstanding common shares and shares of
MuniPreferred, voting together as a single class, and holders of such Fund's
shares of MuniPreferred voting as a separate class. See "Proposal No. 1--The
Reorganization--Certain Provisions in the Acquiring Fund's Declaration of Trust"
for a discussion of voting requirements applicable to conversion of a Fund to an
open-end company. If a Fund converted to an open-end investment company, it
would be required to redeem all shares of its MuniPreferred then outstanding for
cash at the redemption price specified under "Proposal No. 1--The
Reorganization--Description of MuniPreferred Issued by the Acquiring
Fund--Redemption." In addition, such Fund would be required to liquidate
portfolio securities to meet required and requested redemptions, and its common
shares would no longer be listed on the NYSE. Shareholders of an open-end
investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by or under the 1940 Act) at
their net asset value, less such redemption charge, if any, as might be in
effect at the time of redemption. In order to avoid maintaining large cash
positions or liquidating favorable investments to meet redemptions, open-end
companies typically engage in a continuous offering of their shares. Open-end
companies are thus subject to periodic asset in-flows and out-flows that can
complicate portfolio management. The Board of either Fund may at any time
propose conversion of such Fund to an open-end company depending upon its
judgment as to the advisability of such action in light of circumstances then
prevailing.
The repurchase by a Fund of its common shares at prices below net asset value
would result in an increase in the net asset value of those common shares that
remain outstanding. However, there can be no assurance that common share
repurchases or tenders at or below net asset value would result in a Fund's
common shares trading at a price equal to their net asset value. Nevertheless,
the fact that a Fund's common shares may be the subject of repurchase or tender
offers at net asset value from time to time, or that a Fund may be converted to
an open-end company, may reduce any spread between market price and net asset
value that might otherwise exist. Common shares that have been repurchased by a
Fund will be retired automatically and shall have the status of authorized but
unissued shares.
In addition, a purchase by a Fund of its common shares will decrease that Fund's
total assets, which would likely have the effect of increasing such Fund's
expense ratio. Any purchase by a Fund of its common shares at a time when shares
of such Fund's shares of MuniPreferred are outstanding will increase the
leverage applicable to the outstanding common shares then remaining.
Before deciding whether to take any action in response to a discount from net
asset value, a Fund's Board would consider all relevant factors, including the
extent and duration of the discount, the liquidity of such Fund's portfolio, the
impact of any action that might be taken on such Fund or its shareholders and
market considerations. Based on these considerations, even if a Fund's common
shares should trade at a discount, such Fund's Board may determine that, in the
interest of such Fund and its shareholders, no action should be taken.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REDEMPTION AGENT
The Custodian of the assets of each Fund and the transfer agent and dividend
disbursing agent with respect to each Fund's common shares is Chase, with its
principal place of business at One Chase Plaza, New York, New York 10081 and its
corporate transfer office at 770 Broadway, New York, New York 10003. Bankers
Trust Company, 4 Albany Street, New York,
35
<PAGE> 42
New York 10006, a banking corporation organized under the laws of New York, is
the Auction Agent with respect to shares of each Fund's MuniPreferred and acts
as transfer agent, registrar, dividend disbursing agent and redemption agent
with respect to such shares.
TAX MATTERS ASSOCIATED WITH INVESTMENT IN THE FUNDS
The following is based on the advice of Vedder, Price, Kaufman & Kammholz,
counsel to the Funds.
The Federal income tax implications for Acquired Fund shareholders who will own
Acquiring Fund Shares as a result of the Reorganization will be substantially
the same as the Federal income tax implications currently applicable to such
shareholders with respect to their ownership of Acquired Fund Shares. Each Fund
qualifies under Subchapter M of the Code as a regulated investment company and
satisfies conditions which enable dividends on common shares or shares of
MuniPreferred which are attributable to interest on Municipal Obligations to be
exempt from Federal income tax in the hands of owners of such shares, subject to
the possible application of the alternative minimum tax. Each Fund, which
intends to distribute substantially all of its net income and gains to its
shareholders, is required to allocate net capital gains (i.e., the excess of net
long-term capital gain over net short-term capital loss) and other taxable
income, if any, proportionately between common shares and shares of
MuniPreferred in accordance with the current position of the Internal Revenue
Service.
The amount of taxable income allocable to shares of a Fund's MuniPreferred will
depend upon the amount of such income realized by the Fund, including any net
income received from taxable temporary investments, but is not generally
expected to be significant. Annually, each Fund will inform each owner of shares
of MuniPreferred of the amount and nature of the income and gains allocated to
the owner by the Fund. If a Fund allocates net capital gains or other taxable
income without first notifying owners of shares of MuniPreferred, in certain
circumstances payments will be made to such owners to offset the tax effect
thereof as described under "Proposal No. 1--The Reorganization--Description of
MuniPreferred Issued by the Acquiring Fund--Dividends and Dividend
Periods--Gross-up Payments" above.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals based on certain items of tax preference. Interest
on certain Municipal Obligations is included as an item of tax preference in
determining the amount of a taxpayer's alternative minimum taxable income. To
the extent that a Fund receives income from Municipal Obligations treated as tax
preference items for purposes of the alternative minimum tax, a portion of the
dividends paid by it, although otherwise exempt from Federal income tax, will be
taxable to owners of shares to the extent that their tax liability is determined
under the alternative minimum tax. In addition, for certain corporations,
alternative minimum taxable income is increased by 75% of the difference between
an alternative measure of income ("adjusted current earnings") and the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all Municipal Obligations, and therefore all exempt-interest dividends received
from each Fund, are included in calculating adjusted current earnings.
A more detailed summary of the provisions of the Code and regulations thereunder
presently in effect as they directly govern the taxation of each Fund and their
respective shareholders appears in the Statement of Additional Information.
These provisions and interpretations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult with their own tax
advisers for more detailed information concerning Federal income tax matters.
LEGAL OPINIONS
Certain legal matters in connection with the common shares and shares of
MuniPreferred of the Acquiring Fund to be issued pursuant to the Reorganization
will be passed upon by Vedder, Price, Kaufman & Kammholz, Chicago, Illinois.
Vedder, Price, Kaufman & Kammholz will rely as to certain matters of
Massachusetts law on the opinion of Bingham, Dana & Gould, Boston,
Massachusetts.
EXPERTS
The financial highlights of the Funds as of October 31, 1995 appearing in this
Joint Proxy Statement--Prospectus, and the financial statements of the Funds as
of October 31, 1995 appearing in the Statement of Additional Information, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing. Ernst & Young LLP audits and reports on the Funds' annual financial
statements, reviews certain regulatory reports and the Funds' Federal income tax
returns, and performs other professional accounting, auditing, tax and advisory
services when engaged to do so by the Funds.
SHAREHOLDER PROPOSALS
To be considered for presentation at a Fund's Annual Meeting of Shareholders to
be held in 1997, a shareholder proposal must be received at the offices of such
Fund, 333 West Wacker Drive, Chicago, Illinois 60606, not later than February
17, 1997.
36
<PAGE> 43
GENERAL
Management of the Funds does not intend to present and does not have reason to
believe that others will present any items of business at the Annual Meetings,
except as described in this Joint Proxy Statement--Prospectus. However, if other
matters are properly presented at the meetings for a vote, the proxies will be
voted upon such matters in accordance with the judgment of the persons acting
under the proxies.
A list of shareholders of each Fund entitled to be present and to vote at that
Fund's Annual Meeting will be available at the offices of the Funds, 333 West
Wacker Drive, Chicago, Illinois, for inspection by any shareholder of that Fund
during regular business hours for ten days prior to the date of the Annual
Meetings.
Failure of a quorum to be present at either Fund's Annual Meeting will
necessitate adjournment and will subject such Fund to additional expense. The
persons named in the enclosed proxy may also move for an adjournment of the
meeting to permit further solicitation of proxies with respect to any of the
proposals if they determine that adjournment and further solicitation is
reasonable and in the best interests of the shareholders. Under each Fund's
By-Laws, an adjournment of a meeting requires the affirmative vote of a majority
of the shares present in person or represented by proxy at such meeting.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
James J. Wesolowski
Secretary
37
<PAGE> 44
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION ("Agreement") is made as of
the first day of May, 1996 by and between Nuveen Insured Premium Income
Municipal Fund 2 (the "Acquiring Fund"), a Massachusetts business trust, and
Nuveen Insured Premium Income Municipal Fund, Inc., a Minnesota corporation (the
"Acquired Fund" and, together with the Acquiring Fund, the "Funds"). Each of the
Funds maintains its principal place of business at 333 West Wacker Drive,
Chicago, Illinois 60606.
This Agreement is intended to be, and is adopted as, a plan of reorganization
(the "Reorganization") pursuant to Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"). The Reorganization will
consist of (a) the acquisition by the Acquiring Fund of substantially all of the
assets of the Acquired Fund in exchange solely for common shares, par value $.01
per share, of the Acquiring Fund ("Acquiring Fund Common Shares"), shares of
Municipal Auction Rate Cumulative Preferred Shares, par value $.01 per share
("MuniPreferred(R)"), of the Acquiring Fund ("Acquiring Fund MuniPreferred" and,
collectively with the Acquiring Fund Common Shares, "Acquiring Fund Shares") and
the assumption by the Acquiring Fund of substantially all of the liabilities of
the Acquired Fund; and (b) the pro rata distribution, after the Closing Date
hereinafter referred to, of such Acquiring Fund Shares to the shareholders of
the Acquired Fund in liquidation of the Acquired Fund as provided herein, all
upon the terms and conditions hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements set forth
herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR SHARES OF THE
ACQUIRING FUND AND ASSUMPTION OF LIABILITIES, IF ANY; LIQUIDATION OF THE
ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis of
the representations and warranties contained herein, the Acquired Fund
agrees to sell, assign, transfer and deliver, as of the close of
business on the Closing Date (the "Effective Time"), substantially all
of its assets as set forth in paragraph 1.2 to the Acquiring Fund, free
and clear of all liens and encumbrances, except as otherwise provided
herein, and in exchange therefor the Acquiring Fund agrees (a) to assume
substantially all of the liabilities, if any, of the Acquired Fund, as
set forth in paragraph 1.3 and (b) to issue and deliver to the Acquired
Fund, for distribution in accordance with paragraph 1.5 to the Acquired
Fund's shareholders, (i) the number of Acquiring Fund Common Shares
having an aggregate net asset value equal to the value of the assets,
less the liabilities, of the Acquired Fund so transferred, assigned and
delivered, all determined in the manner and as of the date and time
provided in paragraph 2, and (ii) 2,200 shares of Acquiring Fund
MuniPreferred, Series T and 2,200 shares of Series TH. The preferences,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the Acquiring Fund
MuniPreferred, Series T and Series TH, shall be identical in all
material respects to those of the outstanding shares of Acquiring Fund
MuniPreferred, Series M, Series W and Series F. Dividends on shares of
Acquired Fund MuniPreferred, Series T and Series TH, shall accumulate to
and including the Closing Date and then cease to accumulate, and
dividends on shares of Acquiring Fund MuniPreferred, Series T and Series
TH, respectively, issued pursuant to the Reorganization shall accumulate
in respect of their "Initial Rate Period" from and including the day
after the Closing Date at the same rate borne on the Closing Date by the
shares of Acquired Fund MuniPreferred, Series T and Series TH. The
"Subsequent Rate Periods," "Dividend Payment Dates" in respect of such
"Subsequent Rate Periods" and initial and subsequent "Auctions" for the
shares of Acquiring Fund MuniPreferred, Series T and Series TH, issued
pursuant to this paragraph 1.1 shall be fixed to be identical to the
dividend and auction provisions applicable to the outstanding shares of
Acquired Fund MuniPreferred, Series T and Series TH, respectively, as of
immediately prior to the Effective Time. The "Initial Rate Period" and
"Dividend Payment Rate" in respect of such Initial Rate Period, for
shares of Acquiring Fund MuniPreferred, Series T and Series TH, issued
pursuant to the Reorganization, shall be as set forth in the Joint Proxy
Statement--Prospectus, as hereinafter defined. Such transactions shall
take place at the closing provided for in paragraph 3.1 (the "Closing").
1.2 Except as otherwise provided herein, as of the Effective Time, the
Acquiring Fund shall acquire the assets of the Acquired Fund (consisting
without limitation of all cash, cash equivalents, municipal obligations
and other portfolio securities, receivables (including interest and
dividends receivable) and any deferred or prepaid expenses shown as
assets) as set forth in the respective Statement of Net Assets referred
to in paragraph 7.3 as of the Closing Date. Notwithstanding the
foregoing, the assets to be acquired will not include cash in the amount
necessary to pay expenses of the Acquired Fund in connection with the
transactions contemplated by this Agreement, to pay the dividends and/or
other distributions contemplated by paragraph 1.4 and to pay
shareholders exercising dissenters' rights under Minnesota law. The
Acquired Fund has no plan or intent to sell or otherwise dispose of any
of its assets, other than in the ordinary course of business.
A-1
<PAGE> 45
1.3 Except as otherwise provided herein, as of the Effective Time, the
Acquiring Fund will assume from the Acquired Fund all debts,
liabilities, obligations and duties of the Acquired Fund of whatever
kind or nature, whether absolute, accrued, contingent or otherwise,
arising in the ordinary course of business, whether or not determinable
as of the Effective Time and whether or not specifically referred to in
this Agreement. Notwithstanding the foregoing, the Acquiring Fund will
not assume the Acquired Fund's obligation to pay certain expenses
incurred by the Acquired Fund in connection with the transactions
contemplated by this Agreement, to pay shareholders exercising
dissenters' rights to the extent of the cash held for such purpose as
contemplated by paragraph 1.2 hereof or assume the Acquired Fund's
obligation to pay the dividends and/or other distributions contemplated
by paragraph 1.4; and further provided that the Acquired Fund agrees to
utilize its best efforts to discharge all of its known debts,
liabilities, obligations and duties (other than pursuant to paragraph
1.4) prior to the Effective Time.
1.4 At or prior to the Effective Time, the Acquired Fund (a) will declare
all accumulated but unpaid dividends on the shares of Acquired Fund
MuniPreferred, Series T and Series TH, up to and including the day on
which the Effective Time occurs, such dividends to be paid to the
holders thereof on the Dividend Payment Date in respect of the Initial
Rate Period of shares of Acquiring Fund MuniPreferred, Series T and
Series TH, for which such shares of Acquired Fund MuniPreferred, Series
T and Series TH, were exchanged, and (b) will declare a dividend and/or
other distribution to be paid within 30 days after the Closing Date to
its shareholders of record so that, upon such payment, it will have
distributed all of its investment company taxable income (computed
without regard to any deduction for dividends paid), net tax-exempt
income and realized net capital gains, if any, through and including the
Closing Date.
1.5 On a date as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and
distribute (a) pro rata to its common shareholders of record, determined
as of the Effective Time, the Acquiring Fund Common Shares received by
the Acquired Fund pursuant to paragraph 1.1 (together with any dividends
declared with respect thereto to holders of record as of a time after
the Effective Time and prior to the Liquidation Date ("Interim
Dividends")), in exchange for common shares of the Acquired Fund held by
the common shareholders of such Fund and (b) to its preferred
shareholders of record, determined as of the Effective Time, one share
of Acquiring Fund MuniPreferred, Series T and Series TH (together with
any Interim Dividends), in exchange for each share of Acquired Fund
MuniPreferred, Series T and Series TH, respectively, held by the
preferred shareholders of the Acquired Fund. Such liquidation and
distribution will be accomplished by opening accounts on the books of
the Acquiring Fund in the names of the shareholders of the Acquired Fund
and transferring to each account (x) in the case of a common
shareholder, such shareholder's pro rata share of the Acquiring Fund
Common Shares received by the Acquired Fund (rounded down to the nearest
whole Share) and (y) in the case of a preferred shareholder, a number of
the shares of Acquiring Fund MuniPreferred, Series T and Series TH,
received by the Acquired Fund equal to the number of shares of Acquired
Fund MuniPreferred, Series T and Series TH, respectively, held by such
shareholder, and by paying to the shareholders of the Acquired Fund any
Interim Dividends on such transferred shares.
1.6 After the Liquidation Date, each holder of an outstanding certificate or
certificates representing shares of the Acquired Fund will be entitled
to receive, upon surrender of his or her certificates, a certificate or
certificates representing the number of Acquiring Fund Common Shares
and/or shares of Acquiring Fund MuniPreferred, Series T and Series TH,
and a check for cash in lieu of any fractional Acquiring Fund Common
Share as provided by paragraph 1.7, distributable with respect to the
shares of the Acquired Fund that are surrendered. No dividends or other
distributions payable to the holders of record of the Acquiring Fund
Shares as of a date on or after the Liquidation Date are required to be
paid to any shareholder holding certificates representing shares of the
Acquired Fund ("Acquired Fund Share Certificates") as of the Closing
Date until the Acquiring Fund is notified by the Acquired Fund's
transfer agent that such shareholder has surrendered his or her
outstanding Acquired Fund Share Certificates or, in the event of lost,
stolen or destroyed Acquired Fund Share Certificates, posted adequate
bond or submitted an affidavit of lost certificate, or both. The
Acquired Fund will, at its expense, request its shareholders to
surrender their outstanding Acquired Fund Share Certificates, post
adequate bond and/or submit an affidavit of lost certificate, as the
case may be. Upon the surrender of Acquired Fund Share Certificates (or,
if applicable, after the posting of a bond and/or submission of an
affidavit of lost certificate), there shall be paid to the shareholder
in whose name the Acquiring Fund Shares shall be registered all
dividends or other distributions that shall have become payable with
respect to such Acquiring Fund Shares between the Liquidation Date and
the time of such surrender. In no event shall the shareholder entitled
to receive such dividends and distributions be entitled to receive
interest thereon.
1.7 No certificates or scrip representing fractional Acquiring Fund Common
Shares shall be distributed upon the surrender for exchange of Acquired
Fund Share Certificates. In lieu of distributing any such fractional
Acquiring Fund Common Shares, the Acquired Fund's transfer agent shall,
on behalf of all holders of fractional Acquiring Fund Common Shares, on
or before the tenth business day following the Liquidation Date,
aggregate all such fractional Acquiring Fund Common Shares and sell the
resulting whole Acquiring Fund Common Shares on the New York Stock
Exchange (the "NYSE") for the accounts of such holders, and each such
holder shall be entitled to
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receive his or her respective pro rata share of the net proceeds of such
sale upon surrender of his or her Acquired Fund Share Certificates in
accordance with paragraph 1.6.
1.8 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund shares
surrendered in exchange therefor on the books of the Acquired Fund as of
that time shall be paid by the person to whom such Acquiring Fund Shares
are to be issued as a condition to the registration of such transfer.
1.9 Any reporting responsibility of the Acquired Fund with the Securities
and Exchange Commission (the "SEC"), the NYSE, or any state securities
commission is and shall remain the responsibility of the Acquired Fund
up to and including the Liquidation Date.
1.10 All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the rules and
regulations thereunder, shall be available to the Acquiring Fund from
and after the Closing Date and shall be turned over to the Acquiring
Fund on or prior to the Liquidation Date.
1.11 The Acquired Fund will apply to terminate its registration under the
Investment Company Act promptly following the Liquidation Date and
thereafter shall be dissolved.
2. VALUATION
2.1 The value of the Acquired Fund's assets and liabilities to be acquired
and assumed, respectively, by the Acquiring Fund shall be computed as of
the Effective Time, using the valuation procedures set forth in the
Funds' Joint Proxy Statement--Prospectus (the "Joint Proxy
Statement--Prospectus") to be used in connection with the
Reorganization. The value of the Acquired Fund's net assets shall be
calculated net of the liquidation preference (including accumulated and
unpaid dividends) of all outstanding shares of Acquired Fund
MuniPreferred.
2.2 The net asset value of an Acquiring Fund Common Share shall be computed
as of the Effective Time by dividing the value of the Acquiring Fund's
total assets, less liabilities and less the liquidation preference
(including accumulated and unpaid dividends) of all outstanding shares
of Acquiring Fund MuniPreferred, by the number of Acquiring Fund Common
Shares outstanding (excluding shares issuable pursuant to the
Reorganization), using the valuation procedures set forth in the Joint
Proxy Statement--Prospectus.
2.3 The number of Acquiring Fund Common Shares to be issued in exchange for
the Acquired Fund's net assets shall be calculated by dividing the net
asset value of the Acquired Fund (determined in accordance with
paragraph 2.1) by the net asset value of an Acquiring Fund Common Share
(determined in accordance with paragraph 2.2).
2.4 All computations of net asset value shall be made by or under the
direction of The Chase Manhattan Bank, N.A. ("Chase") in accordance with
its regular practice as custodian of the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be September 9, 1996 or such later date as the
parties may agree in writing, provided that the Closing Date shall not
be a date on which an "Auction" would ordinarily occur with respect to
shares of either Fund's MuniPreferred, Series T or Series TH. All acts
taking place at the Closing shall be deemed to take place simultaneously
as of the Effective Time unless otherwise provided. The Closing shall be
at the office of the Acquiring Fund or at such other place as the
parties may agree.
3.2 Chase as custodian for the Acquired Fund, shall deliver to the Acquiring
Fund at the Closing a certificate of an authorized officer stating that
(a) the Acquired Fund's portfolio securities, cash and any other assets
have been transferred in proper form to the Acquiring Fund on the
Closing Date and (b) all necessary taxes, if any, have been paid, or
provision for payment has been made, in conjunction with the delivery of
portfolio securities.
3.3 In the event that on the proposed Closing Date (a) the NYSE is closed to
trading or trading thereon is restricted or (b) trading or the reporting
of trading on the NYSE or elsewhere is disrupted so that accurate
appraisal of the value of the net assets of the Acquired Fund or of the
net asset value per Acquiring Fund Common Share is impracticable, the
Closing Date shall be postponed until the first business day after the
date when such trading shall have been fully resumed and such reporting
shall have been restored, provided that such day is not a day on which
an Auction would ordinarily occur with respect to shares of the Acquired
Fund's MuniPreferred, Series T or Series TH.
3.4 The Acquired Fund shall deliver to the Acquiring Fund on or prior to the
Liquidation Date a list of the names and addresses of its shareholders
and the number of outstanding shares of the Acquired Fund owned by each
such shareholder (the "Shareholder Lists"), all as of the Effective
Time, certified by the Secretary or Assistant Secretary of the Acquired
Fund. The Acquiring Fund shall issue and deliver to the Acquired Fund at
the Closing a confirmation or other evidence satisfactory to the
Acquired Fund that Acquiring Fund Shares have been or will be credited
to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing each party shall deliver
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to the other such bills of sale, checks, assignments, stock
certificates, receipts and other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated
by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents and warrants as follows:
4.1.1 The Acquired Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Minnesota and has the power to own all of its properties and
assets and, subject to approval of the shareholders of the
Acquired Fund, to carry out the Agreement.
4.1.2 The Acquired Fund is a closed-end diversified management
investment company duly registered under the Investment Company
Act, and such registration is in full force and effect.
4.1.3 The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of the Articles of Incorporation or By-Laws of the
Acquired Fund or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquired Fund is
a party or by which the Acquired Fund is bound.
4.1.4 The Acquired Fund has no material contracts or other commitments
(except this Agreement and the obligations to pay the dividends
and/or distributions contemplated by paragraph 1.4) that will not
be terminated on or prior to the Closing Date without any
liability or penalty to the Acquired Fund or the Acquiring Fund.
4.1.5 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or, to the knowledge of the Acquired Fund,
threatened against the Acquired Fund or any of its properties or
assets. The Acquired Fund knows of no facts that might form the
basis for the institution of such proceedings, and the Acquired
Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
4.1.6 The audited Statement of Net Assets, Statement of Operations,
Statement of Changes in Net Assets, Financial Highlights and
Portfolio of Investments of the Acquired Fund at October 31, 1995
and for the period then ended (copies of which have been furnished
to the Acquiring Fund) have been prepared in accordance with
generally accepted accounting principles consistently applied and
present fairly, in all material respects, the financial condition
of the Acquired Fund as of such date, and there are no known
material liabilities of the Acquired Fund (contingent or
otherwise) not disclosed therein.
4.1.7 Since October 31, 1995, there has not been any materially adverse
change in the Acquired Fund's financial condition, assets,
liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired
Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this
paragraph 4.1.7, a decline in net asset value or net asset value
per common share of the Acquired Fund as a result of changes in
the value of investments held by the Acquired Fund or a
distribution or payment of dividends shall not constitute a
materially adverse change.
4.1.8 All federal, state and other tax returns and reports of the
Acquired Fund required by law to have been filed or furnished by
the date hereof have been filed or furnished, and all federal,
state and other taxes, interest and penalties shown as due on said
returns and reports have been paid insofar as due, or provision
has been made for the payment thereof, and, to the best of the
Acquired Fund's knowledge, no such return is currently under audit
and no assessment has been asserted with respect to such returns
or reports.
4.1.9 Since it commenced operations, the Acquired Fund has met the
requirements of Subchapter M of the Internal Revenue Code for
qualification and treatment as a regulated investment company and
intends to meet those requirements for the current taxable year.
4.1.10 The authorized capital of the Acquired Fund consists of
200,000,000 common shares and 1,000,000 preferred shares, par
value $.01 per share. All issued and outstanding shares of the
Acquired Fund are duly and validly issued and outstanding, fully
paid and non-assessable. All issued and outstanding shares of the
Acquired Fund will, at the time of the Closing, be held by the
persons and in the amounts set forth in the applicable Shareholder
List submitted to the Acquiring Fund in accordance with the
provisions of paragraph 3.4. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for
or purchase any shares of the Acquired Fund, nor is there
outstanding any security convertible into shares of the Acquired
Fund.
4.1.11 At the Closing Date, the Acquired Fund will have good and
marketable title to the assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.1 and full right, power and authority
to sell, assign, transfer
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and deliver such assets hereunder free of any liens or other
encumbrances, and, upon delivery and payment for such assets, the
Acquiring Fund will acquire good and marketable title thereto.
4.1.12 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Trustees of the Acquired Fund
(including the determinations required by Rule 17a-8(a) under the
Investment Company Act) and by all necessary action, other than
shareholder approval, on the part of the Acquired Fund, and,
subject to shareholder approval, this Agreement constitutes a
valid and binding obligation of the Acquired Fund.
4.1.13 The information furnished and to be furnished by the Acquired Fund
for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection
with the transactions contemplated hereby is, and shall be,
accurate and complete in all material respects and is in
compliance, and shall comply, in all material respects with
applicable federal securities and other laws and regulations.
4.1.14 On the effective date of the Registration Statement referred to in
paragraph 5.5, at the time of the Annual Meeting of the Acquired
Fund's shareholders and on the Closing Date, the Joint Proxy
Statement--Prospectus (a) will comply in all material respects
with the provisions and regulations of the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the Investment Company Act and
the rules and regulations thereunder and (b) will not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the
representations and warranties in this paragraph 4.1.14 shall not
apply to statements in or omissions from the Joint Proxy
Statement--Prospectus made in reliance upon and in conformity with
information furnished by the Acquiring Fund for use therein.
4.1.15 No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the 1934 Act
and the Investment Company Act, and such as may be required under
state securities laws.
4.1.16 There are no brokers or finder's fees payable on behalf of the
Acquired Fund in connection with the transactions provided for
herein.
4.2 The Acquiring Fund represents and warrants as follows:
4.2.1 The Acquiring Fund is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth
of Massachusetts and has the power to own all of its properties
and assets and, subject to approval of the shareholders of the
Acquiring Fund, to carry out the Agreement.
4.2.2 The Acquiring Fund is a closed-end diversified management
investment company duly registered under the Investment Company
Act, and such registration is in full force and effect.
4.2.3 The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of the Declaration of Trust or By-Laws of the Acquiring
Fund or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund
is a party or by which the Acquiring Fund is bound.
4.2.4 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or, to the knowledge of the Acquiring Fund,
threatened against the Acquiring Fund or any of its properties or
assets. The Acquiring Fund knows of no facts that might form the
basis for the institution of such proceedings, and the Acquiring
Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
4.2.5 The audited Statement of Net Assets, Statement of Operations,
Statement of Changes in Net Assets, Financial Highlights and
Portfolio of Investments of the Acquiring Fund at October 31, 1995
and for the period then ended (copies of which have been furnished
to the Acquired Fund) have been prepared in accordance with
generally accepted accounting principles and present fairly, in
all material respects, the financial condition of the Acquiring
Fund as of such date, and there are no known material liabilities
of the Acquiring Fund (contingent or otherwise) not disclosed
therein.
4.2.6 Since October 31, 1995 there has not been any materially adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring
Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquired Fund. For the purposes of this
paragraph 4.2.6, a decline in net asset value or net asset value
per Acquiring Fund
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Common Share as a result of changes in the value of investments
held by the Acquiring Fund or a distribution or payment of
dividends shall not constitute a materially adverse change.
4.2.7 All federal, state and other tax returns and reports of the
Acquiring Fund required by law to have been filed or furnished by
the date hereof have been filed or furnished, and all federal,
state and other taxes, interest and penalties shown as due on said
returns and reports have been paid insofar as due, or provision
has been made for the payment thereof, and, to the best of the
Acquiring Fund's knowledge, no such return is currently under
audit and no assessment has been asserted with respect to such
returns or reports.
4.2.8 Since it commenced operations, the Acquiring Fund has met the
requirements of Subchapter M of the Internal Revenue Code for
qualification and treatment as a regulated investment company and
intends to meet those requirements for the current taxable year.
4.2.9 The authorized capital of the Acquiring Fund consists of an
unlimited number of common shares and preferred shares. All issued
and outstanding Acquiring Fund Common Shares and shares of
Acquiring Fund MuniPreferred are, and all Acquiring Fund Common
Shares and shares of Acquiring Fund MuniPreferred to be issued in
exchange for the net assets of the Acquired Funds pursuant to this
Agreement will be when so issued, duly and validly issued and
outstanding, fully paid and non-assessable, except that
shareholders of the Acquiring Fund may under certain circumstances
be held personally liable for its obligations. Except as
contemplated by this Agreement, the Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for
or purchase any Acquiring Fund Shares, nor is there outstanding
any security convertible into any Acquiring Fund Shares.
4.2.10 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Directors of the Acquiring Fund
(including the determinations required by Rule 17a-8(a) under the
Investment Company Act) and by all necessary action, other than
shareholder approval, on the part of the Acquiring Fund, and,
subject to shareholder approval, this Agreement constitutes a
valid and binding obligation of the Acquiring Fund.
4.2.11 The information furnished and to be furnished by the Acquiring
Fund for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby is, and shall
be, accurate and complete in all material respects and is in
compliance, and shall comply, in all material respects with
applicable federal securities and other laws and regulations.
4.2.12 On the effective date of the Registration Statement, at the time
of the Annual Meeting of the Acquiring Fund shareholders and on
the Closing Date, the Registration Statement and the Joint Proxy
Statement--Prospectus (a) will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the
Investment Company Act and the rules and regulations thereunder
and (b) will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
paragraph 4.2.12 shall not apply to statements in or omissions
from the Joint Proxy Statement--Prospectus and the Registration
Statement made in reliance upon and in conformity with information
furnished by the Acquired Fund for use therein.
4.2.13 No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the 1934 Act
and the Investment Company Act, and such as may be required under
state securities laws.
4.2.14 There are no brokers' or finders' fees payable on behalf of the
Acquiring Fund in connection with the transactions provided for
herein.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as may otherwise be required by paragraph 1.4, each Fund will
operate its respective business in the ordinary course between the date
hereof and the Closing Date, it being understood that the ordinary
course of business will include declaring and paying customary dividends
and other distributions.
5.2 Each Fund will call a shareholders' meeting to consider and act upon
this Agreement and the transactions contemplated herein and to take all
other action necessary to obtain approval of the transactions
contemplated hereby.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.
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5.4 Subject to the provisions of this Agreement, each Fund will take or
cause to be taken all action, and will do or cause to be done all
things, reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.5 Each Fund will prepare and file with the SEC the Joint Proxy
Statement--Prospectus, and the Acquiring Fund will prepare and file with
the SEC a registration statement on Form N-14 relating to the Acquiring
Fund Shares to be issued hereunder (together with any amendments thereof
and supplements thereto, the "Registration Statement"), in compliance
with the 1933 Act, the 1934 Act and the Investment Company Act and the
rules and regulations thereunder.
5.6 Each Fund will, from time to time, as and when requested by the other
Fund, execute and deliver or cause to be executed and delivered all such
assignments and other instruments, and will take or cause to be taken
such further action, as the other Fund may deem necessary or desirable
in order to (a) vest in and confirm to the Acquiring Fund title to and
possession of all the assets of the Acquired Fund to be sold, assigned,
transferred and delivered to the Acquiring Fund pursuant to this
Agreement, (b) vest in and confirm to the Acquired Fund title to and
possession of all the Acquiring Fund Shares to be transferred to the
Acquired Fund pursuant to this Agreement, (c) assume all of the Acquired
Fund's liabilities in accordance with this Agreement, and (d) otherwise
to carry out the intent and purpose of this Agreement.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the Investment
Company Act and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
5.8 The expenses incurred by the Funds in connection with this Agreement and
the transactions contemplated hereby shall be allocated between the
Funds in a fair and equitable manner based upon estimated savings to
each Fund resulting from the transactions contemplated hereby, whether
or not the transactions contemplated hereby are consummated.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided for
herein shall, at its election, be subject to the performance by the Acquiring
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and the following further conditions.
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date.
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by the President or a Vice President of
the Acquiring Fund, in form and substance satisfactory to the Acquired
Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund in this Agreement
are true and correct at and as of the Closing Date except as they may be
affected by the transactions contemplated by this Agreement, and as to
such other matters as the Acquired Fund shall reasonably request.
6.3 The Acquired Fund shall have received an opinion from Vedder, Price,
Kaufman & Kammholz, counsel to the Acquiring Fund, dated as of the
Closing Date, to the effect that:
6.3.1 The Acquiring Fund has been duly organized and is validly existing
as a business trust in good standing under the laws of the
Commonwealth of Massachusetts with requisite power and authority
to own its properties and, to the knowledge of such counsel, to
carry on its business as presently conducted;
6.3.2 This Agreement has been duly authorized, executed and delivered by
the Acquiring Fund and, assuming due authorization, execution and
delivery of the Agreement by the Acquired Fund, constitutes a
valid and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors'
rights and to general equitable principles;
6.3.3 The Acquiring Fund Common Shares and shares of Acquiring Fund
MuniPreferred, Series T and Series TH, to be distributed to
shareholders of the Acquired Fund under this Agreement will, when
issued in exchange for the net assets of the Acquired Fund as
contemplated by this Agreement, be validly issued and outstanding
and fully paid and non-assessable (except to the extent set forth
in the Joint Proxy Statement--Prospectus) and free of preemptive
rights;
6.3.4 Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby violate (i)
the Acquiring Fund's Declaration of Trust or By-Laws or (ii) any
federal law of the United States, the laws of the State of
Illinois or the laws of the Commonwealth of Massachusetts
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applicable to the Acquiring Fund; provided, however, that such
counsel may state that it expresses no opinion with respect to
federal or state securities laws, other antifraud laws and
fraudulent transfer laws; and provided, further that insofar as
performance by the Acquiring Fund of its obligations under this
Agreement is concerned such counsel may state that it expresses no
opinion as to bankruptcy, insolvency, reorganization, moratorium
or similar laws of general applicability relating to or affecting
creditors' rights;
6.3.5 All regulatory consents, authorizations, approvals and filings
required to be obtained or made by the Acquiring Fund under the
federal laws of the United States, the laws of the Commonwealth of
Massachusetts and state Blue Sky or securities laws for the
consummation of the transactions contemplated by this Agreement
have been obtained or made;
6.3.6 The Acquiring Fund has been registered with the SEC as an
investment company and, to the knowledge of such counsel, no order
has been issued or proceeding instituted to suspend such
registration; and
6.3.7 To the knowledge of such counsel, (a) no litigation or
administrative proceeding or investigation of or before any court
or governmental body is presently pending or threatened as to the
Acquiring Fund or any of its properties or assets, and (b) the
Acquiring Fund is not a party to or subject to the provision of
any order, decree or judgment of any court or governmental body,
which materially and adversely affects its business.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions provided
for herein with respect to the Acquired Fund shall, at its election, be subject
to the performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and the following further
conditions:
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date.
7.2 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by the President or Vice President of
the Acquired Fund, in form and substance satisfactory to the Acquiring
Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Fund in this Agreement
are true and correct at and as of the Closing Date except as they may be
affected by the transactions contemplated by this Agreement, and as to
such other matters as the Acquiring Fund shall reasonably request.
7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a Statement of Net Assets, which Statement shall be
prepared in accordance with generally accepted accounting principles
consistently applied, together with a list of its portfolio securities
showing the adjusted tax bases and holding periods of such securities as
of the Closing Date, certified by the Treasurer of the Acquired Fund.
7.4 On or immediately prior to the Closing Date, the Acquired Fund shall
have declared the dividends and/or distributions contemplated by
paragraph 1.4.
7.5 The Acquiring Fund shall have received an opinion from Vedder, Price,
Kaufman & Kammholz, counsel to the Acquired Fund, dated as of the
Closing Date, to the effect that:
7.5.1 The Acquired Fund has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Minnesota with requisite power and authority to own its properties
and, to the knowledge of such counsel, to carry on its business as
presently conducted;
7.5.2 This Agreement has been duly authorized, executed and delivered by
the Acquired Fund and, assuming due authorization, execution and
delivery of the Agreement by the Acquiring Fund, constitutes a
valid and binding obligation of the Acquired Fund enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors'
rights and to general equitable principles;
7.5.3 Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby violate (i)
the Acquired Fund's Articles of Incorporation or By-Laws or (ii)
any federal law of the United States, the laws of the State of
Illinois or the laws of the State of Minnesota applicable to the
Acquired Fund; provided, however, that such counsel may state that
it expresses no opinion with respect to federal or state
securities laws, other antifraud laws and fraudulent transfer
laws; and provided, further that insofar as performance by the
Acquired Fund of its obligations under this Agreement is concerned
such counsel may state that it expresses no opinion as to
bankruptcy, insolvency, reorganization, moratorium or similar laws
of general applicability relating to or affecting creditors'
rights;
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7.5.4 All regulatory consents, authorizations, approvals and filings
required to be obtained or made by the Acquired Fund under the
federal laws of the United States, the laws of the State of
Minnesota and state Blue Sky or securities laws for the
consummation of the transactions contemplated by this Agreement
have been obtained or made;
7.5.5 The Acquired Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no
order has been issued or proceeding instituted to suspend such
registration; and
7.5.6 To the knowledge of such counsel, (a) no litigation or
administrative proceeding or investigation of or before any court
or governmental body is presently pending or threatened as to the
Acquired Fund or any of its properties or assets, and (b) the
Acquired Fund is not a party to or subject to the provision of any
order, decree or judgment of any court or governmental body, which
materially and adversely affects its business.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The obligations of each Fund hereunder are subject to the further conditions
that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite votes of (a) the Board of Trustees of the
Acquiring Fund and the Board of Directors of the Acquired Fund,
including as to the determinations required by Rule 17a-8(a) under the
Investment Company Act and (b) the holders of the outstanding shares of
the Acquiring Fund and the Acquired Fund in accordance with the
provisions of the Acquiring Fund's Declaration of Trust and By-Laws and
the Acquired Fund's Articles of Incorporation and By-Laws and the
requirements of the NYSE; each Fund shall have delivered certified
copies of the resolutions evidencing such approvals to the other Fund;
and the Acquiring Fund shall have given Bankers Trust Company or its
successor, and the Depository Trust Company or its successor, at least
five business days notice of such approval.
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all consents, orders and permits of
federal, state and local regulatory authorities (including those of the
SEC and of state Blue Sky or securities authorities, including
"no-action" positions of such federal or state authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a materially
adverse effect on the assets or properties of the Acquiring Fund or the
Acquired Fund, provided that either party hereto may waive any part of
this condition as to itself.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop order suspending the effectiveness thereof shall have
been issued, and, to the best knowledge of the Funds no investigation or
proceeding under the 1933 Act for that purpose shall have been
instituted or be pending, threatened or contemplated.
8.5 The Funds shall have received an opinion of Vedder, Price, Kaufman &
Kammholz satisfactory to the Funds and based upon such reasonably
requested representations and warranties as requested by counsel,
substantially to the effect that, for federal income tax purposes:
8.5.1 The acquisition by the Acquiring Fund of substantially all the
assets of the Acquired Fund in exchange solely for Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Acquired
Fund's liabilities, if any, followed by the distribution by the
Acquired Fund of the Acquiring Fund Shares to the shareholders of
the Acquired Fund in exchange for their Acquired Fund shares in
complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the
Internal Revenue Code, and the Acquiring Fund and the Acquired
Fund each will be "a party to a reorganization" within the meaning
of Section 368(b) of the Internal Revenue Code;
8.5.2 The Acquired Fund's shareholders will recognize no gain or loss
upon the exchange of all of their Acquired Fund shares for
Acquiring Fund Shares in complete liquidation of the Acquired
Fund, except with respect to cash received for a fractional
Acquiring Fund Common Share, if any;
8.5.3 No gain or loss will be recognized by the Acquired Fund upon the
transfer of substantially all its assets to the Acquiring Fund in
exchange solely for Acquiring Fund Shares and the assumption by
the Acquiring Fund of the Acquired Fund's liabilities, if any, and
with respect to the subsequent distribution of those Acquiring
Fund Shares to the Acquired Fund shareholders in complete
liquidation of the Acquired Fund;
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8.5.4 No gain or loss will be recognized by the Acquiring Fund upon the
acquisition of substantially all the Acquired Fund's assets in
exchange solely for Acquiring Fund Shares and the assumption of
the Acquired Fund's liabilities, if any;
8.5.5 The basis of the assets acquired by the Acquiring Fund will be, in
each instance, the same as the basis of those assets when held by
the Acquired Fund immediately before the transfer, and the holding
period of such assets acquired by the Acquiring Fund will include
the holding period thereof when held by the Acquired Fund;
8.5.6 The basis of the Acquiring Fund Shares to be received by the
Acquired Fund's shareholders upon liquidation of the Acquired Fund
will be, in each instance, the same as the basis of the Acquired
Fund shares surrendered in exchange therefor, decreased by any
cash received and increased by the amount of gain recognized on
the exchange; and
8.5.7 The holding period of the Acquiring Fund Shares to be received by
the Acquired Fund's shareholders will include the period during
which the Acquired Fund shares to be surrendered in exchange
therefor were held, provided such Acquired Fund shares were held
as capital assets by those shareholders on the date of the
exchange.
8.6 The Acquiring Fund shall have obtained written confirmation from both
Moody's Investors Service, Inc. and Standard & Poor's Corporation that
(a) consummation of the transactions contemplated by this Agreement will
not impair the "aaa" and AAA ratings, respectively, assigned by such
rating agencies to the existing shares of Acquiring Fund MuniPreferred,
Series M, Series W and Series F, and (b) the shares of Acquiring Fund
MuniPreferred, Series T and Series TH, to be issued pursuant to
paragraph 1.1 will be rated "aaa" or AAA, respectively, by such rating
agencies.
9. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
9.1 This Agreement constitutes the entire agreement between the Funds.
9.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereby.
10. TERMINATION
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of the shareholders of the Funds:
10.1 By mutual agreement of the Funds;
10.2 By either Fund, if a condition to the obligations of such Fund shall not
have been met and it reasonably appears that it will not or cannot be
met; or
10.3 By either Fund, if the Closing shall not have occurred on or before
January 31, 1997;
In the event of any such termination, there shall be no liability for damages on
the part of either Fund (other than the liability of the Funds to pay expenses
pursuant to paragraph 5.8) or any Director, Trustee or officer of any Fund.
11. AMENDMENT
This Agreement may be amended, modified or supplemented only in writing by the
parties; provided, however, that following the shareholders' meetings called by
the Funds pursuant to paragraph 5.2, no such amendment may have the effect of
changing the provisions for determining the number of Acquiring Fund Common
Shares or shares of Acquiring Fund MuniPreferred to be distributed to the
Acquired Fund's shareholders under this Agreement without their further approval
and the further approval of the Funds' Boards of Directors or Trustees
(including the determination required by Rule 17a-8(a) under the Investment
Company Act), and provided further that nothing contained in this paragraph 11
shall be construed as requiring additional approval to amend this Agreement to
change the Closing Date or the Effective Time.
12. NOTICES
Any notice, report, demand or other communication required or permitted by any
provision of this Agreement shall be in writing and shall be given by hand
delivery, prepaid certified mail or overnight delivery service addressed to John
Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606,
Attention: James J. Wesolowski.
13. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
13.1 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
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13.3 This Agreement shall be governed by and construed in accordance with the
laws of the State of Illinois.
13.4 This Agreement shall bind and inure to the benefit of the parties and
their respective successors and assigns, and no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by either
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation other than the parties and their
respective successors and assigns any rights or remedies under or by
reason of this Agreement.
13.5 All persons dealing with the Acquiring Fund must look solely to the
property of the Acquiring Fund for the enforcement of any claims against
the Acquiring Fund as neither the Trustees, officers, agents or
shareholders of the Acquiring Fund assume any personal liability for
obligations entered into on behalf of the Acquiring Fund.
13.6 All persons dealing with the Acquired Fund must look solely to the
property of the Acquired Fund for the enforcement of any claims against
the Acquired Fund as neither the Directors, officers, agents or
shareholders of the Acquired Fund assume any personal liability for
obligations entered into on behalf of the Acquired Fund.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
by the President or Vice President of each Fund.
<TABLE>
<S> <C>
NUVEEN INSURED PREMIUM INCOME NUVEEN PREMIUM INCOME MUNICIPAL
MUNICIPAL FUND 2 FUND, INC.
/s/ TIMOTHY R. /s/ TIMOTHY R. SCHWERTFEGER
SCHWERTFEGER By:
By: --------------------------------------------
- -------------------------------------------- President
President
</TABLE>
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<PAGE> 55
ANNEX B
SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA BUSINESS CORPORATION ACT
RELATING TO THE ACQUIRED FUND DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS.--Subdivision 1. Actions creating
rights. A shareholder of a corporation may dissent from, and obtain payment for
the fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that
it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or
new class or series with similar or different voting rights; except that
an amendment to the articles of an issuing public corporation that
provides that section 302A.671 does not apply to a control share
acquisition does not give rise to the right to obtain payment under this
section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court,
or a disposition for cash on terms requiring that all or substantially all
of the net proceeds of disposition be distributed to the shareholders in
accordance with their respective interests within one year after the date
of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B,
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their
shares.
Subdivision 2. Beneficial owners. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares that
are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subdivision 3. Rights not to apply. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subdivision 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.--Subdivision
1. Definitions. (a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action referred to in section 302A.471, subdivision 1 or the successor
by merger of that issuer.
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(c) "Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date of
the corporate action referred to in section 302A.471, subdivision 1 up to and
including the date of payment, calculated at the rate provided in section 549.09
for interest on verdicts and judgments.
Subdivision 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subdivision 3. Notice of dissent. If a proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
Subdivision 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description of
the procedures to be followed under these sections.
(b) In order to received the fair value of the shares, a dissenting shareholder
must demand payment and deposit certificated shares or comply with any
restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a shareholder
until the proposed action takes effect.
Subdivision 5. Payment; return of shares. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description of
the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a) from
a person who was not a shareholder on the date the action dissented from was
first announced to the public or who is dissenting on behalf of a person who was
not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
Subdivision 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subdivision 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest.
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The petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last registered
office of the constituent corporation was located. The petition shall name as
parties all dissenters who have demanded payment under subdivision 6 and who
have not reached agreement with the corporation. The corporation shall, after
filing the petition, serve all parties with a summons and copy of the petition
under the rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subdivision 8. Costs; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply substantially
with this section, the court may assess all fees and expenses of any experts or
attorneys as the court deems equitable. These fees and expenses may also be
assessed against a person who has acted arbitrarily, vexatiously, or not in good
faith in bringing the proceeding, and may be awarded to a party injured by those
actions.
(c) The court may award, in its discretion, fees and expenses to an attorney for
the dissenters out of the amount awarded to the dissenters, if any.
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ANNEX C
GLOSSARY OF TERMS
Capitalized terms used but not defined in this Annex C have the meanings given
them in the forepart of this Joint Proxy Statement--Prospectus.
" 'AA' COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate Period of
shares of a series of Acquiring Fund MuniPreferred, means: (1)(A) in the case of
any Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; provided, however, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven-day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than 183 Rate Period Days, the
interest equivalent of the 180-day rate, in each case on commercial paper placed
on behalf of issuers whose corporate bonds are rated "AA" by S&P or the
equivalent of such rating by S&P or another rating agency, as made available on
a discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day next preceding such date; or (ii) in the event that the Federal
Reserve Bank of New York does not make available any such rate, then the
arithmetic average of such rates, as quoted on a discount basis or otherwise, by
certain commercial paper dealers to the Auction Agent for the close of business
on the Business Day next preceding such date.
"AGENT MEMBER" means a member of or participant in the Securities Depository
that will act on behalf of a Bidder.
"ALL HOLD ORDER RATE," with respect to a Rate Period of shares of a series of
Acquiring Fund MuniPreferred for which an Auction is held, means the lesser of
the Kenny Index (if the Rate Period for which the Auction is held consists of
fewer than 183 Rate Period Days) or the product of (i)(1) the "AA" Composite
Commercial Paper Rate on such Auction Date for such Rate Period, if such Rate
Period consists of fewer than 183 Rate Period Days, (2) the Treasury Bill Rate
on such Auction Date for such Rate Period, if such Rate Period consists of more
than 182 but fewer than 365 Rate Period Days or (3) the Treasury Note Rate on
such Auction Date for such Rate Period, if such Rate Period is more than 364
Rate Period Days (the rate described in the foregoing clause (i)(1), (2) or (3),
as applicable, being referred to herein as the "Benchmark Rate"), and (ii) 1
minus the maximum marginal regular Federal income tax rate, if any, applicable
to ordinary income or the maximum marginal regular Federal corporate income tax
rate applicable to ordinary income, whichever is greater; provided, however,
that if the Acquiring Fund has notified the Auction Agent of its intent to
allocate to shares of Acquiring Fund MuniPreferred in such Rate Period any net
capital gains or other income taxable for Federal income tax purposes ("Taxable
Income"), the Applicable Rate for shares of such series for such Rate Period
will be (A) if the Taxable Yield Rate (as defined below) is greater than the
Benchmark Rate, then the Benchmark Rate, or (B) if the Taxable Yield Rate is
less than or equal to the Benchmark Rate, then the rate equal to the sum of (x)
the lesser of the Kenny Index (if such Rate Period consists of fewer than 183
Rate Period Days) or the product of the Benchmark Rate multiplied by the factor
set forth in the preceding clause (ii) and (y) the product of the maximum
marginal regular Federal income tax rate, if any, applicable to ordinary income
or the maximum marginal regular Federal corporate income tax rate applicable to
ordinary income, whichever is greater, multiplied by the Taxable Yield Rate. For
purposes of the foregoing, Taxable Yield Rate means the rate determined by (a)
dividing the amount of Taxable Income available for distribution per such share
of Acquiring Fund MuniPreferred by the number of days in the Dividend Period in
respect of which such Taxable Income is contemplated to be distributed, (b)
multiplying the amount determined in (a) above by 365 (in the case of a Dividend
Period of 7 Rate Period Days) or 360 (in the case of any other Dividend Period),
and (c) dividing the amount determined in (b) above by $25,000.
"APPLICABLE RATE," with respect to shares of a series of Acquiring Fund
MuniPreferred, means the rate per annum at which dividends are payable on shares
of such series for any Rate Period thereof.
"AUCTION AGENCY AGREEMENT" means an agreement between the Acquiring Fund and the
Auction Agent which provides, among other things, that the Auction Agent will
follow the Auction Procedures for purposes of determining the Applicable Rate
for shares of each series of Acquiring Fund MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.
"AUCTION AGENT" means the entity appointed as such by a resolution of the
Acquiring Fund's Board.
"BIDDER" means a Beneficial Owner or a Potential Beneficial Owner placing an
Order with its Broker-Dealer or an Existing Holder or Potential Holder placing
an Order with the Auction Agent or on whose behalf an Order is placed with an
Auction Agent.
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<PAGE> 59
"BROKER-DEALER" means any broker-dealer, commercial bank or other entity
permitted by law to perform the functions required of a Broker-Dealer, that is a
member of, or a participant in, the Securities Depository or is an affiliate of
such member or participant, has been selected by the Acquiring Fund and has
entered into a Broker-Dealer Agreement that remains effective.
"BROKER-DEALER AGREEMENT" means an agreement among the Acquiring Fund, the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to
follow the Auction Procedures.
"BUSINESS DAY" means a day on which the New York Stock Exchange is open for
trading and is not a Saturday, Sunday or other day on which banks in New York
City are authorized by law to close.
"DATE OF ORIGINAL ISSUE," with respect to shares of a series of Acquiring Fund
MuniPreferred, means the day on which the Acquiring Fund initially issued shares
of such series (in the case of Acquiring Fund MuniPreferred, Series M, Series W
and Series F) or the day following the day on which the Effective Time occurs
(in the case of Acquiring Fund MuniPreferred, Series T and Series TH).
"DIVIDEND PAYMENT DATE," with respect to shares of a series of Acquiring Fund
MuniPreferred, means any date on which dividends on shares of such series are
payable as provided under "Proposal No. 1--The Reorganization--Description of
MuniPreferred Issued by the Acquiring Fund--Dividends and Dividend Periods."
"DIVIDEND PERIOD," with respect to shares of a series of Acquiring Fund
MuniPreferred, means the period from and including the Date of Original Issue
(in the case of Acquiring Fund MuniPreferred, Series M, Series W and Series F)
or the day following the Date of Original Issue (in the case of Acquiring Fund
MuniPreferred, Series T and Series TH) to but excluding the initial Dividend
Payment Date for shares of such series and any period thereafter from and
including one Dividend Payment Date for shares of such series to but excluding
the next succeeding Dividend Payment Date for shares of such series.
"EXISTING HOLDER," with respect to shares of a series of Acquiring Fund
MuniPreferred, means a Broker-Dealer (or any such other person as may be
permitted by the Acquiring Fund) that is listed on the records of the Auction
Agent as a holder of shares of such series.
"INITIAL RATE PERIOD," with respect to shares of a series of Acquiring Fund
MuniPreferred, means the period from and including the Date of Original Issue to
but excluding November 23, 1993, November 18, 1993, and November 22, 1993 (in
the case of Acquiring Fund MuniPreferred, Series M, Series W and Series F,
respectively) and the period consisting of the number of days following the Date
of Original Issue that would have remained in the rate period of Acquired Fund
MuniPreferred, Series T and Series TH, but for the Reorganization (in the case
of Acquiring Fund MuniPreferred, Series T and Series TH).
"MINIMUM RATE PERIOD" means any Rate Period consisting of 7 Rate Period Days.
"POTENTIAL HOLDER," with respect to shares of a series of Acquiring Fund
MuniPreferred, means a Broker-Dealer (or any such other person as may be
permitted by the Acquiring Fund) that is not an Existing Holder of shares of
such series or that is an Existing Holder of shares of such series that wishes
to become the Existing Holder of additional shares of such series.
"RATE MULTIPLE," for shares of a series, an Acquiring Fund MuniPreferred on any
Auction Date for shares of such series, means a percentage, determined as set
forth below, based on the prevailing rating of shares of such series in effect
at the close of business on the Business Day next preceding such Auction Date:
<TABLE>
<CAPTION>
---------------------------------------------------
PREVAILING RATING PERCENTAGE
---------------------------------------------------
<S> <C>
"aa3"/AA- or higher 110%
"a3"/A- 125%
"baa3"/BBB- 150%
"ba3"/BB- 200%
Below "ba3"/BB- 250%
---------------------------------------------------
</TABLE>
provided, however, that in the event the Acquiring Fund has notified the Auction
Agent of its intent to allocate income taxable for Federal income tax purposes
to shares of such series prior to the Auction establishing the Applicable Rate
for shares of such series, the applicable percentage in the foregoing table
shall be divided by the quantity 1 minus the maximum marginal regular Federal
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income, whichever is
greater. If the ratings for shares of a series of Acquiring Fund MuniPreferred
are split between two of the foregoing categories, the lower rating will
determine the prevailing rating of shares of such series. If the shares of a
series of Acquiring Fund MuniPreferred are rated by only one rating agency, such
rating will be the prevailing rating of shares of such series.
"RATE PERIOD," with respect to shares of a series of Acquiring Fund
MuniPreferred, means the Initial Rate Period of shares of such series and any
Subsequent Rate Period of such shares of such series.
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<PAGE> 60
"RATE PERIOD DAYS," for any Rate Period or Dividend Period, means the number of
days that would constitute such Rate Period or Dividend Period but for either
(i) the shortening or lengthening, as the case may be, of such Rate Period or
Dividend Period as set forth under "Proposal No. 1--The
Reorganization--Description of MuniPreferred Issued by the Acquiring
Fund--Dividends and Dividend Periods" because the day on which dividends would
otherwise be payable is not a Business Day or (ii) the shortening of such Rate
Period pursuant to the provisions relating to the designation of Special Rate
Periods as set forth in the Statement of Additional Information under
"Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--Designation of Special Rate Periods."
"REFERENCE RATE" means (i) the higher of the Taxable Equivalent of the
Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper Rate in
the case of Minimum Rate Periods and Special Rate Periods of 28 Rate Period Days
or fewer; (ii) the "AA" Composite Commercial Paper Rate in the case of Special
Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate Period
Days; and (iii) the Treasury Bill Rate in the case of Special Rate Periods of
more than 182 Rate Period Days but fewer than 365 Rate Period Days.
"SECURITIES DEPOSITORY" means The Depository Trust Company and its successors
and assigns or any other securities depository selected by the Acquiring Fund
which agrees to follow the procedures required to be followed by such securities
depository in connection with shares of Acquiring Fund MuniPreferred.
"SPECIAL RATE PERIOD," with respect to shares of a series of Acquiring Fund
MuniPreferred, means any Subsequent Rate Period of shares of such series
commencing on the date designated by the Acquiring Fund, as set forth under
"Proposal No. 1--The Reorganization--Description of MuniPreferred Issued by the
Acquiring Fund--Dividends and Dividend Periods--Designation of Special Rate
Periods," and ending on the last day of the last Dividend Period thereof.
"SUBMISSION DEADLINE" means 1:30 p.m., New York City time, on any Auction Date
or such other time on any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the Auction Agent from time
to time.
"SUBMITTED BID" means a valid Bid submitted or deemed submitted to the Auction
Agent by a Broker-Dealer by the Submission Deadline.
"SUBMITTED HOLD ORDER" means a valid Hold Order submitted or deemed submitted to
the Auction Agent by a Broker-Dealer by the Submission Deadline.
"SUBSEQUENT RATE PERIOD," with respect to shares of a series of Acquiring Fund
MuniPreferred, means any period from and including the first day following the
Initial Rate Period of shares of such series to but excluding the next Dividend
Payment Date for shares of such series and any period thereafter from and
including one Dividend Payment Date for shares of such series to but excluding
the next succeeding Dividend Payment Date for shares of such series; provided,
however, that if any Subsequent Rate Period is also a Special Rate Period, such
term shall mean the period commencing on the first day of such Special Rate
Period and ending on the last day of the last Dividend Period thereof.
"TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE" on any date for any
Minimum Rate Period or Special Rate Period of 28 Rate Period Days or fewer,
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 successor
index (the "Kenny Index") (provided, however, that any such successor index must
be approved by Moody's (if Moody's is then rating the shares of Acquiring Fund
MuniPreferred) and S&P (if S&P is then rating the shares of Acquiring Fund
MuniPreferred)), made available for the Business Day immediately preceding such
date but in any event not later than 8:30 a.m., New York City time, on such date
by Kenny S&P Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income tax purposes under the Code, of "high grade"
component issuers selected by Kenny S&P Evaluation Services or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income (in each case expressed as a decimal), whichever is greater;
provided, however, that if the Kenny Index is not made so available by 8:30
a.m., New York City time, on such date by Kenny S&P Evaluation Services or any
successor, the Taxable Equivalent of the Short-Term Municipal Bond Rate shall
mean the quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income (in each
case expressed as a decimal), whichever is greater.
"TREASURY BILL" means a direct obligation of the U.S. government having a
maturity at the time of issuance of 364 days or less.
"TREASURY BILL RATE," on any date for any Rate Period, means: (a) the bond
equivalent yield, calculated in accordance with prevailing industry convention,
of the rate on the most recently auctioned Treasury Bill with a remaining
maturity closest to
C-3
<PAGE> 61
the length of such Rate Period, as quoted in The Wall Street Journal on such
date for the Business Day next preceding such date; or (b) in the event that any
such rate is not published in The Wall Street Journal, then the bond equivalent
yield, calculated in accordance with prevailing industry convention, as
calculated by reference to the arithmetic average of the bid price quotations of
the most recently auctioned Treasury Bill with a remaining maturity closest to
the length of such Rate Period, as determined by bid price quotations as of the
close of business on the Business Day immediately preceding such date obtained
from certain U.S. government securities dealers to the Auction Agent.
"TREASURY NOTE" means a direct obligation of the U.S. government having a
maturity at the time of issuance of five years or less but more than 364 days.
"TREASURY NOTE RATE," on any date for any Rate Period, means: (a) the yield on
the most recently auctioned Treasury Note with a remaining maturity closest to
the length of such Rate Period, as quoted in The Wall Street Journal on such
date for the Business Day next preceding such date; or (b) in the event that any
such rate is not published in The Wall Street Journal, then the yield as
calculated by reference to the arithmetic average of the bid price quotations of
the most recently auctioned Treasury Note with a remaining maturity closest to
the length of such Rate Period, as determined by bid price quotations as of the
close of business on the Business Day immediately preceding such date obtained
from certain U.S. government securities dealers to the Auction Agent.
C-4
<PAGE> 62
JOINT PROXY STATEMENT-PROSPECTUS
JUNE 17, 1996
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND, INC.
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
NPX 7/96
<PAGE> 63
NUVEEN INSURED PREMIUM
INCOME MUNICIPAL FUND 2
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the common shares and
shares of MuniPreferred(R) (collectively, the "Acquiring Fund Shares") to be
issued by Nuveen Insured Premium Income Municipal Fund 2 (the "Acquiring Fund")
pursuant to an Agreement and Plan of Reorganization and Liquidation dated as of
May 1, 1996 (the "Agreement") by and between the Acquiring Fund and Nuveen
Insured Premium Income Municipal Fund, Inc. (the "Acquired Fund" and, together
with the Acquiring Fund, the "Funds"), providing for a reorganization (the
"Reorganization") in which, among other things, the Acquiring Fund would (a)
acquire substantially all of the assets of the Acquired Fund in exchange for
newly issued Acquiring Fund Shares and (b) assume substantially all of the
liabilities of the Acquired Fund. This Statement of Additional Information does
not constitute a prospectus, but should be read in conjunction with the Joint
Proxy Statement--Prospectus relating to the Acquiring Fund Shares dated June 17,
1996. This Statement of Additional Information does not include all information
that a shareholder should consider before voting on the proposals contained in
the Joint Proxy Statement--Prospectus, and shareholders should obtain and read
the Joint Proxy Statement--Prospectus prior to voting. A copy of the Joint Proxy
Statement--Prospectus may be obtained without charge by mailing a written
request to either of the Funds, Attention: Administration, 333 West Wacker
Drive, Chicago, Illinois 60606 or by calling (800) 257-8787. Capitalized terms
used but not defined in the text of this Statement of Additional Information
have the meanings given them in Annex D hereto.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies of the Funds........................................... S-2
Certain Trading Strategies of the Funds................................................... S-9
Management of the Funds................................................................... S-11
Portfolio Transactions of the Funds....................................................... S-12
Description of MuniPreferred Issued by the Acquiring Fund................................. S-13
Description of the Auctions for MuniPreferred Issued by the Acquiring Fund................ S-29
Tax Matters Associated with Investment in the Funds....................................... S-40
Index to Financial Statements............................................................. F-1
Index to Pro Forma Financial Statements................................................... P-1
Ratings of Investments (ANNEX A).......................................................... A-1
Auction Procedures (ANNEX B).............................................................. B-1
Settlement Procedures (ANNEX C)........................................................... C-1
Glossary of Terms (ANNEX D)............................................................... D-1
Portfolio Insurance (ANNEX E)............................................................. E-1
</TABLE>
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS JUNE 17, 1996.
<PAGE> 64
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
GENERAL
Each Fund's primary investment objective is to provide, through investment
in a professionally managed portfolio of tax-exempt Municipal Obligations,
current income exempt from regular Federal income taxes, consistent with each
Fund's investment policies. Each Fund's secondary investment objective is the
enhancement of portfolio value relative to the municipal bond market through
investments in tax-exempt Municipal Obligations that, in the opinion of the
Adviser, are underrated or undervalued or that represent municipal market
sectors that are undervalued. This secondary investment objective will
ordinarily involve purchase by each Fund of (1) underrated or undervalued
uninsured Municipal Objections, which would then be covered by insurance, or (2)
undervalued insured Municipal Obligations. See "Portfolio Investments."
Underrated Municipal Obligations are those whose ratings do not, in the
Adviser's opinion, reflect their true value. Municipal Obligations may be
underrated because of the time that has elapsed since their most recent rating,
or because of positive factors that may not have been fully taken into account
by rating agencies, or for other similar reasons. Municipal Obligations that are
undervalued or that represent undervalued municipal market sectors are Municipal
Obligations that, in the Adviser's opinion, are worth more than the value
assigned to them in the marketplace. Municipal Obligations of particular types
or purposes (e.g., hospital bonds, industrial revenue bonds or bonds issued by a
particular municipal issuer) may be undervalued because there is a temporary
excess of supply in that market sector, or because of a general decline in the
market price of Municipal Obligations of the market sector for reasons that do
not apply to the particular Municipal Obligations that are considered
undervalued. Each Fund's investment in underrated or undervalued Municipal
Obligations is based on the Adviser's belief that the prices of such Municipal
Obligations should ultimately reflect their true value. Accordingly,
"enhancement of portfolio value relative to the municipal bond market" refers to
each Fund's objective of attempting to realize above-average capital
appreciation in a rising market, and to experience less than average capital
losses in a declining market. Thus, each Fund's secondary investment objective
is not intended to suggest that capital appreciation is itself an objective of a
Fund. Instead, each Fund will seek enhancement of portfolio value relative to
the municipal bond market by prudent selection of Municipal Obligations,
regardless of which direction the market may move. Each Fund's policy of
investing in insured Municipal Obligations may limit the extent to which it will
be able to achieve its secondary investment objective. Any capital appreciation
realized by a Fund will generally result in the distribution of taxable capital
gains to Fund shareholders. Each Fund currently is required to allocate net
capital gains and other income taxable for Federal income tax purposes, if any,
proportionately between its common shares and shares of its MuniPreferred, and
dividends paid on shares of its MuniPreferred during specified periods will
include an allocated portion of any such net capital gains and other taxable
income. See "Tax Matters Associated with Investment in the Funds" and
"Description of the Auctions for MuniPreferred Issued by the Acquiring
Fund--Auction Dates; Advance Notice of Allocation of Taxable Income" below. Each
Fund's investment objectives are fundamental policies of that Fund.
Neither Fund has established a limit on the percentage of its portfolio
that may be invested in Municipal Obligations subject to the alternative minimum
tax provisions of Federal tax law, and a substantial portion of the income
produced by a Fund may be includable in alternative minimum taxable income in
respect of that Fund. Shares of a Fund therefore would not ordinarily be a
suitable investment for investors who are subject to the Federal alternative
minimum tax. The suitability of an investment in a Fund's shares will depend
upon a comparison of the after-tax yield likely to be provided from that Fund
with that from comparable tax-exempt investments not subject to the alternative
minimum tax, and from comparable fully taxable investments, in light of each
such investor's tax position. Special considerations apply to corporate
investors. See "Tax Matters Associated with Investment in the Funds" below.
PORTFOLIO INVESTMENTS
Except to the extent a Fund invests in temporary investments as described
below, each Fund will, as a fundamental policy, invest all of its assets in
tax-exempt Municipal Obligations which are either covered by insurance
guaranteeing the timely payment of principal and interest thereon or backed by
an escrow or trust account containing sufficient U.S. Government or U.S.
Government agency securities to ensure timely payment of principal and interest.
Municipal Obligations backed by an escrow or trust account will not constitute
more than 20% of the Fund's assets.
Each insured Municipal Obligation held by a Fund will either be (1) covered
by an insurance policy applicable to a specific security, whether obtained by
the issuer of the security or a third party at the time of original issuance
("Original Issue Insurance") or by a Fund or a third party subsequent to the
time of original issuance ("Secondary Market Insurance"), or (2) covered by a
master municipal insurance policy purchased by a Fund ("Portfolio
S-2
<PAGE> 65
Insurance"). While each Fund currently intends to obtain one or more policies of
Portfolio Insurance, each Fund, depending on the availability of such policies
on terms favorable to that Fund, may determine not to obtain such policies and
to emphasize investments in Municipal Obligations insured under Original Issue
Insurance or Secondary Market Insurance. In any event, each Fund will only
obtain policies of Portfolio Insurance issued by insurers whose claims-paying
ability is rated "Aaa" by Moody's Investors Service, Inc. ("Moody's") or "AAA"
by Standard & Poor's, a division of McGraw Hill Companies ("S&P"). Each Fund
currently intends to obtain insurance policies only from mono-line insurers
specializing in insuring municipal debt. Municipal Obligations covered by
Original Issue Insurance or Secondary Market Insurance are themselves assigned a
rating of "Aaa" or "AAA," as the case may be, by virtue of the "Aaa" or "AAA"
claims-paying ability of the insurer and would generally be assigned a lower
rating if the rating were based primarily upon the credit characteristics of the
issuer without regard to the insurance feature. By way of contrast, the ratings,
if any, assigned to Municipal Obligations insured under Portfolio Insurance will
be based primarily upon the credit characteristics of the issuers without regard
to the insurance feature, and will generally carry a rating that is below "Aaa"
or "AAA." While in the portfolio of a Fund, however, a Municipal Obligation
backed by Portfolio Insurance will effectively be of the same quality as a
Municipal Obligation issued by an issuer of comparable credit characteristics
that is backed by Original Issue Insurance or Secondary Market Insurance.
Each Fund's policy of investing in Municipal Obligations insured by
insurers whose claims-paying ability is rated "Aaa" or "AAA" will apply only at
the time of the purchase of a security, and each Fund will not be required to
dispose of securities in the event Moody's or S&P, as the case may be,
downgrades its assessment of the claims-paying ability of a particular insurer
or the credit characteristics of a particular issuer. In this connection, it
should be noted that in the event Moody's or S&P or both should downgrade its
assessment of the claims-paying ability of a particular insurer, it could also
be expected to downgrade the ratings assigned to Municipal Obligations insured
under Original Issue Insurance or Secondary Market Insurance issued by such
insurer, and Municipal Obligations insured under Portfolio Insurance issued by
such insurer would also be of reduced quality in the portfolio of a Fund.
Moody's and S&P continually assess the claims-paying ability of insurers and the
credit characteristics of issuers, and there can be no assurance that they will
not downgrade their assessments subsequent to the time the Fund purchases
securities. See "Bond Insurance" below.
In addition to insured Municipal Obligations, each Fund may invest in
Municipal Obligations rated "Aaa" or "AAA" that are entitled to the benefit of
an escrow or trust account which contains securities issued or guaranteed by the
U.S. Government or U.S. Government agencies and backed by the full faith and
credit of the United States sufficient in amount to ensure the payment of
interest and principal on the original interest payment and maturity dates
("collateralized obligations"). Such collateralized obligations generally will
not be insured and will include, but are not limited to, Municipal Obligations
that have been (1) advance refunded where the proceeds of the refunding have
been used to purchase U.S. Government or U.S. Government agency securities that
are placed in escrow and whose interest or maturing principal payments, or both,
are sufficient to cover the remaining scheduled debt service on the Municipal
Obligations, and (2) issued under state or local housing finance programs which
use the issuance proceeds to fund mortgages that are then exchanged for U.S.
Government or U.S. Government agency securities and deposited with a trustee as
security for the Municipal Obligations. Such collateralized obligations are
normally regarded as having the credit characteristics of the underlying U.S.
Government or U.S. Government agency securities.
Each Fund emphasizes investments in Municipal Obligations with long-term
maturities in order to maintain an average portfolio maturity of 20-30 years,
but the average maturity may be shortened from time to time depending on market
conditions. As a result, each Fund's portfolio at any given time may include
both long-term and intermediate-term Municipal Obligations. If current market
conditions persist, each Fund expects it will concentrate its initial portfolio
in Municipal Obligations which may not be redeemed at the option of the issuer
for approximately seven to eight years from the date of purchase by that Fund.
See "Certain Trading Strategies of the Funds--Portfolio Trading and Turnover
Rate." Moreover, during temporary defensive periods (e.g., times when, in the
Adviser's opinion, temporary imbalances of supply and demand or other temporary
dislocations in the tax-exempt bond market adversely affect the price at which
long-term or intermediate-term Municipal Obligations are available), and in
order to keep cash on hand fully invested, each Fund may invest any percentage
of its assets in temporary investments, the income on which may be subject to
regular Federal income taxes. Temporary investments are high quality, short-term
securities which may be either tax-exempt or taxable. Each Fund intends to
invest in taxable temporary investments only in the event that suitable
tax-exempt temporary investments are not available at reasonable prices and
yields. Tax-exempt temporary investments include various obligations issued by
state and local governmental issuers, such as tax-exempt notes (bond
anticipation notes, tax anticipation notes and revenue anticipation notes or
other such Municipal Obligations maturing in three years or less from the date
of
S-3
<PAGE> 66
issuance) and municipal commercial paper. Each Fund will invest only in taxable
temporary investments which are U.S. Government securities or securities rated
within the highest grade by Moody's or S&P, and which mature within one year
from the date of purchase or carry a variable or floating rate of interest. See
Appendix A for a general description of Moody's and S&P's ratings of securities
in such categories. Taxable temporary investments of a Fund may include
certificates of deposit issued by U.S. banks with assets of at least $1 billion,
or commercial paper or corporate notes, bonds or debentures with a remaining
maturity of one year or less, or repurchase agreements. See "Certain Trading
Strategies of The Funds--Repurchase Agreements." To the extent each Fund invests
in temporary investments the income on which is subject to regular Federal
income taxes, the Fund will not at such times be in a position to achieve its
investment objective of providing current income exempt from regular Federal
income taxes.
The foregoing policies as to ratings of portfolio investments will apply
only at the time of the purchase of a security, and the Funds will not be
required to dispose of securities in the event Moody's or S&P downgrades its
assessment of the credit characteristics of a particular issuer.
BOND INSURANCE
Each insured Municipal Obligation in which a Fund invests will be covered
by Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
While each Fund has obtained several policies of Portfolio Insurance, a Fund may
emphasize investments in Municipal Obligations insured under Original Issue
Insurance or Secondary Market Insurance. Each Fund has obtained Portfolio
Insurance from the insurers described in Annex E and may in the future obtain
Portfolio Insurance from insurers not described therein. In any event, each Fund
has obtained and in the future will only obtain Portfolio Insurance issued by
insurers whose claims-paying ability is rated "Aaa" by Moody's or "AAA" by S&P.
There is no limitation on the percentage of a Fund's assets that may be invested
in Municipal Obligations insured by any given insurer.
Original Issue Insurance. Original Issue Insurance is purchased with
respect to a particular issue of Municipal Obligations by the issuer thereof or
a third party in conjunction with the original issuance of such Municipal
Obligations. Under such insurance, the insurer unconditionally guarantees to the
holder of the Municipal Obligation the timely payment of principal and interest
on such obligation when and as such payments shall become due but shall not be
paid by the issuer, except that in the event of any acceleration of the due date
of the principal by reason of mandatory or optional redemption (other than
acceleration by reason of a mandatory sinking fund payment), default or
otherwise, the payments guaranteed may be made in such amounts and at such times
as payments of principal would have been due had there not been such
acceleration. The insurer is responsible for such payments less any amounts
received by the holder from any trustee for the Municipal Obligation issuers or
from any other source. Original Issue Insurance does not guarantee payment on an
accelerated basis, the payment of any redemption premium (except with respect to
certain premium payments in the case of certain small issue industrial
development and pollution control Municipal Obligations), the value of the
shares of the Fund or the market value of Municipal Obligations, or payments of
any tender purchase price upon the tender of the Municipal Obligations. Original
Issue Insurance also does not insure against nonpayment of principal of or
interest on New York Municipal Obligations resulting from the insolvency,
negligence or any other act or omission of the trustee or other paying agent for
such obligations.
In the event that interest on or principal of a Municipal Obligation
covered by insurance is due for payment but is unpaid by reason of nonpayment by
the issuer thereof, the applicable insurer will make payments to its fiscal
agent (the "Fiscal Agent") or directly to the Fund, in accordance with such
insurer's payment procedure, equal to such unpaid amounts of principal and
interest not later than one business day after the insurer has been notified
that such nonpayment has occurred (but not earlier than the date such payment is
due). The Fiscal Agent will disburse to the Fund the amount of principal and
interest which is then due for payment but is unpaid upon receipt by the Fiscal
Agent of (i) evidence of the Fund's right to receive payment of such principal
and interest and (ii) evidence, including any appropriate instruments of
assignment, that all of the rights to payment of such principal or interest then
due for payment shall thereupon vest in the insurer. Upon payment by the insurer
of any principal or interest payments with respect to any Municipal Obligations,
the insurer shall succeed to the rights of the Fund with respect to such
payment.
Original Issue Insurance remains in effect as long as the Municipal
Obligations covered thereby remain outstanding and the insurer remains in
business, regardless of whether the Fund ultimately disposes of such Municipal
Obligations. Consequently, Original Issue Insurance may be considered to
represent an element of market value with respect to the Municipal Obligations
so insured, but the exact effect, if any, of this insurance on such market value
cannot be estimated.
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Secondary Market Insurance. Subsequent to the time of original issuance of
a Municipal Obligation, each Fund or a third party may, upon the payment of a
single premium, purchase insurance on such New York Municipal Obligation.
Secondary Market Insurance generally provides the same type of coverage as is
provided by Original Issue Insurance and, as is the case with Original Issue
Insurance, Secondary Market Insurance remains in effect as long as the Municipal
Obligations covered thereby remain outstanding and the insurer remains in
business, regardless of whether a Fund ultimately disposes of such Municipal
Obligations.
One of the purposes of acquiring Secondary Market Insurance with respect to
a particular Municipal Obligation would be to enable each Fund to enhance the
value of such Municipal Obligation. A Fund, for example, might seek to purchase
a particular Municipal Obligation and obtain Secondary Market Insurance with
respect thereto if, in the opinion of the Adviser, the market value of such
Municipal Obligation, as insured, would exceed the current value of the
Municipal Obligation without insurance plus the cost of the Secondary Market
Insurance. Similarly, if a Fund owns but wishes to sell a Municipal Obligation
that is then covered by Portfolio Insurance, the Fund might seek to obtain
Secondary Market Insurance with respect thereto if, in the opinion of the
Adviser, the net proceeds of a sale by the Fund of such obligation, as insured,
would exceed the current value of such obligation plus the cost of the Secondary
Market Insurance.
Portfolio Insurance. Each Fund has purchased several policies of Portfolio
Insurance, each of which would guarantee the payment of principal and interest
on specified eligible Municipal Obligations purchased by a Fund.
Except as described below, Portfolio Insurance generally provides the same type
of coverage as is provided by Original Issue Insurance or Secondary Market
Insurance. Municipal Obligations insured under one Portfolio Insurance policy
would generally not be insured under any other policy purchased by a Fund. A
Municipal Obligation is eligible for coverage under a policy if it meets certain
requirements of the insurer.
If a Municipal Obligation is already covered by Original Issue Insurance or
Secondary Market Insurance, then such Municipal Obligation is not required to be
additionally insured under any policy of Portfolio Insurance that a Fund may
purchase. All premiums respecting Municipal Obligations covered by Original
Issue Insurance or Secondary Market Insurance are paid in advance by the issuer
or other party obtaining the insurance.
Portfolio Insurance policies are effective only as to Municipal Obligations
owned by and held by each Fund, and do not cover Municipal Obligations for which
the contract for purchase fails. A "when-issued" Municipal Obligation will be
covered under a Portfolio Insurance policy upon the settlement date of the issue
of such "when-issued" Municipal Obligation.
In determining whether to insure Municipal Obligations held by a Fund, an
insurer will apply its own standards, which correspond generally to the
standards it has established for determining the insurability of new issues of
Municipal Obligations. See "Original Issue Insurance" above.
Each Portfolio Insurance policy will be non-cancellable and will remain in
effect so long as a Fund is in existence, the Municipal Obligations covered by
the policy continue to be held by a Fund, and a Fund pays the premiums for the
policy. Each insurer will generally reserve the right at any time upon written
notice to a Fund to refuse to insure any additional securities purchased by the
Fund after the effective date of such notice. Each Fund will generally reserve
the right to terminate each policy upon written notice to an insurer if it
determines that the cost of such policy is not reasonable in relation to the
value of the insurance to the Fund.
Each Portfolio Insurance policy shall terminate as to any Municipal
Obligation that has been redeemed from or sold by the Fund on the date of such
redemption or the settlement date of such sale, and an insurer shall not have
any liability thereafter under a policy as to any such Municipal Obligation,
except that if the date of such redemption or the settlement date of such sale
occurs after a record date and before the related payment date with respect to
any such Municipal Obligation, the policy will terminate as to such Municipal
Obligation on the business day immediately following such payment date. Each
policy will terminate as to all Municipal Obligations covered thereby on the
date on which the last of the covered Municipal Obligations mature, are redeemed
or are sold by a Fund.
One or more policies of Portfolio Insurance may provide each Fund, pursuant
to an irrevocable commitment of the insurer, with the option to exercise the
right to obtain permanent insurance ("Permanent Insurance") with respect to a
Municipal Obligation that is to be sold by a Fund. Each Fund would exercise the
right to obtain Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the proceeds of the sale of such Municipal
Obligation. It is expected that a Fund will exercise the right to obtain
Permanent Insurance for a Municipal Obligation only if, in the opinion of the
Adviser, upon such exercise the net proceeds from the sale by the Fund of such
obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance.
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The Permanent Insurance premium with respect to each such obligation is
determined based upon the insurability of each such obligation as of the date of
purchase by a Fund and will not be increased or decreased for any change in the
creditworthiness of such obligation unless such obligation is in default as to
payment of principal or interest, or both. In such event, the Permanent
Insurance premium shall be subject to an increase predetermined at the date of
purchase by a Fund.
Each Fund generally intends to retain any insured securities covered by
Portfolio Insurance that are in default or in significant risk of default and to
place a value on the insurance, which ordinarily will be the difference between
the market value of the defaulted security and the market value of similar
securities of minimum investment grade (i.e., rated "BBB") that are not in
default. In certain circumstances, however, the Adviser may determine that an
alternative value for the insurance, such as the difference between the market
value of the defaulted security and either its par value or the market value of
securities of a similar nature that are not in default or in significant risk of
default, is more appropriate. To the extent that a Fund holds such defaulted
securities, it may be limited in its ability to manage its investment portfolio
and to purchase other Municipal Obligations. Except as described above with
respect to securities covered by Portfolio Insurance that are in default or
subject to significant risk of default, the Fund will not place any value on the
insurance in valuing the Municipal Obligations that it holds. See "Net Asset
Value."
Because each Portfolio Insurance policy will terminate as to Municipal
Obligations sold by a Fund on the date of sale, in which event the insurer will
be liable only for those payments of principal and interest that are then due
and owing (unless Permanent Insurance is obtained by the Fund), the provision
for this insurance will not enhance the marketability of securities held by each
Fund, whether or not the securities are in default or in significant risk of
default. On the other hand, since Original Issue Insurance and Secondary Market
Insurance generally will remain in effect as long as Municipal Obligations
covered thereby are outstanding, such insurance may enhance the marketability of
such securities, even when such securities are in default or in significant risk
of default, but the exact effect, if any, on marketability cannot be estimated.
Accordingly, each Fund may determine to retain or, alternatively, to sell
Municipal Obligations covered by Original Issue Insurance or Secondary Market
Insurance that are in default or in significant risk of default.
Premiums for a Portfolio Insurance policy are generally paid by a Fund
monthly, and are adjusted for purchases and sales of Municipal Obligations
covered by the policy during the month. The yield on a Fund's portfolio is
reduced to the extent of the insurance premiums paid by the Fund which, in turn,
will depend upon the characteristics of the covered Municipal Obligations held
by the Fund. In the event a Fund were to purchase Secondary Market Insurance
with respect to any Municipal Obligation then covered by a Portfolio Insurance
policy, the coverage and the obligation of the Fund to pay monthly premiums
under such policy would cease with such purchase.
MUNICIPAL OBLIGATIONS
Also included within the general category of Municipal Obligations
described in the Joint Proxy Statement--Prospectus are participations in lease
obligations or installment purchase contract obligations (hereinafter
collectively called "Municipal Lease Obligations") of municipal authorities or
entities. Although Municipal Lease Obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a Municipal Lease Obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the
Municipal Lease Obligation. However, certain Municipal Lease Obligations contain
"nonappropriation" 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 purpose on a yearly basis. In the case of a
"nonappropriation" lease, a Fund's ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property, without recourse to the general credit of the lessee,
and disposition or releasing of the property might prove difficult. Each Fund
seeks to minimize these risks by not investing more than 5% of its total
investment assets in Municipal Lease Obligations that contain "non-
appropriation" clauses, and by only investing in those "non-appropriation"
Municipal Lease Obligations where (a) the nature of the leased equipment or
property is such that its ownership or use is essential to a governmental
function of the municipality, (b) the lease payments will commence amortization
of principal at an early date that results in an average life of seven years or
less for the Municipal Lease Obligation, (c) appropriate covenants will be
obtained from the municipal obligor prohibiting the substitution or purchase of
similar equipment if lease payments are not appropriated, (d) the lease obligor
has maintained good market acceptability in the past, (e) the investment is of a
size that will be attractive to institutional investors and (f) the underlying
leased equipment has elements of portability or use, or both, that enhance its
marketability in the event foreclosure on the underlying equipment were ever
required.
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Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed but varies with changes in
specified market rates or indexes, such as a bank prime rate or a tax-exempt
money market index. As used in the Joint Proxy Statement--Prospectus, the term
Municipal Obligations also includes obligations, such as tax-exempt notes,
municipal commercial paper and Municipal Lease Obligations, having relatively
short-term maturities, although, as noted above, each Fund emphasizes
investments in Municipal Obligations with long-term maturities.
Obligations of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 1978, as amended. In
addition, the obligations of such issuers may become subject to laws enacted in
the future by Congress, state legislatures or referenda extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is
also the possibility that, as a result of legislation or other conditions, the
power or ability of any issuer to pay, when due, the principal of and interest
on its Municipal Obligations may be materially affected.
INVESTMENT RESTRICTIONS
Except as described below, neither Fund, as a fundamental policy, may,
without the approval of the holders of a "majority of the outstanding" common
shares and preferred shares of such Fund, including shares of its MuniPreferred,
voting together as a single class, and of the holders of a "majority of the
outstanding" preferred shares of such Fund, including shares of its
MuniPreferred, voting as a separate class:
(1) Issue senior securities, as defined in the 1940 Act, other than
preferred shares, except to the extent such issuance might be involved with
respect to borrowings described under subparagraph (3) below or with
respect to transactions involving futures contracts or the writing of
options within the limits described under "Certain Trading Strategies of
the Funds--Financial Futures and Options Transactions" below;
(2) Make short sales of securities or purchase any securities on
margin (except for such short-term credits as are necessary for the
clearance of transactions), or write or purchase put or call options,
except to the extent that the purchase of a standby commitment may be
considered the purchase of a put, and except for transactions involving
options that represent no more than 10% of the Fund's total assets and are
otherwise within the limits described under "Certain Trading Strategies of
the Funds--Financial Futures and Options Transactions" below;
(3) Borrow money, except from banks for temporary or emergency
purposes or for repurchase of its shares, and then only in an amount not
exceeding one-third of the value of its total assets including the amount
borrowed; while any such borrowings exceed 5% of its total assets, no
additional purchases of investment securities will be made;
(4) Underwrite any issue of securities, except to the extent that the
purchase of Municipal Obligations in accordance with its investment
objectives, policies and limitations may be deemed to be an underwriting;
(5) Invest more than 25% of its total assets in securities of issuers
in any one industry; provided, however, that such limitation shall not
apply to Municipal Obligations other than those Municipal Obligations
backed only by the assets and revenues of non-governmental users, nor shall
it apply to Municipal Obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities;
(6) Purchase or sell real estate, but this shall not prevent it from
investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security;
(7) Purchase or sell commodities or commodities contracts, except for
transactions involving futures contracts within the limits described under
"Certain Trading Strategies of the Funds--Financial Futures and Options
Transactions" below;
(8) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objectives, policies and limitations;
(9) Invest in securities other than Municipal Obligations and
temporary investments as described under "Investment Objectives and
Policies of the Funds--Portfolio Investments" above, or purchase financial
futures and options except within the limits described under "Certain
Trading Strategies of the Funds--Financial Futures and Options
Transactions" below;
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(10) Invest more than 5% of its total assets in securities of any one
issuer, except that this limitation shall not apply to securities of the
U.S. Government, its agencies and instrumentalities or to the investment of
25% of its total assets;
(11) Pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by subparagraph (3) above, it may pledge
securities having a market value at the time of pledge not exceeding 20% of
the value of its total assets;
(12) Invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days; and
(13) Purchase or retain the securities of any issuer other than its
own securities if, to its knowledge, those of its directors or trustees, or
those officers and directors of the Adviser, who individually own
beneficially more than 1/2 of 1% of the outstanding securities of such
issuer, together own beneficially more than 5% of such outstanding
securities.
For the purposes of the foregoing, "majority of the outstanding," when used with
respect to particular shares of a particular Fund, means (i) 67% or more of the
shares present at a meeting, if the holders of more than 50% of the shares are
present or represented by proxy, or (ii) more than 50% of the shares, whichever
is less.
Notwithstanding the limitations set forth in subparagraphs (1), (2), (7)
and (9) above, restrictions imposed by Moody's or S&P, or both, on engaging in
futures and options transactions, as described under "Certain Trading Strategies
of the Funds--Financial Futures and Options Transactions" below, are not
fundamental policies and may be changed by a Fund from time to time without
shareholder approval; provided, however, that if Moody's or S&P, or both, are
rating the shares of that Fund's MuniPreferred, that Fund must receive written
confirmation from Moody's or S&P, or both, as appropriate, that any such change
would not impair the ratings then assigned by Moody's and S&P to such shares.
See also "Description of MuniPreferred Issued by the Acquiring Fund--Rating
Agency Guidelines" below for a description of other rating agency restrictions,
none of which is a fundamental policy of either Fund and which may be changed by
either Fund from time to time without shareholder approval subject to the
foregoing provision.
For the purpose of applying the limitation set forth in subparagraph (10)
above, an issuer shall be deemed the sole issuer of a security when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
non-governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to be
the sole issuer. Where a security is also backed by the enforceable obligation
of a superior or unrelated governmental or other entity (other than a bond
insurer), it shall also be included in the computation of securities owned that
are issued by such governmental or other entity. Where a security is guaranteed
by a governmental entity or some other facility, such as a bank guarantee or
letter of credit, such a guarantee or letter of credit would be considered a
separate security and would be treated as an issue of such government, other
entity or bank. When a Municipal Obligation is insured by bond insurance, it
shall not be considered a security that is issued or guaranteed by the insurer;
instead, the issuer of such security will be determined in accordance with the
principles set forth above. The foregoing restrictions do not limit the
percentage of a Fund's assets that may be invested in Municipal Obligations
insured by any given insurer.
In addition to the limitations set forth above, neither Fund will, as a
matter of operating policy, (1) invest more than 5% of its total assets in
unsecured obligations of issuers which, together with their predecessors, have
been in operation for less than three years, (2) invest for the purpose of
exercising control or management, (3) invest more than 10% of its total assets
in securities that are unmarketable, illiquid or not readily marketable
(securities that cannot reasonably be sold within seven days, including
repurchase agreements maturing in more than seven days), (4) borrow in excess of
5% of its total assets if and so long as its preferred shares are outstanding or
(5) invest more than 10% of its net assets in Municipal Obligations issued by
United States possessions or territories, which also bear interest that is
exempt from regular Federal income taxes and are therefore considered to be
Municipal Obligations for purposes of the Joint Proxy Statement--Prospectus.
These policies are not fundamental and may be changed by the Board of either
Fund without shareholder approval.
The restrictions and other limitations set forth above will apply only at
the time of purchase of securities and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.
Neither Fund has any intention to file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as such Fund is solvent and does not foresee becoming insolvent.
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CERTAIN TRADING STRATEGIES OF THE FUNDS
PORTFOLIO TRADING AND TURNOVER RATE
Portfolio trading may be undertaken to accomplish the investment objectives
of each Fund in relation to actual and anticipated movements in interest rates.
In addition, a security may be sold and another of comparable quality purchased
at approximately the same time to take advantage of what the Adviser believes to
be a temporary price disparity between the two securities. Temporary price
disparities between two comparable securities may result from supply and demand
imbalances where, for example, a temporary oversupply of certain bonds may cause
a temporarily low price for such bonds, as compared with other bonds of like
quality and characteristics. A Fund may also engage to a limited extent in
short-term trading consistent with its investment objectives. Securities may be
sold in anticipation of a market decline (a rise in interest rates) or purchased
in anticipation of a market rise (a decline in interest rates) and later sold,
but a Fund will not engage in trading solely to recognize a gain.
Subject to the foregoing, each Fund will attempt to achieve its investment
objectives by prudent selection of Municipal Obligations with a view to holding
them for investment. While there can be no assurance thereof, each Fund
anticipates that its annual portfolio turnover rate generally will not exceed
100%. However, the rate of turnover will not be a limiting factor when a Fund
deems it desirable to sell or purchase securities. Therefore, depending upon
market conditions, a Fund's annual portfolio turnover rate may exceed 100% in
particular years.
WHEN-ISSUED AND DELAYED DELIVERY
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and delivery beyond the regular
settlement date. (When-issued transactions normally settle within 30-45 days).
On such transactions the payment obligation and the interest rate are fixed at
the time the buyer enters into the commitment. Beginning on the date a Fund
enters into a commitment to purchase securities on a when-issued or delayed
delivery basis, it is required under the rules of the Securities and Exchange
Commission (the "Commission") to maintain in a segregated account liquid assets,
consisting of cash, U.S. government securities or other high grade debt
obligations, equal in value to the purchase price due on the settlement date.
Income generated by assets in such a segregated account of a Fund may be taxable
to shareholders of that Fund. Each Fund currently is required to allocate net
capital gains and other income taxable for Federal income tax purposes, if any,
proportionately between its common shares and shares of its MuniPreferred, and
dividends paid on shares of its MuniPreferred during specified periods will
include an allocated portion of any such net capital gains and other taxable
income. See "Tax Matters Associated with Investment in the Funds" and
"Description of the Auctions for MuniPreferred Issued by the Acquiring
Fund--Auction Dates; Advance Notice of Allocation of Taxable Income" below. The
commitment to purchase securities on a when-issued or delayed delivery basis may
involve an element of risk because the value of the securities is subject to
market fluctuation. No interest accrues to the purchaser prior to settlement of
the transaction, and at the time of delivery the market value may be less than
cost.
FINANCIAL FUTURES AND OPTIONS TRANSACTIONS
Each Fund may attempt to hedge its investment portfolio against market risk
by engaging in transactions in financial futures contracts, options on financial
futures or options that either are based on an index of long-term Municipal
Obligations (i.e., those with remaining maturities averaging 20-30 years) or
relate to debt securities whose prices are anticipated by the Adviser to
correlate with the prices of the Municipal Obligations owned by such Fund.
Neither Fund has any present intention to engage in such hedging transactions
and in no event does it expect that any material portion of its assets would be
so committed. To accomplish such hedging, a Fund may take an investment position
in a futures contract or in an option which is expected to move in the opposite
direction from the position being hedged. Hedging may be utilized to reduce the
risk that the value of securities owned by a Fund may decline on account of an
increase in interest rates and to hedge against increases in the cost of the
securities such Fund intends to purchase as a result of a decline in interest
rates. A Fund's use of futures and options for hedging purposes can be expected
to result in taxable income or gain to its shareholders. Each Fund is currently
required to allocate any taxable income or gain proportionately between its
common shares and shares of its MuniPreferred. See "Tax Matters Associated with
Investment in the Funds" and "Description of Auctions for MuniPreferred Issued
by the Acquiring Fund--Auction Dates; Advance Notice of Allocation of Taxable
Income" below.
The sale of financial futures or the purchase of put options on financial
futures or on debt securities or indexes is a means of hedging against the risk
of rising interest rates, whereas the purchase of financial futures or of call
options on financial futures or on debt securities or indexes is a means of
hedging a Fund's portfolio against an increase in the price of securities such
Fund intends to purchase. Writing a call option on a futures contract or on
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debt securities or indexes may serve as a hedge against a modest decline in
prices of Municipal Obligations held in a Fund's portfolio, and writing a put
option on a futures contract or on debt securities or indexes may serve as a
partial hedge against an increase in the value of Municipal Obligations a Fund
intends to acquire. The writing of such options provides a hedge to the extent
of the premium received in the writing transaction.
Although certain risks are involved in futures and options transactions (as
discussed under "Risks of Futures and Options Transactions" below), because
these transactions will be engaged in by a Fund only for hedging purposes, these
futures and options portfolio strategies should not subject such Fund to those
risks frequently associated with speculation in futures or options transactions.
Regulations of the Commodity Futures Trading Commission (the "CFTC") applicable
to each Fund require that transactions in futures and options on futures be
engaged in only for bona fide hedging purposes or if the aggregate initial
margin deposits and premiums paid by such Fund do not exceed 5% of the market
value of its assets. Neither Fund will purchase futures unless it has segregated
cash, government securities or high grade liquid debt equal to the contract
price of the futures less any margin on deposit, or unless the long futures
position is covered by the purchase of a put option. Neither Fund will sell
futures unless such Fund owns the instruments underlying the futures or owns
options on such instruments or owns a portfolio whose market price may be
expected to move in tandem with the market price of the instruments or index
underlying the futures. In addition, each Fund is subject to the Federal income
tax requirement that it derive less than 30% of its gross income from the gain
on the sale or other disposition of securities held for less than three months.
With respect to its engaging in transactions involving the purchase or writing
of put and call options on debt securities or indexes, neither Fund will
purchase such options if more than 5% of its assets would be invested in the
premiums for such options, and it will only write "covered" or "secured"
options, wherein the securities or cash required to be delivered upon exercise
are held by such Fund, with such cash being maintained in a segregated account.
These requirements and limitations may limit a Fund's ability to engage in
hedging transactions. So long as Moody's or S&P, or both, are rating a Fund's
shares of MuniPreferred, that Fund will only engage in futures or options
transactions in accordance with the then-current guidelines of such rating
agencies, and only after it has received written confirmation from Moody's and
S&P, as appropriate, that such transactions would not impair the ratings then
assigned by Moody's and S&P to such shares.
DESCRIPTION OF FINANCIAL FUTURES AND OPTIONS. A futures contract is a
contract between a seller and a buyer for the sale and purchase of specified
property at a specified future date for a specified price. An option is a
contract that gives the holder of the option the right, but not the obligation,
to buy (in the case of a call option) specified property from, or to sell (in
the case of a put option) specified property to, the writer of the option for a
specified price during a specified period prior to the option's expiration.
Financial futures contracts and options cover specified debt securities (such as
U.S. Treasury securities) or indexes designed to correlate with price movements
in certain categories of debt securities. At least one exchange trades futures
contracts on an index designed to correlate with the long-term municipal bond
market. Financial futures contracts and options on financial futures contracts
are traded on exchanges regulated by the CFTC. Options on certain financial
instruments and financial indexes are traded on securities markets regulated by
the Commission. Although futures contracts and options on specified financial
instruments call for settlement by delivery of the financial instruments covered
by the contracts, in most cases positions in these contracts are closed out in
cash by entering into offsetting liquidating or closing transactions. Index
futures and options are designed for cash settlement only.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS. There are certain risks
associated with the use of financial futures and options to hedge investment
portfolios. There may be an imperfect correlation between price movements of the
futures and options and price movements of the portfolio securities being
hedged. Losses may be incurred in hedging transactions, which could reduce the
portfolio gains that might have been realized if the hedging transactions had
not been entered into. The ability to close out positions in futures and options
depends upon the existence of a liquid secondary market, which may not exist for
all futures and options at all times. If a Fund engages in futures transactions
or in the writing of options on futures, it will be required to maintain initial
margin and maintenance margin and may be required to make daily variation margin
payments in accordance with applicable rules of the exchanges and the CFTC. If a
Fund purchases a financial futures contract or a call option or writes a put
option in order to hedge the anticipated purchase of Municipal Obligations, and
if such Fund fails to complete the anticipated purchase transaction, such Fund
may experience a loss or a gain on the futures or options transaction that will
not be offset by price movements in the Municipal Obligations that were the
subject of the anticipatory hedge. The cost of put options on debt securities or
indexes effectively increases the cost of the securities subject to them,
thereby reducing the yield otherwise available from such securities. If a Fund
decides to use futures contracts or options on futures contracts for hedging
purposes, such Fund will be required to establish an account for such purposes
with one or more CFTC-registered futures commission merchants. A futures
commission merchant could establish
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initial and maintenance margin requirements for a Fund that are greater than
those which would otherwise be applicable to such Fund under applicable rules of
the exchanges and the CFTC.
REPURCHASE AGREEMENTS
As temporary investments, a Fund may invest in repurchase agreements. A
repurchase agreement is a contractual agreement whereby the seller of securities
(U.S. government securities or Municipal Obligations) agrees to repurchase the
same security at a specified price on a future date agreed upon by the parties.
The agreed-upon repurchase price determines the yield during such Fund's holding
period. Repurchase agreements are considered to be loans collateralized by the
underlying security that is the subject of the repurchase contract. Income
generated from transactions in repurchase agreements by a Fund is taxable to
shareholders of that Fund and, therefore, is required to be allocated
proportionately by that Fund between its common shares and shares of its
MuniPreferred. See "Tax Matters Associated with Investment in the Funds" and
"Description of the Auctions for MuniPreferred Issued by the Acquiring
Fund--Auction Dates; Advance Notice of Allocation of Taxable Income" below. A
Fund will enter into repurchase agreements only with registered securities
dealers or domestic banks that, in the opinion of the Adviser, present minimal
credit risk. The risk to a Fund is limited to the ability of the issuer to pay
the agreed-upon repurchase price on the delivery date; however, although the
value of the underlying collateral at the time the transaction is entered into
always equals or exceeds the agreed-upon repurchase price, if the value of the
collateral declines, there is a risk of loss of both principal and interest. In
the event of default, the collateral may be sold but a Fund might incur a loss
if the value of the collateral declines, and might incur disposition costs or
experience delays in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. The Adviser
will monitor the value of the collateral at the time the transaction is entered
into and at all times subsequent during the term of the repurchase agreement in
an effort to determine that such value always equals or exceeds the agreed-upon
repurchase price. In the event the value of the collateral declines below the
repurchase price, the Adviser will demand additional collateral from the issuer
to increase the value of the collateral to at least that of the repurchase
price, including interest.
MANAGEMENT OF THE FUNDS
The Management Agreements provide that the Adviser shall act as investment
adviser for each Fund, manage the Funds' respective investments, administer
their business affairs, provide office facilities and equipment and certain
clerical, bookkeeping and administrative services, and permit any of its
officers and employees to serve without compensation as directors or trustees
and officers of the Funds if elected to such positions. Under its respective
Management Agreement, each Fund has agreed to pay all other costs and expenses
of its operations, including the compensation of its directors or trustees
(other than those affiliated with the investment adviser), custodian, transfer,
dividend disbursing and service agent expenses, legal fees, expenses of
independent auditors, costs of acquiring and disposing of portfolio securities,
expenses of preparing, printing and distributing reports to shareholders and
governmental agencies, and taxes, if any.
The Adviser is a wholly-owned subsidiary of John Nuveen & Co. Incorporated
("Nuveen"), located at 333 West Wacker Drive, Chicago, Illinois 60606, the
oldest and largest investment banking firm specializing in the underwriting and
distribution of tax-exempt securities. Nuveen, which maintains the largest
research department of all investment banking firms devoted exclusively to
municipal securities, has issued over $30 billion of tax-exempt unit trusts
since 1961 and currently sponsors 75 management investment company portfolios
(including the Funds) with approximately $31.5 billion in tax-exempt securities
under management. Over 1,000,000 individuals have invested to date in Nuveen's
tax-exempt funds and trusts. Founded in 1898, Nuveen is a majority-owned
subsidiary of The John Nuveen Company, which, in turn, is approximately 78%
owned by The St. Paul Companies, Inc., 385 Washington Street, St. Paul,
Minnesota 55102, a management company of St. Paul, Minnesota, principally
engaged in providing property-liability insurance through subsidiaries. Nuveen
acted as co-managing underwriter for the Acquiring Fund in its initial public
offering of common shares in July, 1993 and its public offering of MuniPreferred
in November, 1993, and for the Acquired Fund in its initial public offering of
common shares in December, 1992 and its public offering of MuniPreferred in
April, 1993.
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Under the Management Agreements each Fund has agreed to pay an annual
management fee as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE SCHEDULE
-------------------------------------------------------------
AVERAGE DAILY NET ASSETS RATE
------------------------------------------------------ -----
<S> <C>
Up to $125 million.................................... .6500%
$125 to $250 million.................................. .6375
$250 to $500 million.................................. .6250
$500 million to $1 billion............................ .6125
$1 billion to $2 billion.............................. .6000
$2 billion and over................................... .5875
</TABLE>
The Acquiring Fund paid aggregate management fees of $2,595,700 for the
fiscal year ended October 31, 1995, for an effective management fee rate of
0.64%. The Acquired Fund paid aggregate management fees of $2,026,982 for the
fiscal year ended October 31, 1995, for an effective management fee rate of
0.64%. For the fiscal year ended October 31, 1994, the Acquiring Fund paid
aggregate management fees of $2,659,885 and the Acquired Fund paid aggregate
management fees of $2,069,408. For the period from July 22, 1993 (the
commencement of operations) to October 31, 1993, the Acquiring Fund paid
aggregate management fees of $478,577. For the period from December 17, 1992
(the commencement of operations) to October 31, 1993, the Acquired Fund paid
aggregate management fees of $1,600,103.
The names, addresses and principal occupations of the principal executive
officers and the directors of the Adviser are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Richard J. Franke.......................................... Chairman of the Board and Director, John Nuveen & Co.
Chairman of the Board and Director Incorporated
(Principal Executive Officer)
333 West Wacker Drive
Chicago, Illinois 60606
Donald E. Sveen............................................ President and Director, John Nuveen & Co. Incorporated
President and Director
333 West Wacker Drive
Chicago, Illinois 60606
Anthony T. Dean............................................ Executive Vice President and Director, John Nuveen & Co.
Executive Vice President and Director Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
Timothy R. Schwertfeger.................................... Executive Vice President and Director, John Nuveen & Co.
Executive Vice President and Director Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
John P. Amboian............................................ Executive Vice President, John Nuveen & Co. Incorporated
Executive Vice President
333 West Wacker Drive
Chicago, Illinois 60606
</TABLE>
Mr. Dean, a nominee, Mr. Franke, a current Board member, and Mr.
Schwertfeger, a Board Member and nominee, of each Fund, are "interested persons"
of the Adviser. The remaining Board Members and nominees to the Board of each
Fund are not "interested persons" of the Adviser. The other officers of the
Funds are officers or employees of the Adviser. See also "Proposal No.
2--Election of Board Members of Each Fund" in the Joint Proxy
Statement--Prospectus.
PORTFOLIO TRANSACTIONS OF THE FUNDS
The Adviser, in effecting purchases and sales of portfolio securities for
the account of each Fund, places orders in such manner as, in the opinion of the
Adviser's management, offers the best price and market for the execution of each
transaction. Portfolio securities are normally purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in such
securities, unless it appears that a better price or execution may be obtained
elsewhere. Portfolio securities are not purchased from Nuveen or its affiliates
except in compliance with the 1940 Act.
Generally, all portfolio transactions are effected on a principal (as
opposed to an agency) basis and, accordingly, the Funds have not paid and do not
expect to pay any brokerage commissions. Purchases from
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<PAGE> 75
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include the spread between the bid and
asked price. Given the best price and execution obtainable, it is the practice
of each Fund to select dealers which, in addition, furnish research information
(primarily credit analyses of issuers) and statistical and other services to the
Adviser. It is not possible to place a dollar value on information, statistical
and other services received from dealers. Since it is only supplementary to the
Adviser's own research efforts, the receipt of research information is not
believed to reduce significantly the Adviser's expenses. Any research benefits
obtained are available to all of the Adviser's other clients. While the Adviser
is primarily responsible for the placement of the business of each Fund, the
policies and practices of the Adviser in this regard must be consistent with the
foregoing and are at all times subject to review by the Board of each Fund.
The Adviser reserves the right to, and does, manage other investment
accounts and investment companies for other clients which may have investment
objectives similar or identical to those of the Funds. Subject to applicable
laws and regulations, the Adviser will attempt to allocate equitably portfolio
transactions among each Fund and the portfolios of its other clients purchasing
or selling securities whenever decisions are made to purchase or sell securities
by a Fund or Funds and one or more of such other clients simultaneously. In
making such allocations, the main factors to be considered will be the
respective investment objectives of the Funds and such other clients, the
relative size of the portfolio holdings of the same or comparable securities,
the availability of cash for investment by a Fund and such other clients, the
size of investment commitments generally held by such Fund and such other
clients and opinions of the persons responsible for recommending investments to
such Fund and such other clients. While this procedure could have a detrimental
effect on the price or amount of the securities available to a Fund from time to
time, it is the opinion of the Board of each Fund that the benefits available
from the Adviser's organization will outweigh any disadvantage that may arise
from exposure to simultaneous transactions. Notwithstanding the similarity of
the investment objectives of the Funds with those of other funds managed by the
Adviser, each of these funds will be separately managed and the composition of
their investment portfolios will differ. Accordingly, the investment performance
of each of these funds will likely not be the same.
Under the 1940 Act, a Fund may not purchase portfolio securities from any
underwriting syndicate of which Nuveen is a member except under certain limited
conditions set forth in Rule 10f-3. The Rule sets forth requirements relating
to, among other things, the terms of an issue of Municipal Obligations purchased
by a Fund, the amount of Municipal Obligations which may be purchased in any one
issue and the assets of such Fund which may be invested in a particular issue.
In addition, purchases of securities made pursuant to the terms of the Rule must
be approved at least quarterly by the Board of a Fund, including a majority of
the members thereof who are not interested persons of such Fund.
For the fiscal years ended October 31, 1995, October 31, 1994 and October
31, 1993, neither Fund paid any brokerage commissions.
DESCRIPTION OF MUNIPREFERRED ISSUED
BY THE ACQUIRING FUND
This description of the shares of Acquiring Fund MuniPreferred, including
Acquiring Fund MuniPreferred, Series T and Series TH, issued pursuant to the
Reorganization, does not purport to be complete and is subject to and qualified
in its entirety by reference to the Declaration of Trust of the Acquiring Fund
(the "Declaration") and the form of the Acquiring Fund's Statement Establishing
and Fixing the Rights and Preferences of Municipal Auction Rate Cumulative
Preferred Shares (the "Acquiring Fund Statement"). Copies of the Declaration and
the Acquiring Fund Statement are filed as exhibits to the Registration Statement
of which this Statement of Additional Information is a part and may be
inspected, and copies thereof may be obtained, as described under "Available
Information" in the Joint Proxy Statement--Prospectus.
GENERAL
The shares of Acquiring Fund MuniPreferred, Series T and Series TH, issued
pursuant to the Reorganization will rank on a parity with each other, with
outstanding shares of Acquiring Fund MuniPreferred, Series M, Series W and
Series F, and with shares of any other series of preferred shares of the
Acquiring Fund as to the payment of dividends and the distribution of assets
upon liquidation.
DIVIDENDS
GENERAL. The holders of shares of each series of Acquiring Fund
MuniPreferred, including Acquiring Fund MuniPreferred, Series T and Series TH,
issued pursuant to the Reorganization, will be entitled to receive, when, as
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<PAGE> 76
and if declared by the Board of the Acquiring Fund, out of funds legally
available therefor in accordance with the Declaration, including, the Acquiring
Fund Statement and applicable law, cumulative cash dividends at the Applicable
Rate for shares of such series, determined as set forth under "Determination of
Dividend Rate" below, and no more (except as otherwise provided below under
"Gross-up Payments"), payable on the respective dates determined as set forth
below. No interest, or sum of money in lieu of interest, will be payable in
respect of any dividend payment or payments on shares of Acquiring Fund
MuniPreferred which may be in arrears, and, except as otherwise provided herein,
no additional sum of money will be payable in respect of any such arrearage.
Dividends on shares of each series of Acquiring Fund MuniPreferred shall
accumulate at the Applicable Rate for shares of such series from the day
following the day on which the Effective Time occurs (in the case of Acquiring
Fund MuniPreferred, Series T and Series TH) or from the day on which the
Acquiring Fund issued such shares (in the case of Acquiring Fund MuniPreferred,
Series M, Series W and Series F). Dividends on shares of each series of
Acquiring Fund MuniPreferred shall be payable, when, as and if declared by the
Acquiring Fund's Board out of funds legally available therefor in accordance
with the Acquiring Fund's Declaration, including the Acquiring Fund's Statement
and applicable law, on shares of (a) Acquiring Fund MuniPreferred, Series M, on
each Tuesday; (b) Acquiring Fund MuniPreferred Series T, on the first Wednesday
following the end of the Initial Rate Period thereof, and thereafter on each
Wednesday; (c) Acquiring Fund MuniPreferred, Series W, on each Thursday; (d)
Acquiring Fund MuniPreferred, Series TH, on the first Friday following the end
of the Initial Rate Period thereof, and thereafter on each Friday; and (e)
Acquiring Fund MuniPreferred, Series F, on each Monday; provided, however, that
(i) if the Monday or the Tuesday on which dividends would otherwise be payable
as set forth above is not a Business Day, then such Dividends shall be payable
on such shares on the first Business Day that falls after such Monday or
Tuesday, as the case may be; (ii) if the Wednesday, Thursday or Friday on which
dividends would otherwise be payable as set forth above is not a Business Day,
then such dividends shall be payable on such shares on the first Business Day
that falls prior to such Wednesday, Thursday or Friday, as the case may be; and
(iii) the Acquiring Fund in its discretion may establish Dividend Payment Dates
in respect of any Special Rate Period of shares of either series of Acquiring
Fund MuniPreferred consisting of more than 28 Rate Period Days that differ from
those set forth above; provided, however, that such dates shall be set forth in
the Notice of Special Rate Period relating to such Special Rate Period, as
delivered to the Auction Agent and filed with the Secretary of the Acquiring
Fund; and further provided that (i) any such Dividend Payment Date shall be a
Business Day and (ii) the last Dividend Payment Date in respect of such Special
Rate Period shall be the Business Day immediately following the last day
thereof, as such last day is determined as set forth below under "Designation of
Special Rate Periods" below.
The amount of dividends per share payable on shares of a series of
Acquiring Fund MuniPreferred on any date on which dividends shall be payable on
shares of such series shall be computed by multiplying the Applicable Rate for
shares of such series in effect for such Dividend Period or Dividend Periods or
part thereof for which dividends have not been paid by a fraction, the numerator
of which shall be the number of days in such Dividend Period or Dividend Periods
or part thereof and the denominator of which shall be 365 if such Dividend
Period consists of 7 Rate Period Days and 360 for all other Dividend Periods,
and applying the rate obtained against $25,000. Any dividend payment made on
shares of Acquiring Fund MuniPreferred shall first be credited against the
earliest accumulated but unpaid dividends due with respect to such shares.
Each dividend on shares of Acquiring Fund MuniPreferred will be paid on the
Dividend Payment Date therefor to the holders of record as their names appear on
the record books of the Acquiring Fund on the Business Day next preceding such
Dividend Payment Date. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to the holders of record as their names appear on the record books of the
Acquiring Fund on such date, not exceeding 15 days preceding the payment date
thereof, as may be fixed by the Board of the Acquiring Fund.
The Securities Depository, in accordance with its current procedures, is
expected to credit on each Dividend Payment Date dividends received from the
Acquiring Fund to the accounts of the respective Agent Members in next-day
funds. Each of the current Broker-Dealers, however, has represented to the
Acquiring Fund that such Broker-Dealer (or if such Broker-Dealer does not act as
Agent Member, the Agent Member designated by such Broker-Dealer) will make such
dividend payments available in same-day funds on each Dividend Payment Date to
Beneficial Owners that use such Broker-Dealer or its designee as Agent Member. A
Beneficial Owner of shares of Acquiring Fund MuniPreferred that does not use one
of the current Broker-Dealers or a designee thereof as its Agent Member should
contact the Agent Member used by such Beneficial Owner to determine whether such
Agent Member will make dividend payments available to such Beneficial Owner in
next-day or same-day funds. If any Agent Member does not make such dividends
available in same-day funds to a Beneficial Owner, such Beneficial Owner who
uses such Agent Member would not have same-day funds available to it until the
next Business Day,
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<PAGE> 77
which in the case of a Dividend Payment Date that is a Monday, Tuesday,
Wednesday, Thursday or Friday, would be the following Tuesday, Wednesday,
Thursday, Friday or Monday, respectively, if it is a Business Day.
DETERMINATION OF DIVIDEND RATE. The dividend rate on shares of Acquiring
Fund MuniPreferred, Series T and Series TH, during the period from and after the
day following the date on which the Effective Time occurs to and including the
last day of the Initial Rate Period of shares of such series will be the
dividend rate in effect immediately prior to the Effective Time for the shares
of Acquired Fund MuniPreferred, Series T and Series TH, respectively. For each
Subsequent Rate Period of shares of such series thereafter, and for each
Subsequent Rate Period of shares of outstanding Acquiring Fund MuniPreferred,
Series M, Series W and Series F, the dividend rate on shares of such series will
be equal to the rate per annum that results from an Auction for shares of such
series on the Auction Date next preceding such Subsequent Rate Period; provided,
however, if:
(a) an Auction for any such Subsequent Rate Period is not held for any
reason other than as described below, the dividend rate on shares of such series
for such Subsequent Rate Period will be the Maximum Rate for shares of such
series on the Auction Date therefor;
(b) any Failure to Deposit shall have occurred with respect to shares of
such series during any Rate Period thereof (other than any Special Rate Period
of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate
Period of more than 364 Rate Period Days during which a Failure to Deposit
occurred that has not been cured), but, prior to 12:00 Noon, New York City time,
on the third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall have been cured in accordance
with the next succeeding paragraph and the Acquiring Fund shall have paid to the
Auction Agent a late charge ("Late Charge") equal to the sum of (1) if such
Failure to Deposit consisted of the failure timely to pay to the Auction Agent
the full amount of dividends with respect to any Dividend Period of shares of
such series, an amount computed by multiplying (x) 200% of the Reference Rate
for the Rate Period during which such Failure to Deposit occurs on the Dividend
Payment Date for such Dividend Period by (y) a fraction, the numerator of which
shall be the number of days for which such Failure to Deposit has not been cured
in accordance with the next succeeding paragraph (including the day such Failure
to Deposit occurs and excluding the day such Failure to Deposit is cured) and
the denominator of which shall be 360, and applying the rate obtained against
the aggregate Liquidation Preference of the outstanding shares of such series
and (2) if such Failure to Deposit consisted of the failure timely to pay to the
Auction Agent the Redemption Price of the shares, if any, of such series for
which Notice of Redemption has been mailed by the Acquiring Fund, an amount
computed by multiplying (x) 200% of the Reference Rate for the Rate Period
during which such Failure to Deposit occurs on the redemption date by (y) a
fraction, the numerator of which shall be the number of days for which such
Failure to Deposit is not cured in accordance with the next succeeding paragraph
(including the day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which shall be 360, and
applying the rate obtained against the aggregate Liquidation Preference of the
outstanding shares of such series to be redeemed, no Auction will be held in
respect of shares of such series for the Subsequent Rate Period thereof and the
dividend rate for shares of such series for such Subsequent Rate Period will be
the Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period;
(c) any Failure to Deposit shall have occurred with respect to shares of
such series during any Rate Period thereof (other than any Special Rate Period
of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate
Period of more than 364 Rate Period Days during which a Failure to Deposit
occurred that has not been cured), and, prior to 12:00 Noon, New York City time,
on the third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall not have been cured in
accordance with the next succeeding paragraph or the Acquiring Fund shall not
have paid the applicable Late Charge to the Auction Agent, no Auction will be
held in respect of shares of such series for the first Subsequent Rate Period
thereof thereafter (or for any Rate Period thereof thereafter to and including
the Rate Period during which (1) such Failure to Deposit is cured in accordance
with the next succeeding paragraph and (2) the Acquiring Fund pays the
applicable Late Charge to the Auction Agent, in each case no later than 12:00
Noon, New York City time, on the fourth Business Day prior to the end of such
Rate Period), and the dividend rate for shares of such series for each such
Subsequent Rate Period will be a rate per annum equal to the Maximum Rate for
shares of such series on the Auction Date for such Subsequent Rate Period (but
with the prevailing rating for shares of such series, for purposes of
determining such Maximum Rate, being deemed to be "Below 'ba3'/BB-"); or
(d) any Failure to Deposit shall have occurred with respect to shares of
such series during a Special Rate Period thereof of more than 364 Rate Period
Days, or during any Rate Period thereof succeeding any Special Rate Period of
more than 364 Rate Period Days during which a Failure to Deposit occurred that
has not been cured, and, prior to 12:00 Noon, New York City time, on the fourth
Business Day preceding the Auction Date for the Rate
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<PAGE> 78
Period subsequent to such Rate Period, such Failure to Deposit shall not have
been cured in accordance with the next succeeding paragraph or the Acquiring
Fund shall not have paid the applicable Late Charge to the Auction Agent (such
Late Charge, for purposes of this subparagraph (d), to be calculated by using,
as the Reference Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days but fewer than 365 Rate Period Days
and (y) commencing on the date on which the Rate Period during which Failure to
Deposit occurs commenced), no Auction will be held in respect of shares of such
series for such Subsequent Rate Period (or for any Rate Period thereof
thereafter to and including the Rate Period during which (1) such Failure to
Deposit is cured in accordance with the next succeeding paragraph and (2) the
Acquiring Fund pays the applicable Late Charge to the Auction Agent, in each
case no later than 12:00 Noon, New York City time, on the fourth Business Day
prior to the end of such Rate Period), and the dividend rate for shares of such
series for each such Subsequent Rate Period shall be a rate per annum equal to
the Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period (but with the prevailing rating for shares of such
series, for purposes of determining such Maximum Rate, being deemed to be "Below
'ba3'/BB-") (the rate per annum at which dividends are payable on shares of a
series of Acquiring Fund MuniPreferred for any Rate Period thereof being herein
referred to as the "Applicable Rate" for shares of such series).
A Failure to Deposit with respect to shares of a series of Acquiring Fund
MuniPreferred shall have been cured (if such Failure to Deposit is not solely
due to the willful failure of the Acquiring Fund to make the required payment to
the Auction Agent) with respect to any Rate Period of shares of such series if,
within the respective time periods described immediately above, the Acquiring
Fund shall have paid to the Auction Agent (a) all accumulated and unpaid
dividends on the shares of such series and (b) without duplication, the
Redemption Price for the shares, if any, of such series for which Notice of
Redemption has been mailed; provided, however, that the foregoing clause (b)
shall not apply to the Acquiring Fund's failure to pay the Redemption Price in
respect of shares of Acquiring Fund MuniPreferred when the related Notice of
Redemption provides that redemption of such shares is subject to one or more
conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
GROSS-UP PAYMENTS. Holders of shares of Acquiring Fund MuniPreferred shall
be entitled to receive, when, as and if declared by the Board of the Acquiring
Fund, out of funds legally available therefor in accordance with the Articles,
the Acquiring Fund Statement and applicable law, dividends in an amount equal to
the aggregate Gross-up Payment in accordance with the following:
If, in the case of any Minimum Rate Period or any Special Rate Period of 28
Rate Period Days or fewer, the Acquiring Fund allocates any net capital gains or
other income taxable for Federal income tax purposes to a dividend paid on
Acquiring Fund MuniPreferred without having given advance notice thereof to the
Auction Agent as described under "Description of the Auctions for MuniPreferred
Issued by the Acquiring Fund--Auction Dates; Advance Notice of Allocation of
Taxable Income" below (such allocation is referred to herein as a "Taxable
Allocation") solely by reason of the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of Acquiring Fund MuniPreferred or the liquidation of the
Acquiring Fund, the Acquiring Fund will, prior to the end of the calendar year
in which such dividend was paid, provide notice thereof to the Auction Agent and
direct the Acquiring Fund's dividend disbursing agent to send such notice with a
Gross-up Payment to each holder of shares (initially Cede, as nominee of the
Securities Depository) that was entitled to such dividend payment during such
calendar year at such holder's address as the same appears or last appeared on
the stock books of the Acquiring Fund.
If, in the case of any Special Rate Period of more than 28 Rate Period
Days, the Acquiring Fund makes a Taxable Allocation to a dividend paid on shares
of Acquiring Fund MuniPreferred, the Acquiring Fund shall, prior to the end of
the calendar year in which such dividend was paid, provide notice thereof to the
Auction Agent and direct the Acquiring Fund's dividend disbursing agent to send
such notice with a Gross-up Payment to each holder of shares that was entitled
to such dividend payment during such calendar year at such holder's address as
the same appears or last appeared on the stock books of the Acquiring Fund.
The Acquiring Fund shall not be required to make Gross-up Payments with
respect to any net capital gains or other taxable income determined by the IRS
to be allocable in a manner different from that allocated by the Acquiring Fund.
A "Gross-up Payment" means payment to a holder of shares of Acquiring Fund
MuniPreferred of an amount which, when taken together with the aggregate amount
of Taxable Allocations made to such holder to which such Gross-up Payment
relates, would cause such holder's dividends in dollars (after Federal income
tax consequences) from the aggregate of such Taxable Allocations and the related
Gross-up Payment to be equal to the dollar amount of the dividends which would
have been received by such holder if the amount of the aggregate Taxable
Allocations
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<PAGE> 79
would have been excludable from the gross income of such holder. A Gross-up
Payment shall be calculated: (i) without consideration being given to the time
value of money; (ii) assuming that no holder of shares of Acquiring Fund
MuniPreferred is subject to the Federal alternative minimum tax with respect to
dividends received from the Acquiring Fund; and (iii) assuming that each Taxable
Allocation and each Gross-up Payment (except to the extent such Gross-up Payment
is designated as an exempt-interest dividend under Section 852(b)(5) of the Code
or successor provisions) would be taxable in the hands of each holder of shares
of Acquiring Fund MuniPreferred at the maximum marginal regular Federal income
tax rate, if any, applicable to ordinary income or net capital gains, as
applicable, or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income or net capital gains, as applicable, whichever is
greater, in effect during the calendar year in question.
RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS. Under the 1940 Act, the Board
of the Acquiring Fund may not declare any dividend (except a dividend payable in
Acquiring Fund common shares), or declare any other distribution, upon Acquiring
Fund common shares, or purchase Acquiring Fund common shares, unless in every
such case the Acquiring Fund preferred shares, including Acquiring Fund
MuniPreferred, Series T and Series TH, have, at the time of any such declaration
or purchase (and after giving effect thereto), an asset coverage (as defined in
and determined pursuant to the 1940 Act) of at least 200% (or such other
percentage as may in the future be required by law).
In addition, for so long as any shares of Acquiring Fund MuniPreferred,
including Acquiring Fund MuniPreferred, Series T and Series TH, are outstanding,
except as set forth in the following paragraph or otherwise described herein,
(a) the Acquiring Fund may not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in,
or in options, warrants or rights to subscribe for or purchase, Acquiring Fund
common shares or other shares, if any, ranking junior to the shares of Acquiring
Fund MuniPreferred as to the payment of dividends and the distribution of assets
upon liquidation) in respect of Acquiring Fund common shares or any other shares
of the Acquiring Fund ranking junior to or on a parity with shares of Acquiring
Fund MuniPreferred as to the payment of dividends or the distribution of assets
upon liquidation, or call for redemption, redeem, purchase or otherwise acquire
for consideration any Acquiring Fund common shares or any other such junior
shares (except by conversion into or exchange for shares of the Acquiring Fund
ranking junior to the shares of Acquiring Fund MuniPreferred as to the payment
of dividends and the distribution of assets upon liquidation), or any such
parity shares (except by conversion into or exchange for shares of the Acquiring
Fund ranking junior to or on a parity with shares of Acquiring Fund
MuniPreferred as to payment of dividends and the distribution of assets upon
liquidation), unless (i) full cumulative dividends on shares of each series of
Acquiring Fund MuniPreferred through its most recently ended Dividend Period
shall have been paid or shall have been declared and sufficient funds for the
payment thereof deposited with the Auction Agent and (ii) the Acquiring Fund has
redeemed the full number of shares of Acquiring Fund MuniPreferred required to
be redeemed by any provision for mandatory redemption pertaining thereto, and
(b) if either Moody's or S&P is rating the shares of Acquiring Fund
MuniPreferred, the Acquiring Fund may not declare, pay or set apart for payment
any dividend or other distribution (other than a dividend or distribution paid
in, or in options, warrants or rights to subscribe for or purchase, Acquiring
Fund common shares or other shares, if any, ranking junior to shares of
Acquiring Fund MuniPreferred as to the payment of dividends and the distribution
of assets upon liquidation) in respect of Acquiring Fund common shares or any
other shares of the Acquiring Fund ranking junior to shares of Acquiring Fund
MuniPreferred as to the payment of dividends or the distribution of assets upon
liquidation, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Acquiring Fund common shares or any other such junior shares
(except by conversion into or exchange for shares of the Acquiring Fund ranking
junior to shares of Acquiring Fund MuniPreferred as to the payment of dividends
or the distribution of assets upon liquidation), unless immediately after such
transaction the Discounted Value of Moody's Eligible Assets or S&P Eligible
Assets, or both, as the case may be, would at least equal the MuniPreferred
Basic Maintenance Amount (see "Rating Agency Guidelines" and "Redemption"
below).
Except as set forth in the next sentence, no dividends shall be declared or
paid or set apart for payment on the shares of any class or series of shares
ranking, as to the payment of dividends, on a parity with shares of Acquiring
Fund MuniPreferred for any period unless full cumulative dividends have been or
contemporaneously are declared and paid on the shares of each series of
Acquiring Fund MuniPreferred through its most recent Dividend Payment Date. When
dividends are not paid in full upon the shares of each series of Acquiring Fund
MuniPreferred through its most recent Dividend Payment Date or upon the shares
of any other class or series of shares ranking on a parity as to the payment of
dividends with shares of Acquiring Fund MuniPreferred through their most recent
respective dividend payment dates, all dividends declared upon shares of
Acquiring Fund MuniPreferred and any other such class or series of shares
ranking on a parity as to the payment of dividends with shares of Acquiring Fund
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MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of Acquiring Fund MuniPreferred and such other
class or series of shares shall in all cases bear to each other the same ratio
that accumulated dividends per share on the shares of Acquiring Fund
MuniPreferred and such other class or series of shares bear to each other (for
purposes of this sentence, the amount of dividends declared per share of
Acquiring Fund MuniPreferred shall be based on the Applicable Rate for such
share for the Dividend Periods during which dividends were not paid in full).
Under the Code, the Acquiring Fund must, among other things, distribute at
least 90% of its investment company taxable income and 90% of its net tax-exempt
income each year in order to maintain its qualification for tax treatment as a
regulated investment company. The foregoing limitations on dividends,
distributions and purchases may under certain circumstances impair the Acquiring
Fund's ability to maintain such qualification. See "Tax Matters Associated with
Investment in the Funds" below.
DESIGNATION OF SPECIAL RATE PERIODS. The Acquiring Fund, at its option, may
designate any succeeding Subsequent Rate Period of shares of a series of
Acquiring Fund MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820
(approximately 5 years), subject to adjustment as described below. A designation
of a Special Rate Period shall be effective only if (i) notice thereof shall
have been given as provided herein, (ii) an Auction for shares of such series
shall have been held on the Auction Date immediately preceding the first day of
such proposed Special Rate Period and Sufficient Clearing Bids for shares of
such series shall have existed in such Auction, and (iii) if the Acquiring Fund
shall have mailed a Notice of Redemption with respect to any shares of such
series, as described under "Redemption--Notice of Redemption" below, the
Redemption Price with respect to such shares shall have been deposited with the
Auction Agent. In the event the Acquiring Fund wishes to designate any
succeeding Subsequent Rate Period of shares of a series of Acquiring Fund
MuniPreferred as a Special Rate Period consisting of more than 28 Rate Period
Days, the Acquiring Fund shall notify S&P (if S&P is then rating such series)
and Moody's (if Moody's is then rating such series) in advance of the
commencement of such Subsequent Rate Period that the Acquiring Fund wishes to
designate such Subsequent Rate Period as a Special Rate Period and shall provide
S&P (if S&P is then rating such series) and Moody's (if Moody's is then rating
such series) with such documents as either may request.
In the event the Acquiring Fund wishes to designate a Subsequent Rate
Period of shares of a series of Acquiring Fund MuniPreferred as a Special Rate
Period, but the day following what would otherwise be the last day of such
Special Rate Period is not (a) a Tuesday that is a Business Day in the case of
Acquiring Fund MuniPreferred, Series M, (b) a Wednesday that is a Business Day
in the case of Acquiring Fund MuniPreferred, Series T, (c) a Thursday that is a
Business Day in the case of Acquiring Fund MuniPreferred, Series W, (d) a Friday
that is a Business Day in the cases of Acquiring Fund MuniPreferred, Series TH
or (e) a Monday that is a Business Day in the case of Acquiring Fund
MuniPreferred Series F, then the Acquiring Fund shall designate such Subsequent
Rate Period as a Special Rate Period consisting of the period commencing on the
first day following the end of the immediately preceding Rate Period and ending
(a) on the first Monday that is followed by a Tuesday that is a Business Day
preceding what would otherwise be such last day, in the case of Acquiring Fund
MuniPreferred, Series M, (b) on the first Tuesday that is followed by a
Wednesday that is a Business Day preceding what would otherwise be such last
day, in the case of Acquiring Fund MuniPreferred, Series T, (c) on the first
Wednesday that is followed by a Thursday that is a Business Day preceding what
would otherwise be such last day, in the case of Acquiring Fund MuniPreferred,
Series W, (d) on the first Thursday that is followed by a Friday that is a
Business Day preceding what would otherwise be such last day, in the case of
Acquiring Fund MuniPreferred, Series TH, and (e) on the first Sunday that is
followed by a Monday that is a Business Day preceding what would otherwise be
such last day, in the case of Acquiring Fund MuniPreferred, Series F.
If the Acquiring Fund proposes to designate any succeeding Subsequent Rate
Period of shares of a series of Acquiring Fund MuniPreferred as a Special Rate
Period, not less than 20 nor more than 30 days prior to the date the Acquiring
Fund proposes to designate as the first day of such Special Rate Period (which
shall be such day that would otherwise be the first day of a Minimum Rate Period
of shares of such series), notice shall be (a) published or caused to be
published by the Acquiring Fund in a newspaper of general circulation to the
financial community in The City of New York, New York, which carries financial
news, and (b) mailed by the Acquiring Fund by first-class mail, postage prepaid,
to the holders of shares of such series. Each such notice shall state (i) that
the Acquiring Fund may exercise its option to designate a succeeding Subsequent
Rate Period of shares of such series as a Special Rate Period, specifying the
first day thereof and (ii) that the Acquiring Fund will, by 11:00 a.m., New York
City time, on the second Business Day next preceding such date (or by such later
time or date, or both, as may be agreed to by the Auction Agent), notify the
Auction Agent of either (A) its determination, subject to certain conditions, to
exercise such option, in which case the Acquiring Fund shall specify the Special
Rate Period designated, or (B) its determination not to exercise such option.
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No later than 11:00 a.m., New York City time, on the second Business Day
next preceding the first day of any proposed Special Rate Period of shares of a
series of Acquiring Fund MuniPreferred as to which notice has been given as set
forth in the preceding paragraph (or such later time or date, or both, as may be
agreed to by the Auction Agent), the Acquiring Fund shall deliver to the Auction
Agent either:
(a) a notice ("Notice of Special Rate Period") stating (i) that the
Acquiring Fund has determined to designate the next succeeding Rate Period of
shares of such series as a Special Rate Period, specifying the same and the
first day thereof, (ii) the Auction Date immediately prior to the first day of
such Special Rate Period, (iii) that such Special Rate Period shall not commence
if (A) an Auction for shares of such series shall not be held on such Auction
Date for any reason or (B) an Auction for shares of such series shall be held on
such Auction Date but Sufficient Clearing Bids for shares of such series shall
not exist in such Auction, (iv) the scheduled Dividend Payment Dates for shares
of such series during such Special Rate Period and (v) the Special Redemption
Provisions, if any, applicable to shares of such series in respect of such
Special Rate Period; such notice to be accompanied by a MuniPreferred Basic
Maintenance Report showing that, as of the third Business Day next preceding
such proposed Special Rate Period, Moody's Eligible Assets (if Moody's is then
rating such series) and S&P Eligible Assets (if S&P is then rating such series)
each have an aggregate Discounted Value at least equal to the MuniPreferred
Basic Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that (1) the Maximum Rate is the Maximum Rate on such
Business Day as if such Business Day were the Auction Date for the proposed
Special Rate Period, and (2) the Moody's Discount Factors applicable to Moody's
Eligible Assets will be determined by reference to the first Moody's Exposure
Period longer than the Moody's Exposure Period then applicable to the Acquiring
Fund); or
(b) a notice stating that the Acquiring Fund has determined not to exercise
its option to designate a Special Rate Period of shares of such series and that
the next succeeding Rate Period of shares of such series shall be a Minimum Rate
Period.
If the Acquiring Fund fails to deliver either such notice (and, in the case
of the notice described in clause (a) above, a MuniPreferred Basic Maintenance
Report to the effect set forth in clause (a) if either Moody's or S&P is then
rating the series in question) with respect to any designation of any proposed
Special Rate Period to the Auction Agent by 11:00 a.m., New York City time, on
the second Business Day next preceding the first day of such proposed Special
Rate Period (or by such later time or date, or both, as may be agreed to by the
Auction Agent), the Acquiring Fund shall be deemed to have delivered a notice to
the Auction Agent with respect to such Special Rate Period to the effect set
forth in clause (b) above.
VOTING RIGHTS
Holders of shares of Acquiring Fund MuniPreferred, including Acquiring Fund
MuniPreferred, Series T and Series TH, are entitled to vote on certain matters
as described under "Investment Objectives and Policies-- Investment
Restrictions" above and in the Joint Proxy Statement--Prospectus under "Proposal
No. 1--The Reorganization--Description of MuniPreferred Issued by the Acquiring
Fund--Voting Rights" and "--Certain Provisions in the Acquiring Fund's
Declaration of Trust" and "Proposal No. 1--The Reorganization--Comparison of
the--Investment Objectives and Policies of the Acquiring Fund and the Acquired
Fund--General."
In connection with the election of the Acquiring Fund's trustees, holders
of outstanding Acquiring Fund preferred shares, including Acquiring Fund
MuniPreferred, voting as a separate class, shall be entitled to elect two of the
Acquiring Fund's trustees, and the remaining trustees will be elected by holders
of Acquiring Fund common shares and Acquiring Fund preferred shares, including
Acquiring Fund MuniPreferred, voting together as a single class. In addition, if
at any time dividends (whether or not earned or declared) on outstanding
Acquiring Fund preferred shares, including Acquiring Fund MuniPreferred, shall
be due and unpaid in an amount equal to two full years' dividends thereon, and
sufficient cash or specified securities shall not have been deposited with the
Auction Agent for the payment of such dividends, then, as the sole remedy of
holders of outstanding Acquiring Fund preferred shares, including Acquiring Fund
MuniPreferred, the number of trustees constituting the Acquiring Fund's Board
shall be automatically increased by the smallest number that, when added to the
two trustees elected exclusively by the holders of Acquiring Fund preferred
shares, including Acquiring Fund MuniPreferred, as described above, would
constitute a majority of the Acquiring Fund's Board as so increased by such
smallest number; and at a special meeting of shareholders which will be called
and held as soon as practicable, and at all subsequent meetings at which
trustees are to be elected, the holders of Acquiring Fund preferred shares,
including Acquiring Fund MuniPreferred, voting as a separate class, will be
entitled to elect the smallest number of additional trustees that, together with
the two trustees which such holders will be in any event entitled to elect,
constitutes a majority of the total number of trustees of the Acquiring Fund as
so increased. The terms of office of the persons
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who are trustees at the time of that election will continue. If the Acquiring
Fund thereafter shall pay, or declare and set apart for payment, in full all
dividends payable on all outstanding Acquiring Fund preferred shares, including
Acquiring Fund MuniPreferred, the voting rights stated in the preceding sentence
shall cease, and the terms of office of all of the additional trustees elected
by the holders of Acquiring Fund preferred shares, including Acquiring Fund
MuniPreferred (but not of the trustees with respect to whose election the
holders of Acquiring Fund common shares were entitled to vote or the two
trustees the holders of Acquiring Fund preferred shares have the right to elect
in any event), will terminate automatically.
The Acquiring Fund may not, without the affirmative vote of the holders of
at least a majority of the shares of Acquiring Fund MuniPreferred outstanding at
the time (voting separately as one class):
(a) authorize, create or issue any class or series of shares ranking prior
to or on a parity with the shares of Acquiring Fund MuniPreferred with respect
to the payment of dividends or the distribution of assets upon liquidation or
authorize, create or issue additional shares of any series of Acquiring Fund
MuniPreferred (except that the Acquiring Fund may, without the vote of the
holders of Acquiring Fund MuniPreferred, authorize, create or issue additional
shares of any series of preferred shares ranking on a parity with shares of
Acquiring Fund MuniPreferred with respect to the payment of dividends and the
distribution of assets upon liquidation if, after giving effect thereto, the
aggregate liquidation preference of all Acquiring Fund preferred shares then
outstanding, exclusive of accumulated and unpaid dividends, would not exceed
$268,900,000 (after giving effect to the Reorganization); provided, however, if
the Acquiring Fund obtains written confirmation from Moody's (if Moody's is then
rating the shares of Acquiring Fund MuniPreferred) and S&P (if S&P is then
rating the shares of Acquiring Fund MuniPreferred) that the issuance of any such
additional class or series would not impair the rating then assigned by such
rating agency to the Acquiring Fund MuniPreferred, the Acquiring Fund may,
without the vote of the holders of Acquiring Fund MuniPreferred, authorize,
create or issue classes or series of Acquiring Fund preferred shares ranking on
a parity with shares of Acquiring Fund MuniPreferred with respect to the payment
of dividends and the distribution of assets upon liquidation notwithstanding
that, after giving effect thereto, the aggregate liquidation preference of all
Acquiring Fund preferred shares then outstanding would exceed $268,900,000
(after giving effect to the Reorganization); or
(b) amend, alter or repeal the provisions of the Declaration or the
Acquiring Fund Statement, whether by merger, consolidation or otherwise, so as
to affect any preference, right or power of such shares of Acquiring Fund
MuniPreferred or the holders thereof; provided, however, that (i) none of the
actions permitted by the exception to (a) above will be deemed to affect such
preferences, rights or powers and (ii) the authorization, creation and issuance
of classes or series of shares ranking junior to shares of Acquiring Fund
MuniPreferred with respect to the payment of dividends and the distribution of
assets upon liquidation will be deemed to affect such preferences, rights or
powers only if Moody's or S&P is then rating the Acquiring Fund MuniPreferred
and such issuance would, at the time thereof, cause the Acquiring Fund not to
satisfy the 1940 Act MuniPreferred Asset Coverage or the MuniPreferred Basic
Maintenance Amount.
So long as any shares of Acquiring Fund MuniPreferred are outstanding, the
Acquiring Fund shall not, without the affirmative vote of the holders of at
least 66 2/3% of the shares of Acquiring Fund MuniPreferred outstanding at the
time (voting separately as one class), file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as the Acquiring Fund is solvent and does not foresee becoming insolvent.
If any action set forth above would adversely affect the rights of one or more
series of Acquiring fund MuniPreferred in a manner different from any other
series of Acquiring Fund MuniPreferred, the Acquiring Fund will not approve any
such action without the affirmative vote of the holders of at least a majority
of the shares of each such series of Acquiring Fund MuniPreferred (voting
separately as a class).
Voting provisions will not apply with respect to shares of Acquiring Fund
MuniPreferred if, at or prior to the time when a vote is required, such shares
shall have been (a) redeemed or (b) called for redemption and sufficient funds
shall have been deposited in trust to effect such redemption.
RATING AGENCY GUIDELINES
The Acquiring Fund intends that, so long as shares of Acquiring Fund
MuniPreferred are outstanding, the composition of its portfolio will reflect
guidelines established by at least one of Moody's or S&P in connection with the
Acquiring Fund's receipt at the Effective Time of ratings of "aaa" from Moody's
or AAA from S&P in respect of shares of Acquiring Fund MuniPreferred, Series T
and Series TH. Moody's and S&P, nationally recognized independent rating
agencies, issue ratings for various securities reflecting their perceived
creditworthiness of such securities. The Acquiring Fund pays certain fees to
Moody's or S&P, or both, for rating shares of Acquiring Fund MuniPreferred. The
guidelines described below have been developed by Moody's and S&P in connection
with other
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issuances of asset-backed and similar securities, including debt obligations and
adjustable rate preferred shares, generally on a case-by-case basis through
discussions with the issuers of those securities. The guidelines are designed to
ensure that assets underlying outstanding debt or preferred shares will be
sufficiently varied and will be of sufficient quality and amount to justify
investment grade ratings. The guidelines do not have the force of law, but have
been adopted by the Acquiring Fund in order to satisfy current requirements
necessary for Moody's or S&P, or both, to issue the above-described ratings for
shares of Acquiring Fund MuniPreferred, Series T and Series TH, which ratings
are generally relied upon by institutional investors in purchasing such
securities. In the context of a closed-end investment company such as the
Acquiring Fund, therefore, the guidelines provide a set of tests for portfolio
composition and asset coverage that supplement (and in some cases are more
restrictive than) the applicable requirements under the 1940 Act. A rating
agency's guidelines will apply to shares of Acquiring Fund MuniPreferred only so
long as such rating agency is rating such shares. The Acquiring Fund's Board
may, without shareholder approval, amend, alter or repeal any or all of the
definitions and related provisions which have been adopted by the Acquiring Fund
pursuant to the rating agency guidelines in the event the Acquiring Fund
receives written confirmation from Moody's or S&P, or both, as appropriate, that
any such change would not impair the ratings then assigned by Moody's and S&P to
shares of Acquiring Fund MuniPreferred.
So long as either Moody's or S&P, or both, are rating the Acquiring Fund
MuniPreferred, the Acquiring Fund may not, among other things, (a) engage in
futures or options transactions, except in accordance with the then-current
guidelines of such rating agencies, (b) borrow money, except that the Acquiring
Fund may, without obtaining the written confirmation described below, borrow
money for the purpose of clearing securities transactions if the MuniPreferred
Basic Maintenance Amount would continue to be satisfied after giving effect to
such borrowing and certain other conditions are met, (c) issue any class or
series of shares ranking on a parity with shares of Acquiring Fund MuniPreferred
with respect to the payment of dividends or the distribution of assets upon
liquidation of the Acquiring Fund, (d) engage in any short sales of securities,
(e) lend any securities, (f) merge or consolidate into or with any corporation,
(g) change the pricing service utilized in determining the market value of any
asset of the Acquiring Fund, or (h) enter into reverse repurchase agreements,
unless in each case (except as described above) it has received written
confirmation from S&P or Moody's, or both, as appropriate, that any such action
would not impair the rating then assigned by such rating agency to shares of
Acquiring Fund MuniPreferred. While the Acquiring Fund does not intend to
borrow, and while the Acquiring Fund is restricted as a matter of operating
policy from borrowing in excess of 5% of its total assets so long as the shares
of Acquiring Fund MuniPreferred are outstanding and is otherwise restricted from
borrowing pursuant to rating agency guidelines, under certain circumstances and
notwithstanding adverse interest rate or market conditions, the Acquiring Fund
is permitted to borrow under its investment restrictions for temporary or
emergency purposes (e.g., to make required distributions or pay dividends) or to
repurchase shares when such borrowing is deemed to be in the best interest of
its common shareholders. See "Additional Information About the Funds--Repurchase
of Common Shares; Conversion to Open-End Fund" in the Joint Proxy
Statement--Prospectus for the circumstances under which the Acquiring Fund may
purchase its common shares and incur indebtedness in connection therewith.
Should the Acquiring Fund borrow, the Acquiring Fund would be required to pay
when due the interest obligation on any debt incurred by the Acquiring Fund
before it would be able to pay dividends on shares of Acquiring Fund
MuniPreferred, and it is likely that the Acquiring Fund would be required to pay
the principal amount of any such debt prior to meeting the liquidation
preference of the shares of Acquiring Fund MuniPreferred. Because the interest
expense on borrowings by the Acquiring Fund will reduce the Acquiring Fund's net
investment earnings available to pay dividends on shares of Acquiring Fund
MuniPreferred, borrowing may impair the Acquiring Fund's ability to pay such
dividends on shares of Acquiring Fund MuniPreferred. The risk is heightened in
the event the Acquiring Fund incurs variable rate debt, the interest rate on
which may increase with increases in prevailing market rates.
ASSET MAINTENANCE
1940 ACT MUNIPREFERRED ASSET COVERAGE. The Acquiring Fund is required under
rating agency guidelines to maintain, as of the last Business Day of each month
in which any shares of Acquiring Fund MuniPreferred are outstanding, asset
coverage of at least 200% with respect to such shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are shares of a closed-end
investment company as a condition of declaring dividends on its common shares).
If the Acquiring Fund fails to maintain such asset coverage in accordance with
the requirements of the rating agency or agencies then rating the shares of
Acquiring Fund MuniPreferred ("1940 Act MuniPreferred Asset Coverage") and such
failure is not cured as of the last Business Day of the following month (the
"1940 Act Cure Date"), the Acquiring Fund will be required under certain
circumstances to redeem certain of the shares of Acquiring Fund MuniPreferred.
See "Redemption" below.
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MUNIPREFERRED BASIC MAINTENANCE AMOUNT. The Acquiring Fund is required
under rating agency guidelines to maintain, as of each Business Day ( a
"Valuation Date") on which shares of Acquiring Fund MuniPreferred are
outstanding, assets having in the aggregate a Discounted Value at least equal to
the MuniPreferred Basic Maintenance Amount established by the rating agency or
agencies then rating the shares of Acquiring Fund MuniPreferred. If the
Acquiring Fund fails to meet such requirement on any Valuation Date and such
failure is not cured on or before the seventh Business Day after such Valuation
Date (the "MuniPreferred Basic Maintenance Cure Date"), the Acquiring Fund will
be required under certain circumstances to redeem certain of the shares of
Acquiring Fund MuniPreferred. See "Redemption" below.
The "MuniPreferred Basic Maintenance Amount" as of any Valuation Date is
defined as the dollar amount equal to the sum of:
(a)(i) the product of the number of shares of Acquiring Fund MuniPreferred
outstanding on such date multiplied by $25,000, plus any redemption premium
applicable to shares of Acquiring Fund MuniPreferred then subject to redemption;
(ii) the aggregate amount of dividends that will have accumulated at
the respective Applicable Rates (whether or not earned or declared) to (but
not including) the first respective Dividend Payment Dates for shares of
Acquiring Fund MuniPreferred outstanding that follow such Valuation Date;
(iii) subject to certain exceptions, the aggregate amount of dividends
that would accumulate on shares of each series of Acquiring Fund
MuniPreferred outstanding from such first respective Dividend Payment Date
therefor through the 56th day after such Valuation Date, at the Maximum
Rate (calculated as if such Valuation Date were the Auction Date for the
Rate Period commencing on such Dividend Payment Date) for a Minimum Rate
Period of shares of such series to commence on such Dividend Payment Date,
assuming, solely for purposes of the foregoing, that if on such Valuation
Date the Acquiring Fund shall have delivered a Notice of Special Rate
Period to the Auction Agent with respect to shares of such series, such
Maximum Rate shall be the higher of (A) the Maximum Rate for the Special
Rate Period of shares of such series to commence on such Dividend Payment
Date and (B) the Maximum Rate for a Minimum Rate Period of shares of such
series to commence on such Dividend Payment Date, multiplied by the
Volatility Factor applicable to a Minimum Rate Period, or, in the event the
Acquiring Fund shall have delivered a Notice of Special Rate Period to the
Auction Agent with respect to shares of such series designating a Special
Rate Period consisting of 56 Rate Period Days or more, the Volatility
Factor applicable to a Special Rate Period of that length;
(iv) the amount of anticipated Acquiring Fund expenses for the 90 days
subsequent to such Valuation Date;
(v) the amount of the Acquiring Fund's Maximum Potential Gross-up
Payment Liability as of such Valuation Date; and
(vi) any current liabilities as of such Valuation Date to the extent
not reflected in any of (a)(i) through (a)(v) (including, without
limitation, any payables for Municipal Obligations purchased as of such
Valuation Date and any liabilities incurred for the purpose of clearing
securities transactions) less
(b) the value of any Acquiring Fund assets irrevocably deposited by the
Acquiring Fund for the payment of any of (a)(i) through (a)(vi), all as
calculated in accordance with the requirements of the rating agency or agencies
then rating the shares of Acquiring Fund MuniPreferred.
For purposes of the foregoing, "Maximum Potential Gross-up Payment
Liability," as of any Valuation Date, means the aggregate amount of Gross-up
Payments that would be due if the Acquiring Fund were to make Taxable
Allocations, with respect to any taxable year, estimated based upon dividends
paid and the amount of undistributed realized net capital gains and other
taxable income earned by the Acquiring Fund, as of the end of the calendar month
immediately preceding such Valuation Date, and assuming such Gross-up Payments
are fully taxable.
In managing the Acquiring Fund's portfolio, the Adviser will not alter the
composition of the Acquiring Fund's portfolio if, in the reasonable belief of
the Adviser, the effect of such alteration would be to cause the Acquiring Fund
to have Moody's Eligible Assets or S&P Eligible Assets with an aggregate
Discounted Value, as of the immediately preceding Valuation Date, less than the
MuniPreferred Basic Maintenance Amount as of such Valuation Date; provided,
however, that in the event that, as of the immediately preceding Valuation Date,
the aggregate Discounted Value of each of Moody's Eligible Assets and S&P
Eligible Assets exceeded the MuniPreferred Basic Maintenance Amount by 5% or
less, the Adviser will not alter the composition of the Acquiring Fund's
portfolio in a manner reasonably expected to reduce the aggregate Discounted
Value of such assets unless the
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Acquiring Fund shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of such assets would exceed the
MuniPreferred Basic Maintenance Amount.
Upon any failure to maintain the required Discounted Value, the Acquiring
Fund will seek to alter the composition of its portfolio to reattain the
MuniPreferred Basic Maintenance Amount on or prior to the MuniPreferred Basic
Maintenance Cure Date, thereby incurring additional transaction costs and
possible losses an/or gains on dispositions of portfolio securities.
On or before the third Business Day after a Valuation Date on which the
Acquiring Fund fails to meet the MuniPreferred Basic Maintenance Amount, and on
the third Business Day after the MuniPreferred Basic Maintenance Cure Date with
respect to such Valuation Date, the Acquiring Fund is required to deliver to the
Auction Agent (so long as either Moody's or S&P is rating the shares of
Acquiring Fund MuniPreferred) a report with respect to the calculation of the
MuniPreferred Basic Maintenance Amount and the value of its portfolio holdings
as of the date of such failure or such cure date, as the case may be (a
"MuniPreferred Basic Maintenance Report"). The Acquiring Fund will also deliver,
as required, a MuniPreferred Basic Maintenance Report as of (a) the fifteenth
day of each month (or, if such day is not a Business Day, the next succeeding
Business Day) and (b) the last Business Day of each month, in each case on or
before the third Business Day after such day. Within ten Business Days after
delivery of such report relating to the last Business Day of each of February,
May, August and November of each year, the Acquiring Fund will deliver a letter
prepared by its independent accountants regarding the accuracy of the
calculations made by the Acquiring Fund in its most recent MuniPreferred Basic
Maintenance Report. If any such letter prepared by the Acquiring Fund's
independent auditors shows that an error was made in the most recent
MuniPreferred Basic Maintenance Report, the calculation or determination made by
the Acquiring Fund's independent accountants will be conclusive and binding on
such Fund.
The Discount Factors and guidelines for determining the market value of the
Acquiring Fund's portfolio holdings, described below, have been based by the
rating agencies on criteria such as the sensitivity of the market value of the
relevant asset to changes in interest rates, the liquidity and depth of the
market for the relevant asset, the credit quality of the relevant asset (for
example, the lower the rating of a debt obligation, the higher the related
discount factor) and the frequency with which the relevant asset is marked to
market.
S&P AAA RATING GUIDELINES. For purposes of calculating the Discounted Value
of the Acquiring Fund's portfolio under current S&P guidelines, the fair market
value of Municipal Obligations eligible for consideration under such guidelines
("S&P Eligible Assets") must be discounted by certain discount factors set forth
in the table below ("S&P Discount Factors"). The Discounted Value of a Municipal
Obligation under S&P guidelines is the fair market value thereof divided by the
S&P Discount Factor. The S&P Discount Factor used to discount a particular
Municipal Obligation will be determined by reference to (i)(A) in the event such
Municipal Obligation is covered by an Original Issuance Insurance policy or a
Portfolio Insurance policy which does not provide the Acquiring Fund with the
option to obtain Permanent Insurance with respect to such Municipal Obligation,
or is not covered by bond insurance, the S&P or Moody's rating on such Municipal
Obligation, (B) in the event such Municipal Obligation is covered by a Secondary
Market Insurance policy, the S&P insurance claims-paying ability rating of the
issuer of the policy or (C) in the event such Municipal Obligation is covered by
a Portfolio Insurance policy which provides the Acquiring Fund with the option
to obtain Permanent Insurance with respect to such Municipal Obligation, at the
Acquiring Fund's option, the S&P or Moody's rating on such Municipal Obligation
or the S&P insurance claims-paying ability rating of the issuer of the Portfolio
Insurance policy, and (ii) the "S&P Exposure Period" (currently, seven Business
Days) and the S&P rating on such Municipal Obligation. S&P Discount Factors for
a range of exposure periods are set forth below:
<TABLE>
<CAPTION>
S&P DISCOUNT FACTORS
RATING CATEGORY
------------------------------
EXPOSURE PERIOD AAA AA A BBB
------------------------------------------------------ --- --- --- ---
<S> <C> <C> <C> <C>
40 Business Days...................................... 190% 195% 210% 250%
22 Business Days...................................... 170 175 190 230
10 Business Days...................................... 155 160 175 215
7 Business Days....................................... 150 155 170 210
3 Business Days....................................... 130 135 150 190
</TABLE>
Since the S&P Exposure Period currently applicable to the Acquiring Fund is
seven Business Days, the S&P Discount Factors currently applicable to S&P
Eligible Assets will be determined by reference to the factors set forth
opposite the line entitled "7 Business Days." Notwithstanding the foregoing, (a)
the S&P Discount Factor for short-term Municipal Obligations will be 115%, so
long as such Municipal Obligations are rated A-1+ or SP-1+ by S&P and mature or
have a demand feature exercisable within 30 days or less, or 125% if such
Municipal Obligations
S-23
<PAGE> 86
are not rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided,
however, that any such Moody's-rated short-term Municipal Obligations which have
demand features exercisable within 30 days or less must be backed by a letter of
credit, liquidity facility or guarantee from a bank or other financial
institution with a short-term rating of at least A-1+ from S&P; and further
provided that such Moody's-rated short-term Municipal Obligations may comprise
no more than 50% of short-term Municipal Obligations that qualify as S&P
Eligible Assets, (b) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold; and (c) except as set forth in
clause (a) above, in the case of any Municipal Obligation that is not rated by
S&P but qualifies as an S&P Eligible Asset pursuant to clause (a)(iii) of the
following paragraph, such Municipal Obligation will be deemed to have an S&P
rating one full rating category lower than the S&P rating category that is the
equivalent of the rating category in which such Municipal Obligation is placed
by Moody's. For purposes of the foregoing, Anticipation Notes rated SP-1+ or, if
not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not mature or have
a demand feature at par exercisable in 30 days and which do not have a long-term
rating, will be considered to be short-term Municipal Obligations. "Receivables
for Municipal Obligations Sold," for purposes of calculating S&P Eligible Assets
as of any Valuation Date, means the book value of receivables for Municipal
Obligations sold as of or prior to such Valuation Date if such receivables are
due within five business days of such Valuation Date.
The S&P guidelines impose certain minimum issue size, issuer, geographical
diversification and other requirements for purposes of determining S&P Eligible
Assets:
(a) In order to be considered S&P Eligible Assets, Municipal Obligations
owned by the Acquiring Fund must:
(i) Be interest bearing and pay interest at least semi-annually;
(ii) Be payable in U.S. dollars;
(iii) Be publicly rated BBB or higher by S&P or, if not rated by S&P
but rated by Moody's, be rated at least A by Moody's;
(iv) Not be private placements; and
(v) Be part of an issue with an original issue size of at least $20
million or, if of an issue with an original issue size below $20
million (but in no event lower than $10 million), be issued by an
issuer with a total of at least $50 million of securities
outstanding.
(b) Municipal Obligations of any one issuer or guarantor (excluding bond
insurers) shall be considered S&P Eligible Assets only to the extent the fair
market value of such Municipal Obligations does not exceed 10% of the aggregate
fair market value of S&P Eligible Assets, provided that 2% is added to the
applicable S&P Discount Factor for every 1% by which the fair market value of
such Municipal Obligations exceeds 5% of the aggregate fair market value of S&P
Eligible Assets.
(c) Long-term Municipal Obligations issued by issuers in any one state or
territory will be considered S&P Eligible Assets only to the extent the fair
market value of such Municipal Obligations does not exceed 20% of the aggregate
fair market value of S&P Eligible Assets.
(d) Municipal Obligations rated by Moody's but not rated by S&P shall be
considered S&P Eligible Assets only to the extent the fair market value of such
Municipal Obligations does not exceed 50% of the aggregate fair market value of
S&P Eligible Assets.
For purposes of determining as of any Valuation Date whether the Acquiring
Fund has S&P Eligible Assets with an aggregate Discounted Value at least equal
to the MuniPreferred Basic Maintenance Amount, the Acquiring Fund will include
as a liability in the calculation of the MuniPreferred Basic Maintenance Amount
an amount calculated semi-annually equal to 150% of the estimated cost of
obtaining Permanent Insurance with respect to S&P Eligible Assets that (i) are
covered by Portfolio Insurance policies which provide the Acquiring Fund with
the option to obtain such Permanent Insurance and (ii) are discounted by an S&P
Discount Factor determined by reference to the insurance claims-paying ability
rating of the issuer of such Portfolio Insurance policy.
MOODY'S "AAA" RATING GUIDELINES. For purposes of calculating the Discounted
Value of the Acquiring Fund's portfolio under current Moody's guidelines,
Municipal Obligations eligible for consideration under such guidelines ("Moody's
Eligible Assets") must be discounted by certain discount factors set forth in
the table below ("Moody's Discount Factors"). The Discounted Value of a
Municipal Obligation under Moody's guidelines is, as of any Valuation Date, (a)
with respect to a Moody's Eligible Asset that is not currently callable as of
such Valuation Date at the option of the issuer thereof, the quotient of the
market value thereof divided by the applicable Moody's Discount Factor, or (b)
with respect to a Moody's Eligible Asset that is currently callable as of such
Valuation Date at the option of the issuer thereof, the quotient of (i) the
lesser of the market value or call price thereof, including
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<PAGE> 87
any call premium, divided by (ii) the applicable Moody's Discount Factor. The
Moody's Discount Factor used to discount a particular Municipal Obligation will
be determined by reference to the "Moody's Exposure Period" (currently, the
period commencing on a given Valuation Date and ending 56 days thereafter) and
the Moody's rating on such Municipal Obligation. Moody's Discount Factors for a
range of exposure periods are set forth below:
<TABLE>
<CAPTION>
MOODY'S DISCOUNT FACTORS
RATING CATEGORY
-----------------------------------------------------------------------
EXPOSURE PERIOD AAA AA A BBB OTHER* (V)MIG-1** SP-1+**
- ----------------------------------------------------- --- --- --- --- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks.............................................. 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than 7 weeks............. 154 164 173 205 235 137 149
9 weeks or less but greater than 8 weeks............. 158 169 179 209 242 138 150
</TABLE>
- ------------
* Municipal Obligations not rated by Moody's but rated BBB or BBB+ by S&P.
** Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
Since the Moody's Exposure Period currently applicable to the Acquiring
Fund is 56 days, the Moody's Discount Factors currently applicable to Moody's
Eligible Assets will be determined by reference to the factors set forth
opposite the line entitled "8 weeks or less but greater than 7 weeks." However,
if the Moody's Discount Factor used to discount a particular Municipal
Obligation is determined by reference to the insurance claims-paying ability of
the insurer of such Municipal Obligation, such Moody's Discount Factor will be
increased by an amount equal to 50% of the difference between (i) the percentage
set forth in the above table under the applicable rating category, and (ii) the
percentage set forth in the above table under the rating category that is one
rating category below the applicable rating category. Notwithstanding the
foregoing, (a) the Moody's Discount Factor for short-term Municipal Obligations
will be 115%, so long as such Municipal Obligations are rated at least MIG-1,
VMIG-1 or P-1 by Moody's and mature or have a demand feature at par exercisable
in 30 days or less or 125% so long as such Municipal Obligations are rated at
least A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at par
exercisable in 30 days or less and (b) no Moody's Discount Factor will be
applied to cash or to Receivables for Municipal Obligations Sold. "Receivables
for Municipal Obligations Sold," for purposes of calculating Moody's Eligible
Assets as of any Valuation Date, means no more than the aggregate of the
following: (i) the book value of receivables for Municipal Obligations sold as
of or prior to such Valuation Date if such receivables are due within five
business days of such Valuation Date, and if the trades which generated such
receivables are (A) settled through clearing house firms with respect to which
the Acquiring Fund has received prior written authorization from Moody's or (B)
with counterparties having a Moody's long-term debt rating of at least Baa3; and
(ii) the Moody's Discounted Value of Municipal Obligations sold as of or prior
to such Valuation Date which generated receivables, if such receivables are due
within five business days of such Valuation Date but do not comply with either
of conditions (A) or (B).
The Moody's guidelines impose certain minimum issue size, issuer, issue
type concentration, county concentration and other requirements for purposes of
determining Moody's Eligible Assets, as set forth in the table below:
<TABLE>
<CAPTION>
MAXIMUM
MINIMUM MAXIMUM STATE OR
ISSUE SIZE UNDERLYING TERRITORY
RATING ($ MILLIONS) OBLIGOR(%) CONCENTRATION(%)
- ----------------------------------------------------------- ------------ ----------- -----------------
<S> <C> <C> <C>
Aaa........................................................ 10 100 100
Aa......................................................... 10 20 60
A.......................................................... 10 10 40
Baa........................................................ 10 6 20
Other*..................................................... 10 4 12
</TABLE>
- ------------
* Municipal Obligations not rated by Moody's but rated BBB or BBB+ by S&P.
The percentages set forth in the preceding table are based upon Moody's
Eligible Assets calculated excluding cash. For purposes of the maximum
underlying obligor requirement described above, which requirement will apply
except with respect to general obligation Municipal Obligations, any Municipal
Obligation backed by the guaranty, letter of credit or insurance issued by a
third party will be deemed to be issued by such third party if the issuance of
such third party credit is the sole determinant of the rating on such Municipal
Obligation. For purposes of the issue type concentration requirement described
above, Municipal Obligations will be classified within one of the following
categories: health care issues, housing issues, educational facilities issues,
student loan issues, resource recovery issues, transportation issues, industrial
development bond issues, utility issues, general obligation issues, lease
obligations, escrowed bonds and other issues ("Other Issues") not falling within
one of the aforementioned
S-25
<PAGE> 88
categories. In no event shall (a) more than 10% of Moody's Eligible Assets
consist of student loan issues, (b) more than 10% of Moody's Eligible Assets
consist of resource recovery issues or (c) more than 10% of Moody's Eligible
Assets consist of Other Issues. For purposes of applying the foregoing
requirements, Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by
Moody's, rated SP-1+ by S&P, which either do not mature or have a demand feature
at par exercisable in 30 days and which do not have a long-term rating, will be
considered to have a long-term rating of A.
Current Moody's guidelines also require that Municipal Obligations
constituting Moody's Eligible Assets pay interest in cash, be publicly rated Baa
or higher by Moody's or, if not rated by Moody's but rated by S&P, that they be
rated at least BBB by S&P, and that they not have suspended ratings. For
purposes of determining the Moody's Discount Factors applicable to such
S&P-rated Municipal Obligations, any such Municipal Obligation (excluding
short-term Municipal Obligations) will be deemed to have a Moody's rating which
is one full rating category lower than its S&P rating. For purposes of applying
the foregoing requirements, Municipal Obligations rated MIG-1, VMIG-1 or P-1,
or, if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, will be
considered to have a long-term rating of A.
For purposes of determining as of any Valuation Date whether the Fund has
Moody's Eligible Assets with an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount, the Fund shall include as a liability in
the calculation of the MuniPreferred Basic Maintenance Amount an amount
calculated semi-annually equal to 150% of the estimated cost of obtaining
Permanent Insurance with respect to Moody's Eligible Assets that (i) are covered
by Portfolio Insurance policies which provide the Fund with the option to obtain
such Permanent Insurance and (ii) are discounted by a Moody's Discount Factor
determined by reference to the insurance claims-paying ability of the issuers of
such Portfolio Insurance policy.
The Acquiring Fund may enter into futures and options transactions only for
bona fide hedging purposes and not for leveraging or speculative purposes. So
long as either S&P or Moody's is rating the Acquiring Fund MuniPreferred, the
Acquiring Fund will only engage in futures or options transactions in accordance
with the then-current guidelines of such ratings agencies, and only after it has
received written confirmation from S&P or Moody's, as appropriate, that such
transactions would not impair the ratings then assigned by such rating agency to
shares of Acquiring Fund MuniPreferred.
REDEMPTION
OPTIONAL REDEMPTION. Except as described below,
(a) shares of Acquiring Fund MuniPreferred of each series are redeemable,
at the option of the Acquiring Fund, as a whole or from time to time in part, on
the second Business Day preceding any Dividend Payment Date for shares of such
series, out of funds legally available therefor in accordance with the
Declaration, including the Acquiring Fund Statement and applicable law, at a
redemption price per share equal to the sum of $25,000 plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared) to
(but not including) the date fixed for redemption; provided, however, that (i)
shares of a series of Acquiring Fund MuniPreferred may not be redeemed in part
if after such partial redemption fewer than 500 shares of such series remain
outstanding and (ii) subject to the next succeeding sentence, the Notice of
Special Rate Period relating to a Special Rate Period of shares of a series of
Acquiring Fund MuniPreferred, as delivered to the Auction Agent and filed with
the Secretary of the Acquiring Fund, may provide that shares of such series
shall not be redeemable during the whole or any part of such Special Rate Period
(except as provided in clause (b) below) or shall be redeemable during the whole
or any part of such Special Rate Period only upon payment of such redemption
premium or premiums as shall be specified therein ("Special Redemption
Provisions"); and
(b) shares of each series of Acquiring Fund MuniPreferred are redeemable,
at the option of the Acquiring Fund, as a whole but not in part, out of funds
legally available therefor in accordance with the Declaration, including the
Acquiring Fund Statement and applicable law, on the first day following any
Dividend Period thereof included in a Rate Period of more than 364 Rate Period
Days if, on the date of determination of the Applicable Rate for shares of such
series for such Rate Period, such Applicable Rate equalled or exceeded on such
date of determination the Treasury Note Rate for such Rate Period, at a
redemption price of $25,000 per share plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption.
A Notice of Special Rate Period relating to shares of a series of Acquiring
Fund MuniPreferred for a Special Rate Period may contain Special Redemption
Provisions only if the Acquiring Fund's Board, after consultation with the
Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such
series, determines that such Special Redemption Provisions are in the best
interest of the Acquiring Fund.
S-26
<PAGE> 89
If fewer than all of the outstanding shares of a series of Acquiring Fund
MuniPreferred are to be redeemed as set forth above, the number of shares of
such series to be redeemed shall be determined by the Acquiring Fund's Board,
and such shares shall be redeemed pro rata from the holders of record of shares
of such series (initially Cede, as nominee of the Securities Depository) in
proportion to the number of shares of such series held by such holders. Since
the nominee of the Securities Depository is the only record holder of each
series of Acquiring Fund MuniPreferred, it will determine the number of shares
to be redeemed from the accounts of the Agent Members. The Agent Members, in
turn, may determine to redeem shares from some persons listed on their records
as beneficial owners (which may include an Agent Member holding shares for its
own account) without redeeming shares from the accounts of other persons listed
on their records as beneficial owners.
The Acquiring Fund may not mail a Notice of Redemption relating to an
optional redemption as described above on any date unless on such date (a) the
Acquiring Fund has available Deposit Securities (i.e., cash and Municipal
Obligations rated at least A-1+ or SP-1+ by S&P and P-1, MIG-1 or VMIG-1 by
Moody's) with maturity or tender dates not later than the day preceding the
applicable redemption date and having a value not less than the amount
(including any applicable premium) due to holders of shares of Acquiring Fund
MuniPreferred by reason of the redemption of such shares on such redemption date
and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of Acquiring Fund MuniPreferred) and the Discounted Value of
S&P Eligible Assets (if S&P is then rating the shares of Acquiring Fund
MuniPreferred) each at least equal the MuniPreferred Basic Maintenance Amount
and would at least equal the MuniPreferred Basic Maintenance Amount immediately
subsequent to such redemption if such redemption were to occur on such date. For
purposes of determining in clause (b) of the preceding sentence whether the
Discounted Value of Moody's Eligible Assets at least equals the MuniPreferred
Basic Maintenance Amount, the Moody's Discount Factors applicable to Moody's
Eligible Assets will be determined by reference to the first Moody's Exposure
Period longer than the Moody's Exposure Period then applicable to the Acquiring
Fund.
MANDATORY REDEMPTION. The Acquiring Fund will be required to redeem, at a
redemption price equal to $25,000 per share plus accumulated but unpaid
dividends thereon (whether or not earned or declared) to (but not including) the
date fixed by the Acquiring Fund's Board for redemption (such amount, together
with the redemption prices described under "Optional Redemption" above, being
herein referred to as the "Redemption Price"), certain of the shares of
Acquiring Fund MuniPreferred to the extent permitted under the 1940 Act, the
Declaration, the Acquiring Fund Statement and any applicable law, if the
Acquiring Fund fails to maintain the MuniPreferred Basic Maintenance Amount or
the 1940 Act MuniPreferred Asset Coverage in accordance with the requirements of
the rating agency or rating agencies then rating the shares of Acquiring Fund
MuniPreferred and such failure is not cured on or before the MuniPreferred Basic
Maintenance Cure Date or the 1940 Act Cure Date (herein respectively referred to
as a "Cure Date"), as the case may be. The number of shares of Acquiring Fund
MuniPreferred to be redeemed will be equal to the lesser of (a) the minimum
number of shares of Acquiring Fund MuniPreferred, together with all other
Acquiring Fund preferred shares subject to redemption or retirement, the
redemption of which, if deemed to have occurred immediately prior to the opening
of business on the Cure Date, would have resulted in the satisfaction of the
MuniPreferred Basic Maintenance Amount or the 1940 Act MuniPreferred Asset
Coverage, as the case may be, on such Cure Date (provided, however, that if
there is no such minimum number of shares of Acquiring Fund MuniPreferred and
other Acquiring Fund preferred shares the redemption or retirement of which
would have had such result, all shares of Acquiring Fund MuniPreferred and
Acquiring Fund preferred shares then outstanding will be redeemed), and (b) the
maximum number of shares of Acquiring Fund MuniPreferred, together with all
other Acquiring Fund preferred shares subject to redemption or retirement, that
can be redeemed out of funds expected to be legally available therefor. In
determining the shares of Acquiring Fund MuniPreferred required to be redeemed
in accordance with the foregoing, the Acquiring Fund will allocate the number
required to be redeemed to satisfy the MuniPreferred Basic Maintenance Amount or
the 1940 Act MuniPreferred Asset Coverage, as the case may be, pro rata among
shares of Acquiring Fund MuniPreferred and other Acquiring Fund preferred shares
(and, then, pro rata among each series of Acquired Fund MuniPreferred) subject
to redemption.
The Acquiring Fund is required to effect such a mandatory redemption not
earlier than 20 days and not later than 40 days after such Cure Date, except
that if the Acquiring Fund does not have funds legally available for the
redemption of all of the required number of shares of Acquiring Fund
MuniPreferred and other Acquiring Fund preferred shares which are subject to
redemption or retirement or the Acquiring Fund otherwise is unable to effect
such redemption on or prior to 40 days after such Cure Date, the Acquiring Fund
will redeem those shares of Acquiring Fund MuniPreferred or other Acquiring Fund
preferred shares which it was unable to redeem on the earliest practicable date
on which it is able to effect such redemption. If fewer than all of the
outstanding shares of a series of Acquiring Fund MuniPreferred are to be
redeemed pursuant to a mandatory redemption, the number of
S-27
<PAGE> 90
shares of such series to be redeemed shall be redeemed pro rata from the holders
of shares of such series in proportion to the number of shares of such series
held by such holders, in the same manner as described above in respect of
optional redemptions of fewer than all outstanding shares of a series of
Acquiring Fund MuniPreferred.
NOTICE OF REDEMPTION. Notice of redemption shall be given by mailing the
same to each holder of the shares to be redeemed (initially Cede, as nominee of
the Securities Depository), not less than 20 nor more than 45 days prior to the
date fixed for redemption thereof, to the respective addresses of such holders
as the same shall appear on the record books of the Acquiring Fund ("Notice of
Redemption"). Each such notice shall state (a) the redemption date; (b) the
number of shares of Acquiring Fund MuniPreferred to be redeemed and the series
thereof; (c) the CUSIP number for shares of such series; (d) the Redemption
Price; (e) the place or places where certificate(s) for such shares (properly
endorsed or assigned for transfer, if the Acquiring Fund's Board shall so
require and the notice shall so state) are to be surrendered for payment of the
Redemption Price; (f) that dividends on the shares to be redeemed will cease to
accumulate on such redemption date; and (g) the provisions of the Acquiring Fund
Statement under which such redemption is made. If fewer than all shares of a
series of Acquiring Fund MuniPreferred held by any holder are to be redeemed,
the notice mailed to such holder shall also specify the number of shares of such
series to be redeemed from such holder. The Acquiring Fund may provide in any
Notice of Redemption relating to an optional redemption that such redemption is
subject to one or more conditions precedent and that the Acquiring Fund shall
not be required to effect such redemption unless each such condition shall have
been satisfied at the time or times and in the manner specified in such Notice
of Redemption.
OTHER REDEMPTION PROCEDURES. To the extent that any redemption for which
Notice of Redemption has been mailed is not made by reason of the absence of
legally available funds therefor, such redemption will be made as soon as
practicable to the extent such funds become available. Failure to redeem shares
of Acquiring Fund MuniPreferred will be deemed to exist at any time after the
date specified for redemption in a Notice of Redemption when the Acquiring Fund
shall have failed, for any reason whatsoever, to deposit with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed. Notwithstanding the fact that the Acquiring Fund may
not have redeemed shares of Acquiring Fund MuniPreferred for which a Notice of
Redemption has been mailed, dividends may be declared and paid on shares of
Acquiring Fund MuniPreferred and will include those shares of Acquiring Fund
MuniPreferred for which Notice of Redemption has been mailed. The first two
sentences of this paragraph shall not apply in the event the Acquiring Fund
provides in any Notice of Redemption relating to an optional redemption that
such redemption is subject to one or more conditions precedent and any such
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such Notice of Redemption.
Provided a Notice of Redemption has been mailed as described above, upon
the deposit with the Auction Agent (on the next Business Day preceding the date
fixed for redemption thereby, in funds available on the next Business Day in The
City of New York, New York) of funds sufficient to redeem the shares of
Acquiring Fund MuniPreferred that are the subject of such notice, dividends on
such shares will cease to accumulate and such shares will no longer be deemed
outstanding for any purpose, and all rights of the holders of the shares so
called for redemption will cease and terminate, except the right of the holders
thereof to receive the Redemption Price, but without any interest or other
additional amount, except as otherwise provided under "Dividends--Determination
of Dividend Rate" and "Gross-up Payments" above. Upon surrender in accordance
with the Notice of Redemption of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Acquiring Fund's Board shall
so require and the notice shall so state), the Redemption Price shall be paid by
the Auction Agent to the holders of shares of Acquiring Fund MuniPreferred
subject to redemption. In the case that fewer than all of the shares represented
by any such certificate are redeemed, a new certificate shall be issued,
representing the unredeemed shares, without cost to the holder thereof. The
Acquiring Fund will be entitled to receive from the Auction Agent, promptly
after the date fixed for redemption, any cash deposited with the Auction Agent
in excess of (a) the aggregate Redemption Price of the shares of Acquiring Fund
MuniPreferred called for redemption on such date and (b) all other amounts to
which holders of shares of Acquiring Fund MuniPreferred called for redemption
may be entitled. Any funds so deposited that are unclaimed at the end of 90 days
from such redemption date will, to the extent permitted by law, be repaid to the
Acquiring Fund, after which time the holders of shares of Acquiring Fund
MuniPreferred so called for redemption may look only to the Acquiring Fund for
payment of the Redemption Price and all other amounts to which they may be
entitled. The Acquiring Fund will be entitled to receive, from time to time
after the date fixed for redemption, any interest on the funds so deposited.
Notwithstanding the foregoing, if any dividends on shares of a series of
Acquiring Fund MuniPreferred (whether or not earned or declared) are in arrears,
no shares of such series shall be redeemed unless all outstanding shares of such
series are simultaneously redeemed, and the Acquiring Fund shall not purchase or
otherwise acquire any shares of such series; provided, however, that the
foregoing shall not prevent the purchase or acquisition of all
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<PAGE> 91
outstanding shares of such series pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, holders of all outstanding shares of such series.
Except as described above with respect to redemptions and under
"Description of the Auctions for MuniPreferred Issued by the Acquiring
Fund--Orders by Existing Holders and Potential Holders," the Declaration
including the Acquiring Fund Statement do not prohibit the Acquiring Fund or any
affiliate of the Acquiring Fund from purchasing or otherwise acquiring any
shares of Acquiring Fund MuniPreferred.
The Acquiring Fund has the right to arrange for third parties to purchase
from the holders thereof shares of Acquiring Fund MuniPreferred which are to be
redeemed as described above.
LIQUIDATION
Upon a liquidation of the Acquiring Fund, whether voluntary or involuntary,
the holders of shares of Acquiring Fund MuniPreferred then outstanding will be
entitled to receive and to be paid out of the assets of the Acquiring Fund
available for distribution to its shareholders, before any payment or
distribution shall be made on the Acquiring Fund common shares or on any other
class of shares of the Acquiring Fund ranking junior to the Acquiring Fund
MuniPreferred upon liquidation, an amount equal to the liquidation preference
with respect to such shares. The liquidation preference for shares of Acquiring
Fund MuniPreferred shall be $25,000 per share, plus an amount equal to all
dividends thereon (whether or not earned or declared) accumulated but unpaid to
(but not including) the date of final distribution in same-day funds, together
with any applicable Gross-up Payments in connection with the liquidation of the
Acquiring Fund. After the payment to the holders of the shares of Acquiring Fund
MuniPreferred of the full preferential amounts provided for as described herein,
the holders of shares of Acquiring Fund MuniPreferred as such shall have no
right or claim to any of the remaining assets of the Acquiring Fund. In the
event the assets of the Acquiring Fund available for distribution to the holders
of shares of Acquiring Fund MuniPreferred upon any liquidation of the Acquiring
Fund, whether voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled, no such distribution shall be made
on account of any other class or series of Acquiring Fund preferred shares
ranking on a parity with the shares of Acquiring Fund MuniPreferred upon such
liquidation unless proportionate distributive amounts shall be paid on account
of the shares of Acquiring Fund MuniPreferred, ratably, in proportion to the
full distributable amounts for which holders of all such parity shares are
respectively entitled upon such liquidation. Subject to the rights of the
holders of any series or class or classes of shares ranking on a parity with the
shares of Acquiring Fund MuniPreferred with respect to the distribution of
assets upon liquidation of the Acquiring Fund, after payment shall have been
made in full to the holders of the shares of Acquiring Fund MuniPreferred as
described herein, but not prior thereto, any other series or class or classes of
shares ranking junior to the shares of Acquiring Fund MuniPreferred with respect
to the distribution of assets upon liquidation shall, subject to the respective
terms and provisions (if any) applying thereto, be entitled to receive any and
all assets remaining to be paid or distributed, and the holders of shares of
Acquiring Fund MuniPreferred shall not be entitled to share therein.
Neither the sale of all or substantially all the property or business of
the Acquiring Fund, nor the merger or consolidation of the Acquiring Fund into
or with any Massachusetts business trust or corporation nor the merger or
consolidation of any Massachusetts business trust or corporation into or with
the Acquiring Fund shall be a liquidation, whether voluntary or involuntary, for
the purposes of the foregoing paragraph.
DESCRIPTION OF THE AUCTIONS FOR
MUNIPREFERRED ISSUED BY THE ACQUIRING FUND
GENERAL
The Acquiring Fund Statement provides that, except as otherwise described
herein, the Applicable Rate for shares of each series of Acquiring Fund
MuniPreferred, including Acquiring Fund MuniPreferred, Series T, and Series TH,
issued pursuant to the Reorganization, for each Rate Period after the Initial
Rate Period thereof shall be equal to the rate per annum that the Auction Agent
advises has resulted on the Business Day preceding the first day of such
Subsequent Rate Period (an "Auction Date") from implementation of the auction
procedures (the "Auction Procedures") set forth in the Acquiring Fund Statement
and summarized below, in which persons determine to hold or offer to sell or,
based on dividend rates bid by them, offer to purchase or sell shares of such
series. Each periodic implementation of the Auction Procedures, which are
attached as Annex B to this Statement of Additional Information, is referred to
herein as an "Auction." The following summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Auction
Procedures set forth in the Acquiring Fund Statement.
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As used herein with respect to shares of a series of Acquiring Fund
MuniPreferred, (a) "Applicable Rate" means the rate per annum at which dividends
are payable on shares of such series for any Rate Period thereof, (b)
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of such series, (c) "Business Day" means a day on which the NYSE is
open for trading and is not a Saturday, Sunday or other day on which banks in
New York City are authorized by law to close, (d) "Date of Original Issue" means
the day on which the Acquiring Fund initially issued shares of such series (in
the case of Acquiring Fund MuniPreferred, Series M, Series W and Series F) or
the day on which the Effective Time occurs (in the case of Acquiring Fund
MuniPreferred, Series T and Series TH), (e) "Dividend Payment Date" means any
date on which dividends on shares of such series are payable as provided under
"Description of MuniPreferred Issued by the Acquiring Fund--Dividends--General"
above, (f) "Dividend Period" means the period from and including the Date of
Original Issue (in the case of Acquiring Fund MuniPreferred, Series M, Series W
and Series F) or the day following the Date of Original Issue (in the case of
Acquiring Fund MuniPreferred, Series T and Series TH) to but excluding the
initial Dividend Payment Date for shares of such series and any period
thereafter from and including one Dividend Payment Date for shares of such
series to but excluding the next succeeding Dividend Payment Date for shares of
such series, (g) "Existing Holder" means a Broker-Dealer (or any such other
person as may be permitted by the Acquiring Fund) that is listed on the records
of the Auction Agent as a holder of shares of such series, (h) "Initial Rate
Period" means the period from and including the Date of Original Issue to but
excluding November 23, 1993, November 18, 1993, and November 22, 1993 (in the
case of Acquiring Fund MuniPreferred, Series M, Series W and Series F,
respectively) and the period consisting of the number of days following the Date
of Original Issue that would have remained in the rate period of Acquired Fund
MuniPreferred, Series T and Series TH, in effect immediately prior to the Date
of Original Issue but for the Reorganization (in the case of Acquiring Fund
MuniPreferred, Series T and Series TH), (i) "Potential Beneficial Owner" means a
customer of a Broker-Dealer that is not a Beneficial Owner of shares of such
series but that wishes to purchase shares of such series, or that is a
Beneficial Owner of shares of such series that wishes to purchase additional
shares of such series, (j) "Potential Holder" means a Broker-Dealer (or any such
other Person as may be permitted by the Acquiring Fund) that is not an Existing
Holder of shares of such series or that is an Existing Holder of shares of such
series that wishes to become the Existing Holder of additional shares of such
series, (k) "Rate Period" means the Initial Rate Period of shares of such series
and any Subsequent Rate Period of shares of such series, (l) "Rate Period Days,"
for any Rate Period or Dividend Period, means the number of days that would
constitute such Rate Period or Dividend Period but for either (i) the shortening
or lengthening, as the case may be, of such Rate Period or Dividend Period as
set forth under "Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--General" above, because the day on which dividends would
otherwise be payable is not a Business Day or (ii) the shortening of such Rate
Period pursuant to the provisions relating to the designation of Special Rate
Periods as set forth under "Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--Designation of Special Rate Periods" above, (m) "Subsequent
Rate Period" means any period from and including the first day following the
Initial Rate Period of shares of such series to but excluding the next Dividend
Payment Date for shares of such series and any period thereafter from and
including one Dividend Payment Date for shares of such series to but excluding
the next succeeding Dividend Payment Date for shares of such series; provided,
however, that if any Subsequent Rate Period is also a Special Rate Period, such
term shall mean the period commencing on the first day of such Special Rate
Period and ending on the last day of the last Dividend Period thereof, (n)
"Minimum Rate Period" means any Rate Period consisting of 7 Rate Period Days and
(o) "Special Rate Period" means any Subsequent Rate Period commencing on the
date designated by the Acquiring Fund, as set forth under "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends-- Designation of Special
Rate Periods" above, and ending on the last day of the last Dividend Period
thereof.
AUCTION AGENCY AGREEMENT. The Acquiring Fund has entered into an Auction
Agency Agreement (the "Auction Agency Agreement") with the Auction Agent
(currently, Bankers Trust Company) which provides, among other things, that the
Auction Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of each series of Acquiring Fund MuniPreferred so
long as the Applicable Rate for shares of such series is to be based on the
results of an Auction.
BROKER-DEALER AGREEMENTS. Each Auction requires the participation of one or
more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Acquiring Fund, which provide for the participation of those
Broker-Dealers in Auctions for shares of Acquiring Fund MuniPreferred. See
"Broker-Dealers" below.
SECURITIES DEPOSITORY. The Depository Trust Company ("DTC") will act as the
Securities Depository for the Agent Members with respect to shares of each
series of Acquiring Fund MuniPreferred. One certificate for all of the shares of
each series of Acquiring Fund MuniPreferred will be registered in the name of
Cede, as nominee of the
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Securities Depository. Such certificate will bear a legend to the effect that
such certificate is issued subject to the provisions restricting transfers of
shares of Acquiring Fund MuniPreferred contained in the Acquiring Fund
Statement. The Acquiring Fund will also issue stop-transfer instructions to the
transfer agent for shares of each series of Acquiring Fund MuniPreferred. Prior
to the commencement of the right of holders of preferred shares to elect a
majority of the Acquiring Fund's trustees, as described under "Description of
MuniPreferred Issued by the Acquiring Fund--Voting Rights" above, Cede will be
the holder of record of all shares of each series of Acquiring Fund
MuniPreferred and owners of such shares will not be entitled to receive
certificates representing their ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs services
for its participants (including the Agent Members), some of whom (and/or their
representatives) own DTC. DTC maintains lists of its participants and will
maintain the positions (ownership interests) held by each such participant (the
"Agent Member") in shares of Acquiring Fund MuniPreferred, whether for its own
account or as a nominee for another person.
AUCTION DATES; ADVANCE NOTICE OF ALLOCATION OF TAXABLE INCOME
The first Auction for shares of Acquiring Fund MuniPreferred, Series T and
Series TH, as the case may be, issued pursuant to the Reorganization will be the
first Tuesday and Thursday, respectively, that is a Business Day preceding the
initial Dividend Payment Date for shares of such series. See "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--General." Thereafter,
Auctions for shares of such series will normally be held every Tuesday and
Thursday (in the case of Acquiring Fund MuniPreferred, Series T and Series TH,
respectively) and Monday, Wednesday and Friday (in the case of Acquiring Fund
MuniPreferred, Series M Series W and Series F, respectively), and each
Subsequent Rate Period of shares of such series will normally begin on the
following Wednesday and Friday (in the case of Acquiring Fund MuniPreferred,
Series T and Series TH, respectively) and Tuesday, Thursday and Monday (in the
case of Acquiring Fund MuniPreferred, Series M, Series W and Series F,
respectively), unless the then-current Rate Period of shares of such series is a
Special Rate Period or, in certain circumstances, the day that would normally be
the Auction Date or the first day of such Subsequent Rate Period is not a
Business Day. The Auction Date and the first day of the related Rate Period
(also a Dividend Payment Date) must be Business Days but need not be consecutive
days. See "Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--General" for information concerning the circumstances under
which the first day of a Rate Period or the Auction Date, or both, may be moved
to a date other than such specified days.
Whenever the Acquiring Fund intends to include any net capital gains or
other income taxable for Federal income tax purposes in any dividend on shares
of Acquiring Fund MuniPreferred, the Acquiring Fund shall, in the case of
Minimum Rate Periods or Special Rate Periods of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, notify the Auction Agent
of the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the
Acquiring Fund, it will be required in turn to notify each Broker-Dealer, who,
on or prior to such Auction Date, in accordance with its Broker-Dealer
Agreement, will be required to notify its customers who are Beneficial Owners
and Potential Beneficial Owners believed by it to be interested in submitting an
Order in the Auction to be held on such Auction Date. See also "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--Gross-Up Payments" above.
ORDERS BY EXISTING HOLDERS AND POTENTIAL HOLDERS
Prior to the Submission Deadline on each Auction Date for shares of a
series of Acquiring Fund MuniPreferred:
(a) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise a:
(i) "Hold Order"--indicating the number of outstanding shares, if any,
of such series that such Beneficial Owner desires to continue to hold
without regard to the Applicable Rate for shares of such series for the
next Rate Period thereof;
(ii) "Bid"--indicating the number of outstanding shares, if any, of
such series that such Beneficial Owner offers to sell if the Applicable
Rate for shares of such series for the next Rate Period thereof shall be
less than the rate per annum specified by such Beneficial Owner; and/or
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(iii) "Sell Order"--indicating the number of outstanding shares, if
any, of such series that such Beneficial Owner offers to sell without
regard to the Applicable Rate for shares of such series for the next Rate
Period thereof; and
(b) Broker-Dealers shall contact customers who are Potential Beneficial
Owners by telephone or otherwise to determine whether such customers desire to
submit Bids, in which they will indicate the number of shares of such series
that they offer to purchase if the Applicable Rate for shares of such series for
the next Rate Period thereof is not less than the rate per annum specified in
such Bids.
The communication to a Broker-Dealer of the foregoing information is herein
referred to as an "Order" and collectively as "Orders." A Beneficial Owner or a
Potential Beneficial Owner placing an Order with its Broker-Dealer is herein
referred to as a "Bidder" and collectively as "Bidders." The submission by a
Broker-Dealer of an Order to the Auction Agent shall likewise be referred to
herein as an "Order" and collectively as "Orders," and an Existing Holder or
Potential Holder who places an Order with the Auction Agent or on whose behalf
an Order is placed with the Auction Agent shall likewise be referred to herein
as a "Bidder" and collectively as "Bidders."
A Beneficial Owner may submit different types of Orders to its
Broker-Dealer with respect to shares of a series of Acquiring Fund MuniPreferred
then held by such Beneficial Owner. A Bid placed by a Beneficial Owner with
respect to shares of such series specifying a rate higher than the Applicable
Rate for shares of such series determined in the Auction therefor shall
constitute an irrevocable offer to sell the shares subject thereto. A Beneficial
Owner of shares of such series that submits a Bid with respect to shares of such
series to its Broker-Dealer having a rate higher than the Maximum Rate for
shares of such series on the Auction Date therefor will be treated as having
submitted a Sell Order with respect to such shares to its Broker-Dealer. A
Beneficial Owner of shares of such series that fails to submit to its
Broker-Dealer prior to the Submission Deadline an Order or Orders covering all
the outstanding shares of such series held by such Beneficial Owner will be
deemed to have submitted a Hold Order to its Broker-Dealer covering the number
of outstanding shares of such series held by such Beneficial Owner and not
subject to Orders with respect to shares of such series submitted to its
Broker-Dealer; provided, however, that if a Beneficial Owner of shares of such
series fails to submit to its Broker-Dealer prior to the Submission Deadline an
Order or Orders covering all of the outstanding shares of such series held by
such Beneficial Owner for an Auction relating to a Special Rate Period
consisting of more than 28 Rate Period Days, such Beneficial Owner will be
deemed to have submitted a Sell Order to its Broker-Dealer covering the number
of outstanding shares of such series held by such Beneficial Owner and not
subject to Orders submitted to its Broker-Dealer. A Sell Order shall constitute
an irrevocable offer to sell the shares of Acquiring Fund MuniPreferred subject
thereto. A Beneficial Owner that offers to become the Beneficial Owner of
additional shares of Acquiring Fund MuniPreferred is, for purposes of such
offer, a Potential Beneficial Owner.
A Potential Beneficial Owner may submit to its Broker-Dealer Bids in which
it offers to purchase shares of a series of Acquiring Fund MuniPreferred if the
Applicable Rate for shares of such series for the next Rate Period thereof is
not less than the rate specified in such Bid. A Bid placed by a Potential
Beneficial Owner of shares of such series specifying a rate not higher than the
Maximum Rate for shares of such series shall constitute an irrevocable offer to
purchase the number of shares of such series specified in such Bid if the rate
determined in the Auction for shares of such series is equal to or greater than
the rate specified in such Bid.
As described more fully under "Submission of Orders by Broker-Dealers to
Auction Agent" below, the Broker-Dealers will submit the Orders of their
respective customers who are Beneficial Owners and Potential Beneficial Owners
to the Auction Agent, designating themselves (unless otherwise permitted by the
Acquiring Fund) as Existing Holders in respect of shares subject to Orders
submitted or deemed submitted to them by Beneficial Owners and as Potential
Holders in respect of shares subject to Orders submitted to them by Potential
Beneficial Owners. However, neither the Acquiring Fund nor the Auction Agent
will be responsible for a Broker-Dealer's failure to comply with the foregoing.
Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of an
Existing Holder or a Potential Holder will be treated in the same manner as an
Order placed with a Broker-Dealer by a Beneficial Owner or a Potential
Beneficial Owner, as described in the preceding paragraph. Similarly, any
failure by a Broker-Dealer to submit to the Auction Agent an Order in respect of
any shares of Acquiring Fund MuniPreferred held by it or its customers who are
Beneficial Owners will be treated in the same manner as a Beneficial Owner's
failure to submit to its Broker-Dealer an Order in respect of shares of
Acquiring Fund MuniPreferred held by it, as described in the second preceding
paragraph. For information concerning the priority given to different types of
Orders placed by Existing Holders, see "Submission of Orders by Broker-Dealers
to Auction Agent," below.
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Neither the Acquiring Fund nor an affiliate may submit an Order in any
Auction, except that any Broker-Dealer that is an affiliate of the Acquiring
Fund may submit Orders in an Auction, but only if such Orders are not for its
own account.
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or selling,
or a Potential Holder purchasing, a number of shares of Acquiring Fund
MuniPreferred that is fewer than the number of shares of Acquiring Fund
MuniPreferred specified in its Order. See "Acceptance and Rejection of Submitted
Bids and Submitted Sell Orders and Allocation of Shares," below. To the extent
the allocation procedures have that result, Broker-Dealers that have designated
themselves as Existing Holders or Potential Holders in respect of customer
Orders will be required to make appropriate pro rata allocations among their
respective customers. Each purchase or sale shall be made for settlement on the
Business Day next succeeding the Auction Date at a price per share equal to
$25,000. See "Notification of Results; Settlement," below.
As described above, any Bid specifying a rate higher than the Maximum Rate
will (a) be treated as a Sell Order if submitted by Beneficial Owner or an
Existing Holder and (b) not be accepted if submitted by a Potential Beneficial
Owner or a Potential Holder. Accordingly, the Auction Procedures establish the
Maximum Rate as a maximum rate per annum that can result from an Auction. See
"Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate" and "Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares" below.
As used herein, "Maximum Rate," for shares of a series of Acquiring Fund
MuniPreferred on any Auction Date for shares of such series, means:
(a) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period, the
product of (i) the Reference Rate on such Auction Date for the next Rate Period
of shares of such series and (ii) the Rate Multiple on such Auction Date, unless
shares of such series have or had a Special Rate Period (other than a Special
Rate Period of 28 Rate Period Days or fewer) and an Auction at which Sufficient
Clearing Bids existed has not yet occurred for a Minimum Rate Period of shares
of such series after such Special Rate Period, in which case the higher of:
(A) the dividend rate on shares of such series for the then-ending
Rate Period; and
(B) the product of (x) the higher of (I) the Reference Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date
for a Rate Period equal in length to the then-ending Rate Period of shares
of such series, if such then-ending Rate Period was more than 364 Rate
Period Days, and (II) the Reference Rate on such Auction Date for a Rate
Period equal in length to such Special Rate Period of shares of such
series, if such Special Rate Period was 364 Rate Period Days or fewer, or
the Treasury Note Rate on such Auction Date for a Rate Period equal in
length to such Special Rate Period, if such Special Rate Period was more
than 364 Rate Period Days and (y) the Rate Multiple on such Auction Date;
or
(b) in the case of any Auction Date which is the Auction Date immediately
prior to the first day of any proposed Special Rate Period, the product of (i)
the highest of (x) the Reference Rate on such Auction Date for a Rate Period
equal in length to the then-ending Rate Period of shares of such series, if such
then-ending Rate Period was 364 Rate Period Days or fewer, or the Treasury Note
Rate on such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period was more
than 364 Rate Period Days, (y) the Reference Rate on such Auction Date for the
Special Rate Period for which the Auction is being held if such Special Rate
Period is 364 Rate Period Days or fewer or the Treasury Note Rate on such
Auction Date for the Special Rate Period for which the Auction is being held if
such Special Rate Period is more than 364 Rate Period Days, and (z) the
Reference Rate on such Auction Date for Minimum Rate Periods and (ii) the Rate
Multiple on such Auction Date.
As used herein, "Reference Rate" shall mean (i) the higher of the Taxable
Equivalent of the Short-Term Municipal Bond Rate and the "AA" Composite
Commercial Paper Rate in the case of Minimum Rate Periods and Special Rate
Periods of 28 Rate Period Days or fewer; (ii) the "AA" Composite Commercial
Paper Rate in the case of Special Rate Periods of more than 28 Rate Period Days
but fewer than 183 Rate Period Days; and (iii) the Treasury Bill Rate in the
case of Special Rate Periods of more than 182 Rate Period Days but fewer than
365 Rate Period Days.
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As used herein, "Taxable Equivalent of the Short-Term Municipal Bond Rate,"
on any date for any Minimum Rate Period or Special Rate Period of 28 Rate Period
Days or fewer, shall mean 90% of the quotient of (a) the per annum rate
expressed on an interest equivalent basis equal to the Kenny S&P 30 day High
Grade Index or any successor index (the "Kenny Index") (provided, however, that
any such successor index must be approved by Moody's (if Moody's is then rating
the shares of Acquiring Fund MuniPreferred) and S&P (if S&P is then rating the
shares of Acquiring Fund MuniPreferred)), made available for the Business Day
immediately preceding such date but in any event not later than 8:30 a.m., New
York City time, on such date by Kenny S&P Evaluation Services or any successor
thereto, based upon 30-day yield evaluations at par of short-term bonds the
interest on which is excludable for regular Federal income tax purposes under
the Code, of "high grade" component issuers selected by Kenny S&P Evaluation
Services or any such successor from time to time in its discretion, which
component issuers shall include, without limitation, issuers of general
obligation bonds, but shall exclude any bonds the interest on which constitutes
an item of tax preference under Section 57(a)(5) of the Code, or successor
provisions, for purposes of the "alternative minimum tax," divided by (b) 1.00
minus the maximum marginal regular Federal individual income tax rate applicable
to ordinary income or the maximum marginal regular Federal corporate income tax
rate applicable to ordinary income (in each case expressed as a decimal),
whichever is greater; provided, however, that if the Kenny Index is not made so
available by 8:30 a.m., New York City time, on such date by Kenny S&P Evaluation
Services or any successor, the Taxable Equivalent of the Short-Term Municipal
Bond Rate shall mean the quotient of (i) the per annum rate expressed on an
interest equivalent basis equal to the most recent Kenny Index so made available
for any preceding Business Day, divided by (ii) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income (in each case expressed as a decimal), whichever is greater.
As used herein, "AA" Composite Commercial Paper Rate," on any date for any
Rate Period of shares of a series of Acquiring Fund MuniPreferred, means:
(a) (i) in the case of any Minimum Rate Period or any Special Rate Period
of fewer than 49 Rate Period Days, the interest equivalent of the 30-day rate;
provided, however, that if such Rate Period is a Minimum Rate Period and the
"AA" Composite Commercial Paper Rate is being used to determine the Applicable
Rate for shares of such series when all of the outstanding shares of such series
are subject to Submitted Hold Orders, then the interest equivalent of the
seven-day rate, and (ii) in the case of any Special Rate Period of (A) 49 or
more but fewer than 70 Rate Period Days, the interest equivalent of the 60-day
rate; (B) 70 or more but fewer than 85 Rate Period Days, the arithmetic average
of the interest equivalent of the 60-day and 90-day rates; (C) 85 or more but
fewer than 99 Rate Period Days, the interest equivalent of the 90-day rate; (D)
99 or more but fewer than 120 Rate Period Days, the arithmetic average of the
interest equivalent of the 90-day and 120-day rates; (E) 120 or more but fewer
than 141 Rate Period Days, the interest equivalent of the 120-day rate; (F) 141
or more but fewer than 162 Rate Period Days, the arithmetic average of the
120-day and 180-day rates; and (G) 162 or more but fewer than 183 Rate Period
Days, the interest equivalent of the 180-day rate, in each case on commercial
paper placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or
the equivalent of such rating by S&P or another rating agency, as made available
on a discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day immediately preceding such date; or
(b) in the event that the Federal Reserve Bank of New York does not make
available any such rate, then the arithmetic average of such rates, as quoted on
a discount basis or otherwise, by the Commercial Paper Dealers to the Auction
Agent for the close of business on the Business Day next preceding such date.
If any Commercial Paper Dealer does not quote a rate required to determine
the "AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper
Rate shall be determined on the basis of the quotation or quotations furnished
by the remaining Commercial Paper Dealer or Commercial Paper Dealers and any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Acquiring Fund to provide such rate or rates not being supplied
by any Commercial Paper Dealer or Commercial Paper Dealers, as the case may be,
or, if the Acquiring Fund does not select any such Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers, by the remaining Commercial Paper
Dealer or Commercial Paper Dealers. For purposes of this definition, the
"interest equivalent" of a rate stated on a discount basis (a "discount rate")
for commercial paper of a given days' maturity shall be equal to the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%) of (a) the
discount rate divided by (b) the difference between (i) 1.00 and (ii) a fraction
the numerator of which shall be the product of the discount rate times the
number of days in which such commercial paper matures and the denominator of
which shall be 360. As used herein, "Commercial Paper Dealers" means Lehman
Commercial Paper Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated or, in lieu of any thereof, their respective
affiliates or successors, if such entity is a commercial paper dealer. As used
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herein, "Substitute Commercial Paper Dealer" means The First Boston Company and
Morgan Stanley & Co. Incorporated or their respective affiliates or successors,
if such entity is a commercial paper dealer, provided that none of such entities
shall be a Commercial Paper Dealer.
As used herein, "Treasury Bill Rate," on any date for any Rate Period of shares
of a series of Acquiring Fund MuniPreferred, means:
(a) the bond equivalent yield, calculated in accordance with prevailing
industry convention, of the rate on the most recent auctioned Treasury Bill with
a remaining maturity closest to the length of such Rate Period, as quoted in The
Wall Street Journal on such date for the Business Day next preceding such date;
or
(b) in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.
As used herein, "Treasury Note Rate," on any date for any Rate Period of
shares of a series of Acquiring Fund MuniPreferred, means:
(a) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or
(b) in the event that any such rate is not published in The Wall Street
Journal, then the yield as calculated by reference to the arithmetic average of
the bid price quotations of the most recently auctioned Treasury Note with a
remaining maturity closest to the length of such Rate Period, as determined by
bid price quotations as of the close of business on the Business Day immediately
preceding such date obtained from the U.S. Government Securities Dealers to the
Auction Agent.
For purposes of the foregoing, "Treasury Bill" means a direct obligation of
the U.S. government having a maturity at the time of issuance of 364 days or
less, and "Treasury Note" means a direct obligation of the U.S. government
having a maturity at the time of issuance of five years or less but more than
364 days. If any U.S. Government Securities Dealer does not quote a rate
required to determine the Treasury Bill Rate or the Treasury Note Rate, such
rate shall be determined on the basis of the quotation or quotations furnished
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers and any Substitute U.S. Government Securities Dealer or Substitute U.S.
Government Securities Dealers selected by the Acquiring Fund to provide such
rate or rates not being supplied by any U.S. Government Securities Dealer or
U.S. Government Securities Dealers, as the case may be, or, if the Acquiring
Fund does not select any such Substitute U.S. Government Securities Dealer or
Substitute U.S. Government Securities Dealers, by the remaining U.S. Government
Securities Dealer or U.S. Government Securities Dealers. As used herein, "U.S.
Government Securities Dealer" means Lehman Government Securities Incorporated,
Goldman, Sachs & Co., Salomon Brothers Inc. and Morgan Guaranty Trust Company of
New York or their respective affiliates or successors, if such entity is a U.S.
government securities dealer. As used herein, "Substitute U.S. Government
Securities Dealer" shall mean The First Boston Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated or their respective affiliates or
successors, if such entity is a U.S. government securities dealer, provided that
none of such entities shall be a U.S. Government Securities Dealer.
The applicable "AA" Composite Commercial Paper Rates, Taxable Equivalent of
the Short-Term Municipal Bond Rates, Treasury Bill Rates and Treasury Note Rates
will be the rates announced on such Auction Date for the Business Day
immediately prior to such Auction Date.
The "Rate Multiple," for shares of a series of Acquiring Fund MuniPreferred
on any Auction Date for shares of such series, will be a percentage, determined
as set forth below, based on the prevailing rating of shares of such series in
effect at the close of business on the Business Day next preceding such Auction
Date;
<TABLE>
<CAPTION>
PREVAILING RATING PERCENTAGE
------------------------------------------------ ----------
<S> <C>
"aa3"/AA- or higher............................. 110%
"a3"/A-......................................... 125%
"baa3"/BBB-..................................... 150%
"ba3"/BB-....................................... 200%
Below "ba3"/BB-................................. 250%
</TABLE>
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provided, however, that in the event the Acquiring Fund has notified the Auction
Agent of its intent to allocate income taxable for Federal income tax purposes
to shares of such series prior to the Auction establishing the Applicable Rate
for shares of such series, the applicable percentage in the foregoing table
shall be divided by the quantity 1 minus the maximum marginal regular Federal
income tax rate, if any, applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater. If the shares of Acquiring Fund MuniPreferred are rated by
only one rating agency, such rating will be the prevailing rating.
For purposes of this determination, the "prevailing rating" of shares of a
series of Acquiring Fund MuniPreferred shall be (a) "aa3"/AA- or higher if
shares of such series have a rating of "aa3" or better by Moody's and AA- or
better by S&P or the equivalent of such ratings by such agencies or a substitute
rating agency or substitute rating agencies selected as provided below, (b) if
not "aa3"/AA- or higher, then "a3"/A- if shares of such series have a rating of
"a3" or better by Moody's and A- or better by S&P or the equivalent of such
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (c) if not "aa3"/AA- or higher or "a3"/A-,
then "baa3"/BBB- if shares of such series have a rating of "baa3" or better by
Moody's and BBB- or better by S&P or the equivalent of such ratings by such
agencies or a substitute rating agency or substitute rating agencies selected as
provided below, (d) if not "aa3"/AA- or higher, "a3"/A- or "baa3"/BBB-, then
"ba3"/BB- if shares of such series have a rating of "ba3" or better by Moody's
and BB- or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, and (e) if not "aa3"/AA-, "baa3"/BBB-, or "ba3"/BB-, then Below
"ba3"/BB-; provided, however, that if shares of such series are rated by only
one rating agency, the prevailing rating shall be determined without reference
to the rating of any other rating agency. The Acquiring Fund will take all
reasonable action necessary to enable either Moody's or S&P to provide a rating
for shares of each series of Acquiring Fund MuniPreferred. If neither Moody's
nor S&P shall make such a rating available, Merrill Lynch, Pierce, Fenner &
Smith Incorporated or its successor (in the case of Series T and Series F
MuniPreferred), Kidder, Peabody & Co. Incorporated or its successor (in the case
of Series M MuniPreferred) and Smith Barney Sherson or its successor (in the
case of Series W and Series TH MuniPreferred) shall select at least one
nationally recognized statistical rating organization (as that term is used in
the rules and regulations of the Commission under the Exchange Act) to act as a
substitute rating agency in respect of the shares of such series of Acquiring
Fund MuniPreferred, and the Acquiring Fund shall take all reasonable action to
enable such rating agency to provide a rating for such shares.
SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT
Prior to 1:30 p.m., New York City time, on each Auction Date, or such other
time on the Auction Date specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will submit to the Auction Agent in writing all
Orders obtained by it for the Auction to be conducted on such Auction Date,
designating itself (unless otherwise permitted by the Acquiring Fund) as the
Existing Holder or Potential Holder in respect of the shares of Acquiring Fund
MuniPreferred subject to such Orders. Any Order submitted by a Beneficial Owner
or a Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to
the Auction Agent, prior to the Submission Deadline on any Auction Date, shall
be irrevocable.
If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the Auction Agent will round such rate to the next
highest one thousandth (.001) of 1%.
If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of outstanding shares of
Acquiring Fund MuniPreferred of a series subject to an Auction held by such
Existing Holder, such Orders will be considered valid in the following order of
priority:
(a) all Hold Orders for shares of such series will be considered valid, but
only up to and including in the aggregate the number of shares of such series
held by such Existing Holder;
(b) (i) any Bid for shares of such series will be considered valid up to
and including the excess of the number of shares of such series held by such
Existing Holder over the number of shares of such series subject to any Hold
Orders referred to in clause (a) above;
(ii) subject to subclause (i), if more than one Bid of an Existing
Holder for shares of such series is submitted to the Auction Agent with the
same rate and the number of shares of such series subject to such Bids is
greater than such excess, such Bids will be considered valid up to and
including the amount of such excess, and the number of shares of such
series subject to each Bid with the same rate will be reduced pro rata to
cover the number of shares of such series equal to such excess;
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<PAGE> 99
(iii) subject to subclauses (i) and (ii), if more than one Bid of an
Existing Holder for shares of such series is submitted to the Auction Agent
with different rates, such Bids shall be considered valid in the ascending
order of their respective rates up to and including the amount of such
excess; and
(iv) in any such event, the number, if any, of shares of such series
subject to Bids not valid under this clause (b) will be treated as the
subject of a Bid for shares of such series by or on behalf of a Potential
Holder at the rate specified therein; and
(c) all Sell Orders for shares of such series will be considered valid up
to and including the excess of the number of outstanding shares of such series
held by such Existing Holder over the sum of shares of such series subject to
valid Hold Orders referred to in clause (a) above and valid Bids referred to in
clause (b) above.
If more than one Bid for a Potential Holder is submitted to the Auction
Agent, each Bid submitted will be a separate Bid with the rate and number of
shares therein specified.
DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE
Not earlier than the Submission Deadline on each Auction Date for shares of
a series of Acquiring Fund MuniPreferred, the Auction Agent will assemble all
valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Hold Order, Bid or Sell Order as
submitted or deemed submitted by a Broker-Dealer being herein referred to as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and will determine the excess of the
number of outstanding shares of such series over the number of outstanding
shares of such series subject to Submitted Hold Orders (such excess being
referred to as the "Available MuniPreferred" of such series) and whether
Sufficient Clearing Bids for shares of such series have been made in the
Auction. "Sufficient Clearing Bids" for shares of such series will have been
made if the number of outstanding shares of such series that are the subject of
Submitted Bids of Potential Holders specifying rates not higher than the Maximum
Rate for shares of such series equals or exceeds the number of outstanding
shares of such series that are the subject of Submitted Sell Orders (including
the number of shares of such series subject to Bids of Existing Holders
specifying rates higher than the Maximum Rate for shares of such series).
If Sufficient Clearing Bids for shares of such series have been made, the
Auction Agent will determine the lowest rate specified in the Submitted Bids
(the "Winning Bid Rate") which, taking into account the rates in the Submitted
Bids of Existing Holders, would result in Existing Holders continuing to hold an
aggregate number of outstanding shares of such series which, when added to the
number of outstanding shares of such series to be purchased by Potential
Holders, based on the rates in their Submitted Bids, would equal not less than
the Available MuniPreferred of such series. In such event, the Winning Bid Rate
will be the Applicable Rate for the next Rate Period for all shares of such
series.
If Sufficient Clearing Bids for shares of such series have not been made
(other than because all of the outstanding shares of such series are subject to
Submitted Hold Orders), the Applicable Rate for all shares of such series for
the next Rate Period thereof will be equal to the Maximum Rate for shares of
such series. If Sufficient Clearing Bids for shares of such series have not been
made, Beneficial Owners that have submitted or that are deemed to have submitted
Sell Orders may not be able to sell in the Auction all shares of such series
subject to such Sell Orders but will continue to own shares of such series for
the next Rate Period, dividends for which may include income taxable to such
Beneficial Owners. See "Auction Dates; Advance Notice of Allocation of Taxable
Income" above and "Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares" below.
If all of the outstanding shares of Acquiring Fund MuniPreferred of such
series are subject to Submitted Hold Orders, the Applicable Rate for all shares
of such series for the next Rate Period thereof will be the All Hold Order
Rate--i.e., the lesser of the Kenny Index (if such Rate Period consists of fewer
than 183 Rate Period Days) or the product of (a)(i) the "AA" Composite
Commercial Paper Rate on the Auction Date for such Rate Period, if such Rate
Period consists of fewer than 183 Rate Period Days; (ii) the Treasury Bill Rate
on such Auction Date for such Rate Period, if such Rate Period consists of more
than 182 but fewer than 365 Rate Period Days; or (iii) the Treasury Note Rate on
such Auction Date for such Rate Period, if such Rate Period is more than 364
Rate Period Days (the rate described in the foregoing clause (a)(i), (ii) or
(iii) as applicable, being referred to herein as the "Benchmark Rate") and (b) 1
minus the maximum marginal regular Federal income tax rate, if any, applicable
to ordinary income or the maximum marginal regular Federal corporate income tax
rate applicable to ordinary income, whichever is greater; provided, however,
that if the Acquiring Fund has notified the Auction Agent of its intent to
allocate to shares of such series in such Rate Period any net capital gains or
other income taxable for Federal
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<PAGE> 100
income tax purposes ("Taxable Income"), the Applicable Rate for shares of such
series for such Rate Period will be (A) if the Taxable Yield Rate (as defined
below) is greater than the Benchmark Rate, then the Benchmark Rate, or (B) if
the Taxable Yield Rate is less than or equal to the Benchmark Rate, then the
rate equal to the sum of (x) the lesser of the Kenny Index (if such Rate Period
consists of fewer than 183 Rate Period Days) or the product of the Benchmark
Rate multiplied by the factor set forth in the preceding clause (b) and (y) the
product of the maximum marginal regular Federal income tax rate, if any,
applicable to ordinary income or the maximum marginal regular Federal corporate
income tax rate applicable to ordinary income, whichever is greater, multiplied
by the Taxable Yield Rate. For purposes of the foregoing, "Taxable Yield Rate"
means the rate determined by (1) dividing the amount of Taxable Income available
for distribution per such share of Acquiring Fund MuniPreferred by the number of
days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (2) multiplying the amount determined in (1)
above by 365 (in the case of the Dividend Period of 7 Rate Period Days) or 360
(in the case of any other Dividend Period), and (3) dividing the amount
determined in (2) above by $25,000. In calculating the "AA" Composite Commercial
Paper Rate, the Treasury Bill Rate and the Treasury Note Rate for such purpose,
the rates used will be the rates or yields specified in the applicable
definitions of "AA" Composite Commercial Paper Rate, Treasury Bill Rate and
Treasury Note Rate.
ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES
Based on the determinations made under "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" above and, subject to the
discretion of the Auction Agent to round and allocate certain shares as
described below, Submitted Bids and Submitted Sell Orders in respect of shares
of a series of Acquiring Fund MuniPreferred will be accepted or rejected in the
order of priority set forth in the Auction Procedures, with the result that
Existing Holders and Potential Holders of shares of such series will sell,
continue to hold and/or purchase shares of such series as set forth below.
Existing Holders of shares of such series that submitted or were deemed to have
submitted Hold Orders (or on whose behalf Hold Orders were submitted or deemed
to have been submitted) will continue to hold the shares of such series subject
to such Hold Orders.
If Sufficient Clearing Bids for shares of a series of Acquiring Fund
MuniPreferred have been made:
(a) Each Existing Holder that placed or on whose behalf was placed a
Submitted Sell Order or Submitted Bid specifying any rate higher than the
Winning Bid Rate for shares of such series will sell the outstanding shares of
such series subject to such Submitted Sell Order or Submitted Bid;
(b) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate lower than the Winning Bid Rate for shares of
such series will continue to hold the outstanding shares of such series subject
to such Submitted Bid;
(c) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate lower than the Winning Bid Rate for shares of
such series will purchase the number of outstanding shares of such series
subject to such Submitted Bid;
(d) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to the Winning Bid Rate for shares of such
series will continue to hold the shares of such series subject to such Submitted
Bid, unless the number of outstanding shares of such series subject to all such
Submitted Bids is greater than the number of shares of such series in excess of
the Available MuniPreferred of such series over the number of shares of such
series accounted for in clauses (b) and (c) above, in which event each Existing
Holder with such a Submitted Bid will continue to hold a number of outstanding
shares of such series subject to such Submitted Bid determined on a pro rata
basis based on the number of outstanding shares of such series subject to all
such Submitted Bids of such Existing Holders; and
(e) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to the Winning Bid Rate for shares of such
series will purchase any shares of Available MuniPreferred of such series not
accounted for in clauses (b) through (d) above on a pro rata basis based on the
outstanding shares of such series subject to all such Submitted Bids.
If Sufficient Clearing Bids for shares of a series of Acquiring Fund
MuniPreferred have not been made (unless this results because all outstanding
shares of such series are subject to Submitted Hold Orders):
(a) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to or lower than the Maximum Rate for
shares of such series will continue to hold the outstanding shares of such
series subject to such Submitted Bid;
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<PAGE> 101
(b) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to or lower than the Maximum Rate for
shares of such series will purchase the number of outstanding shares of such
series subject to such Submitted Bid; and
(c) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate higher than the Maximum Rate for shares of such
series or a Submitted Sell Order will sell a number of shares of such series
determined on a pro rata basis based on the number of outstanding shares of such
series subject to all such Submitted Bids and Submitted Sell Orders.
If, as a result of the pro rata allocation described in clauses (d) or (e)
of the second preceding paragraph or clause (c) of the next preceding paragraph,
any Existing Holder would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a fraction of a share of
Acquiring Fund MuniPreferred, the Auction Agent will, in such manner as, in its
sole discretion, it will determine, round up or down to the nearest whole share
the number of shares of Acquiring Fund MuniPreferred being sold or purchased on
such Auction Date so that the number of shares sold or purchased by each
Existing Holder or Potential Holder will be whole shares of Acquiring Fund
MuniPreferred. If as a result of the pro rata allocation described in clause (e)
of the second preceding paragraph, any Potential Holder would be entitled or
required to purchase less than a whole share of Acquiring Fund MuniPreferred,
the Auction Agent will, in such manner as, in its sole discretion, it will
determine, allocate shares of Acquiring Fund MuniPreferred for purchase among
Potential Holders so that only whole shares of Acquiring Fund MuniPreferred are
purchased by any such Potential Holder, even if such allocation results in one
or more of such Potential Holders not purchasing shares of Acquiring Fund
MuniPreferred.
NOTIFICATION OF RESULTS; SETTLEMENT
The Auction Agent will be required to advise each Broker-Dealer that
submitted an Order of the Applicable Rate for the next Rate Period and, if the
Order was a Bid or Sell Order, whether such Bid or Sell Order was accepted or
rejected, in whole or in part, by telephone by approximately 3:00 p.m., New York
City time, on each Auction Date. Each Broker-Dealer that submitted an Order for
the account of a customer will then be required to advise such customer of the
Applicable Rate for the next Rate Period and, if such Order was a Bid or Sell
Order, whether such Bid or Sell Order was accepted or rejected, in whole or in
part, will be required to confirm purchases and sales with each customer
purchasing or selling shares of Acquiring Fund MuniPreferred as a result of the
Auction and will be required to advise each customer purchasing or selling
shares of Acquiring Fund MuniPreferred as a result of the Auction to give
instructions to its Agent Member of the Securities Depository to pay the
purchase price against delivery of such shares or to deliver such shares against
payment therefor, as appropriate. The Auction Agent will be required to record
each transfer of shares of Acquiring Fund MuniPreferred on the registry of
Existing Holders to be maintained by the Auction Agent.
In accordance with the Security Depository's normal procedures, on the
Business Day after the Auction Date, the transactions described above will be
executed through the Securities Depository and the accounts of the respective
Agent Members at the Security Depository will be debited and credited and shares
delivered as necessary to effect the purchases and sales of shares of Acquiring
Fund MuniPreferred as determined in the Auction. Purchasers will make payment
through their Agent Members in same-day funds to the Securities Depository
against delivery through their Agent Members; the Securities Depository will
make payment in accordance with its normal procedures, which now provide for
payment against delivery by their Agent Members in same-day funds. The
settlement procedures to be used with respect to Auctions for shares of
Acquiring Fund MuniPreferred are set forth in Annex C to this Statement of
Additional Information.
If any Existing Holder selling shares of Acquiring Fund MuniPreferred in an
Auction fails to deliver such shares, the Broker-Dealer of any person that was
to have purchased shares of Acquiring Fund MuniPreferred in such Auction may
deliver to such person a number of whole shares of Acquiring Fund MuniPreferred
that is less than the number of shares that otherwise was to be purchased by
such person. In such event, the number of shares of Acquiring Fund MuniPreferred
to be so delivered shall be determined by such Broker-Dealer. Delivery of such
lesser number of shares shall constitute good delivery.
CONCERNING THE AUCTION AGENT
The Auction Agent is acting as agent for the Acquiring Fund in connection
with Auctions. In the absence of bad faith or negligence on its part, the
Auction Agent will not be liable for any action taken, suffered, or omitted or
for any error of judgment made by it in the performance of its duties under the
Auction Agency Agreement and will not be liable for any error of judgment made
in good faith unless the Auction Agent will have been negligent in ascertaining
the pertinent facts.
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<PAGE> 102
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of shares of Acquiring Fund MuniPreferred, the Auction Agent's
registry of Existing Holders, the results of Auctions and notices from any
Broker-Dealer (or other Person, if permitted by the Acquiring Fund) with respect
to transfers described in the Joint Proxy Statement--Prospectus under "Proposal
No. 1--The Reorganization--Description of MuniPreferred Issued by the Acquiring
Fund--The Auction--Secondary Market Trading and Transfer of Acquiring Fund
MuniPreferred." The Auction Agent is not required to accept any such notice for
an Auction unless it is received by the Auction Agent by 3:00 p.m., New York
City time, on the Business Day preceding such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon notice to
the Acquiring Fund on a date no earlier than 45 days after such notice. If the
Auction Agent should resign, the Acquiring Fund will use its best efforts to
enter into an agreement with a successor Auction Agent containing substantially
the same terms and conditions as the Auction Agency Agreement. The Acquiring
Fund may remove the Auction Agent provided that prior to such removal the
Acquiring Fund shall have entered into such an agreement with a successor
Auction Agent.
BROKER-DEALERS
The Auction Agent after each Auction for shares of Acquiring Fund
MuniPreferred will pay to each Broker-Dealer, from funds provided by the
Acquiring Fund, a service charge at the annual rate of 1/4 of 1% in the case of
any Auction immediately preceding a Rate Period of less than one year, or a
percentage agreed to by the Acquiring Fund and the Broker-Dealers in the case of
any Auction immediately preceding a Rate Period of one year or longer, of the
purchase price of shares of Acquiring Fund MuniPreferred placed by such
Broker-Dealer at such Auction. For the purposes of the preceding sentence,
shares of Acquiring Fund MuniPreferred will be placed by a Broker-Dealer if such
shares were (a) the subject of Hold Orders deemed to have been submitted to the
Auction Agent by the Broker Dealer and were acquired by such Broker-Dealer for
its own account or were acquired by such Broker-Dealer for its customers who are
Beneficial Owners or (b) the subject of an Order submitted by such Broker-Dealer
that is (i) a Submitted Bid of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction or (ii) a
Submitted Bid of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (iii) a valid Hold Order.
The Acquiring Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
The Broker-Dealer Agreements provides that a Broker-Dealer (other than an
affiliate of the Acquiring Fund) may submit Orders in Auctions for its own
account, unless the Acquiring Fund notifies all Broker-Dealers that they may no
longer do so, in which case Broker-Dealers may continue to submit Hold Orders
and Sell Orders for their own accounts. Any Broker-Dealer that is an affiliate
of the Acquiring Fund may submit Orders in Auctions, but only if such Orders are
not for its own account. If a Broker-Dealer submits an Order for its own account
in any Auction, it might have an advantage over other Bidders because it would
have knowledge of all Orders submitted by it in that Auction; such
Broker-Dealer, however, would not have knowledge of Orders submitted by other
Broker-Dealers in that Auction.
TAX MATTERS ASSOCIATED WITH
INVESTMENT IN THE FUNDS
The following is based upon the advice of Vedder, Price, Kaufman &
Kammholz, counsel to the Funds.
The Federal income tax implications for Acquired Fund shareholders who will
own Acquiring Fund Shares after the Reorganization will be substantially the
same as the Federal income tax implications currently applicable to such
shareholders with respect to their ownership of Acquired Fund Shares. The
Acquiring Fund and the Acquired Fund qualify under Subchapter M of the Code as
regulated investment companies and satisfy conditions which enable dividends on
common shares or shares of MuniPreferred which are attributable to interest on
Municipal Obligations to be exempt from Federal income tax in the hands of
owners of such shares, subject to the possible application of the alternative
minimum tax.
To qualify under Subchapter M for tax treatment as a regulated investment
company, each Fund must, among other things: (a) distribute to its shareholders
at least 90% of the sum of (i) its investment company taxable income (as that
term is defined in the Code determined without regard to the deduction for
dividends paid) and (ii) its net tax-exempt income; (b) derive less than 30% of
its annual gross income from the sale or other disposition of stock, securities,
options, futures, or forward contracts held for less than three months; and (c)
diversify its holdings so that, at the end of each fiscal quarter of such Fund
(i) at least 50% of the market value of such Fund's assets is
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<PAGE> 103
represented by cash, cash items, U.S. government securities and securities of
other regulated investment companies, and other securities, with these other
securities limited, with respect to any one issuer, to an amount not greater in
value than 5% of such Fund's total assets, and to not more than 10% of the
outstanding voting securities of such issuer; and (ii) not more than 25% of the
market value of such Fund's assets is invested in the securities of any one
issuer (other than U.S. government securities or securities of other regulated
investment companies). In meeting these requirements of Subchapter M of the
Code, each Fund may be restricted in the selling of portfolio securities held
for less than three months and in the utilization of certain of the investment
techniques described under "Investment Objectives and Policies of the
Funds--Investment Restrictions" above. If in any year a Fund should fail to
qualify under Subchapter M for tax treatment as a regulated investment company,
that Fund would incur a regular Federal corporate income tax upon its taxable
income for that year, and distributions to its shareholders would be taxable to
such holders as ordinary income to the extent of the earnings and profits of
such Fund. A regulated investment company that fails to distribute, by the close
of each calendar year, an amount equal to the sum of 98% of its ordinary taxable
income for such year and 98% of its capital gain net income for the one year
period ending October 31 in such year, plus any shortfalls from the prior year's
required distribution, is liable for a 4% excise tax on the portion of the
undistributed amount of such income that is less than the required amount for
such distributions. To avoid the imposition of this excise tax, each Fund
generally makes the required distributions of its ordinary taxable income, if
any, and its capital gain net income, to the extent possible, by the close of
each calendar year.
Each Fund intends to qualify to pay "exempt-interest" dividends on its
common shares and shares of MuniPreferred as defined under the Code. Under the
Code, at the close of each quarter of its taxable year, if at least 50% of the
value of its total assets consists of Municipal Obligations, each Fund shall be
qualified to pay exempt-interest dividends to its shareholders. Exempt-interest
dividends are dividends or any part thereof (other than a capital gain dividend)
paid by each Fund which are attributable to interest on Municipal Obligations
and are so designated by the Fund. Exempt-interest dividends will be exempt from
Federal income tax, subject to the possible application of the Federal
alternative minimum tax. Insurance proceeds received by each Fund under any
insurance policies in respect of scheduled interest payments on defaulted
Municipal Obligations, as described herein, will be excludable from Federal
gross income under Section 103(a) of the Code. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that payments
made by the issuer representing interest on such "non-appropriation" Municipal
Lease Obligations will be excludable from gross income for Federal income tax
purposes. See "Investment Objectives and Policies of the Funds--Municipal
Obligations" above. Gains of a Fund that are attributable to market discount on
certain Municipal Obligations acquired after April 30, 1993 are treated as
ordinary income. Distributions to shareholders by each Fund of net income
received, if any, from taxable temporary investments and net short-term capital
gains, if any, realized by such Fund will be taxable to its shareholders as
ordinary income. Distributions by each Fund of net capital gains, if any, are
taxable as long-term capital gains, regardless of the length of time the
shareholder has owned common shares or shares of MuniPreferred of such Fund and
regardless of whether the distribution is received in additional common shares
or shares of MuniPreferred or in cash. As long as a Fund qualifies as a
regulated investment company under the Code, no part of its distributions to
shareholders will qualify for the dividends-received deduction for corporations.
The IRS currently requires that a regulated investment company that has two
or more classes of shares must allocate to each such class proportionate amounts
of each type of its income for each tax year based upon the percentage of total
dividends distributed to each class for such year. Accordingly, so long as the
IRS maintains this position, each Fund intends each year to allocate, to the
fullest extent practicable, net tax-exempt interest, net capital gains (i.e.,
the excess of net long-term capital gain over net short-term capital loss) and
other taxable income, if any, between its common shares and shares of
MuniPreferred in proportion to the total dividends paid to each class with
respect to such year. To the extent permitted under applicable law, each Fund
reserves the right to make special allocations of income within a class,
consistent with the objectives of such Fund. If, (a) in the case of any Minimum
Rate Period or any Special Rate Period of 28 Rate Period Days or fewer, such
Fund retroactively allocates any net capital gains or other income taxable for
Federal income tax purposes to shares of its MuniPreferred as a result of the
redemption of all or a portion of the outstanding shares of its MuniPreferred or
the liquidation of the Fund without having given advance notice thereof as
required by such Fund's preferred share designation statement or (b) in the case
of any Special Rate Period of more than 28 Rate Period Days, such Fund allocates
any net capital gains or other income taxable for Federal income tax purposes to
shares of its MuniPreferred without having given advance notice thereof as
described above, such Fund will arrange to make certain payments to owners of
shares of its MuniPreferred to which such allocation was made to offset the tax
effect thereof as described under "Description of MuniPreferred Issued by the
Acquiring Fund--Dividends--Gross-up Payments" above.
S-41
<PAGE> 104
In general, dividends on a Fund's shares of MuniPreferred will be exempt
from Federal income tax in the hands of owners of such shares subject to the
possible application of the alternative minimum tax. Each Fund is required to
allocate net capital gains and other taxable income, if any, proportionately
between its common shares and shares of MuniPreferred in accordance with the
current position of the IRS. Each Fund shall, in the case of a Minimum Rate
Period or a Special Rate Period of 28 Rate Period Days, and may, in the case of
any other Special Rate Period, notify the Auction Agent of the amount of any net
capital gains or other income taxable for Federal income tax purposes to be
included in any dividend on shares of its MuniPreferred prior to the Auction
establishing the Applicable Rate for such dividend. The amount of taxable income
allocable to a Fund's shares of MuniPreferred will depend upon the amount of
such income realized by such Fund, but is not generally expected to be
significant. Except for dividends paid on shares of a Fund's MuniPreferred which
include an allocated portion of any net capital gains or other taxable income,
each Fund anticipates that all other dividends paid on shares of its
MuniPreferred will constitute exempt-interest dividends for Federal income tax
purposes.
The Funds have received an opinion of counsel to the effect that the manner
in which each Fund intends to allocate items of tax-exempt income, net capital
gains and other taxable income, if any, between its common shares and shares of
MuniPreferred will be respected for Federal income tax purposes. This opinion of
counsel represents only counsel's best legal judgment, and is not binding on the
IRS or the courts. Currently there is no guidance from the IRS or other sources
specifically addressing whether a Fund's method for making such allocations will
be respected for Federal income tax purposes, and it is possible that the IRS
could disagree with counsel's opinion. If the IRS were to disagree with a Fund's
allocation, it either could assert the need to reallocate that Fund's net
capital gains or other taxable income or it could disallow a portion of that
Fund's dividends paid deduction. In the event of a reallocation, some of the
dividends identified by that Fund as tax-exempt to owners of its shares of
MuniPreferred may be recharacterized as additional capital gain or other taxable
income. Under these circumstances, that Fund would not be required to make
payments to such owners to offset the tax effect of such reallocation. In
addition, a reallocation or a disallowance of part of that Fund's dividends paid
deduction would likely cause that Fund to be liable for income tax on any
reallocated taxable income and possibly an excise tax. Counsel has advised the
Funds that, in its opinion, if the IRS were to challenge in court a Fund's
allocations of income and gain, the IRS should not prevail.
Allocations to a Fund's shares of MuniPreferred of any net income received
from taxable temporary investments and any net short-term capital gains realized
by such Fund will be taxable to owners of such shares as ordinary income.
Allocations of any net capital gains realized by each Fund will be taxable to
owners of that Fund's shares of MuniPreferred as long-term capital gains
regardless of the length of time such owners have owned such shares. As long as
a Fund qualifies as a regulated investment company under the Code, no part of
the distributions to owners of its shares of MuniPreferred will qualify for the
dividends-received deduction for corporations.
In order for any distributions to owners of a Fund's shares of
MuniPreferred to be eligible to be treated as exempt-interest dividends, such
shares of MuniPreferred must be treated as stock for Federal income tax
purposes. Each Fund has received an opinion of counsel to the effect that its
shares of MuniPreferred will constitute stock of such Fund for Federal income
tax purposes and, therefore, distributions declared and paid at the Applicable
Rate as dividends with respect to such Fund's shares of MuniPreferred, to the
extent paid out of current or accumulated earnings and profits of such Fund,
will constitute dividends for Federal income tax purposes. This opinion of
counsel is based, among other things, on (a) a revenue ruling published by the
IRS in 1990, which holds that a preferred stock that has its dividend rate
periodically set pursuant to an auction process substantially similar to the
auction process to be established for each Fund's shares of MuniPreferred is
treated as stock for Federal income tax purposes and (b) each Fund's
representation to counsel that there is no express or implied agreement between
or among a Broker-Dealer or any other party and such Fund, Nuveen or any owner
of such Fund's shares of MuniPreferred that the Broker-Dealer or other party
will guarantee or otherwise arrange to ensure that an owner of such shares will
be able to sell such shares. This opinion represents only counsel's best legal
judgment and is not binding on the IRS or the courts.
If at any time when a Fund's shares of MuniPreferred are outstanding such
Fund fails to meet the MuniPreferred Basic Maintenance Amount or the 1940 Act
MuniPreferred Asset Coverage, such Fund will be required to suspend
distributions to holders of its common shares until such maintenance amount or
asset coverage, as the case may be, is restored. See "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends-- Restrictions on
Dividends and Other Payments" above. This may prevent such Fund from
distributing at least 90% of its investment company taxable income and net
tax-exempt income, and may therefore jeopardize such Fund's qualification for
taxation as a regulated investment company or cause such Fund to incur a tax
liability or a non-deductible 4% excise tax on the undistributed taxable income
(including gain), or both. Upon failure to meet the MuniPreferred Basic
Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, a Fund will be
required
S-42
<PAGE> 105
to redeem its shares of MuniPreferred in order to maintain or restore such
maintenance amount or asset coverage and avoid the adverse consequences to such
Fund and its shareholders of failing to qualify as a regulated investment
company. There can be no assurance, however, that any such redemption would
achieve such objectives. See "Description of MuniPreferred Issued by the
Acquiring Fund--Redemption--Mandatory Redemption" above.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry a Fund's shares to which exempt-interest dividends are
allocated is not deductible. Under rules used by the IRS for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase or ownership of shares may be considered to have
been made with borrowed funds even though such funds are not directly used for
the purchase or ownership of such shares.
The interest on private activity bonds in most instances is not Federally
tax-exempt to a person who is a "substantial user" of a facility financed by
such bonds or a "related person" of such "substantial user." As a result, a Fund
may not be an appropriate investment for shareholders who are considered either
a "substantial user" or a "related person" within the meaning of the Code. In
general, a "substantial user" of a facility includes a "non-exempt person who
regularly uses a part of such facility in his trade or business." "Related
persons" are in general defined to include persons among whom there exists a
relationship, either by family or business, which would result in a disallowance
of losses in transactions among them under various provisions of the Code (or if
they are members of the same controlled group of corporations under the Code),
including a partnership and each of its partners (and their spouses and minor
children), an S corporation and each of its shareholders (and their spouses and
minor children) and various combinations of these relationships. The foregoing
is not a complete statement of all of the provisions of the Code covering the
definitions of "substantial user" and "related person."
Each Fund may, at its option, redeem shares of its MuniPreferred in whole
or in part, and is required to redeem shares of its MuniPreferred to the extent
required to maintain the MuniPreferred Basic Maintenance Amount and the 1940 Act
MuniPreferred Asset Coverage. Gain or loss, if any, resulting from a redemption
of the shares of MuniPreferred will be taxed as gain or loss from the sale or
exchange of the shares of MuniPreferred under Section 302 of the Code rather
than as a dividend, but only if the redemption distribution (a) is deemed not to
be essentially equivalent to a dividend, (b) is in complete redemption of an
owner's interest in such Fund, (c) is substantially disproportionate with
respect to the owner, or (d) with respect to non-corporate owners, is in partial
liquidation of such Fund. For purposes of (a), (b) and (c) above, an owner's
common shares ownership of such Fund will be taken into account.
Nonresident alien individuals and certain foreign corporations and other
entities ("foreign investors") generally are subject to U.S. withholding tax at
the rate of 30% (or possibly a lower rate provided by an applicable tax treaty)
on distributions of taxable net investment income and net short-term capital
gains. To the extent received by foreign investors, exempt-interest dividends,
distributions of net long-term capital gains and any gain from the sale or other
disposition of a Fund's shares of MuniPreferred generally are exempt from U.S.
taxation. Different tax consequences may result if the owner is engaged in a
trade or business in the United States or is present in the United States for
more than 182 days during a taxable year.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January will be treated as having been distributed by each Fund (and received by
the shareholders) on December 31 of the year declared.
The sale or other disposition of common shares or shares of MuniPreferred
of a Fund will normally result in capital gain or loss to shareholders.
Generally, a shareholder's gain or loss will be a long-term gain or loss if the
shares have been held for more than one year. Present law taxes both long-term
and short-term capital gains of corporations at the rates applicable to ordinary
income. For non-corporate taxpayers, however, under current law net capital
gains will be taxed at a maximum rate of 28%, while short-term capital gains and
other ordinary income will be taxed at a maximum rate of 39.6%. However, because
of the limitations on itemized deductions and the deduction for personal
exemptions applicable to higher income taxpayers, the effective rate of tax may
be higher in certain circumstances. Losses realized by a shareholder on the sale
or exchange of shares of a Fund held for six months or less are disallowed to
the extent of any distribution of exempt-interest dividends received with
respect to such shares, and, if not disallowed, such losses are treated as
long-term capital losses to the extent of any distribution of long-term capital
gain received with respect to such shares.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax
S-43
<PAGE> 106
preference in determining the amount of a taxpayer's alternative minimum taxable
income. To the extent that a Fund receives income from Municipal Obligations
subject to the Federal alternative minimum tax, a portion of the dividends paid
by it, although otherwise exempt from Federal income tax, will be taxable to its
shareholders to the extent that their tax liability is determined under the
alternative minimum tax. Each Fund will annually supply a report indicating the
percentage of that Fund's income attributable to Municipal Obligations subject
to the Federal alternative minimum tax.
In addition, for certain corporations, alternative minimum taxable income
is increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by each Fund that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
For taxable years beginning before 1996, the Code imposes a separate tax on
corporations (other than regulated investment companies such as the Funds) at a
rate of 0.12% on the excess of such corporation's "modified alternative minimum
taxable income" over $2,000,000. A portion of the tax-exempt interest, including
exempt-interest dividends from the Funds, is includable in modified alternative
minimum taxable income. This tax will be imposed even if the corporation is not
required to pay an alternative minimum tax because the corporation's regular
income tax liability exceeds its minimum tax liability.
Tax-exempt income, including exempt-interest dividends paid by each Fund,
is taken into account in calculating the amount of social security and railroad
retirement benefits that may be subject to Federal income tax.
Each Fund is required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of that
Fund's shares who do not furnish to that Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from each Fund.
The value of common shares acquired pursuant to a Fund's Dividend
Reinvestment Plan will generally be excluded from gross income to the extent
that the cash amount reinvested would be excluded from gross income.
The foregoing is a general, abbreviated summary of the provisions of the
Code and regulations thereunder presently in effect as they directly govern the
taxation of each Fund and its shareholders. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to each Fund's transactions. Moreover, the foregoing
does not address many of the factors that may be determinative of whether an
investor will be liable for the alternative minimum tax. Shareholders are
advised to consult their own tax advisers for more detailed information
concerning Federal income tax matters.
S-44
<PAGE> 107
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors of the Funds............................................... F-2
Audited Statements of Net Assets of the Funds............................................. F-3
Audited Statements of Operations of the Funds............................................. F-4
Audited Statements of Changes in Net Assets of the Funds.................................. F-5
Notes to Audited Financial Statements of the Funds........................................ F-6
Audited Portfolio of Investments of the Acquired Fund..................................... F-11
Audited Portfolio of Investments of the Acquiring Fund.................................... F-14
Audited Financial Highlights of the Funds................................................. F-18
</TABLE>
F-1
<PAGE> 108
REPORT OF INDEPENDENT AUDITORS
The Board of Directors, Trustees and Shareholders
Nuveen Insured Premium Income Municipal Fund, Inc.
Nuveen Insured Premium Income Municipal Fund 2
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Insured Premium Income Municipal Fund, Inc.
and Nuveen Insured Premium Income Municipal Fund 2 as of October 31, 1995, and
the related statements of operations and changes in net assets and the financial
highlights for the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions of
Nuveen Insured Premium Income Municipal Fund, Inc. and Nuveen Insured Premium
Income Municipal Fund 2 at October 31, 1995, and the results of their
operations, changes in their net assets and financial highlights for the periods
indicated therein in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 15, 1995
F-2
<PAGE> 109
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF NET ASSETS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NPE NPX
------------ ------------
<S> <C> <C>
ASSETS
Investments in municipal securities, at market value (note 1)......... $322,875,073 $419,431,785
Temporary investments in short-term municipal securities, at amortized
cost (note 1)....................................................... 1,300,000 2,500,000
Cash.................................................................. 72,882 60,127
Receivables:
Interest......................................................... 5,893,216 8,251,307
Investments sold................................................. -- 5,801,615
Other assets.......................................................... 23,857 13,755
------------ ------------
Total assets................................................ 330,165,028 436,058,589
------------ ------------
LIABILITIES
Payable for investments purchased..................................... -- 6,450,920
Accrued expenses:
Management fees (note 6)......................................... 178,350 230,265
Other............................................................ 60,677 153,070
Preferred share dividends payable..................................... 68,452 46,488
Common share dividends payable........................................ 1,013,607 1,269,487
------------ ------------
Total liabilities........................................... 1,321,086 8,150,230
------------ ------------
Net assets (note 7)................................................... $328,843,942 $427,908,359
============ ============
Preferred shares, at liquidation value................................ $110,000,000 $158,900,000
============ ============
Preferred shares outstanding.......................................... 4,400 6,356
============ ============
Common shares outstanding............................................. 15,128,458 20,642,068
============ ============
Net asset value per Common share outstanding (net assets less
Preferred shares at liquidation value, divided by Common shares
outstanding)........................................................ $ 14.47 $ 13.03
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 110
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
NPE NPX
----------- ------------
<S> <C> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1).................................... $18,828,179 $ 24,078,207
----------- -----------
Expenses:
Management fees (note 6).......................................... 2,026,982 2,595,700
Preferred shares--auction fees.................................... 275,000 397,250
Preferred shares--dividend disbursing agent fees.................. 30,000 45,000
Shareholders' servicing agent fees and expenses................... 37,963 45,910
Custodian's fees and expenses..................................... 62,127 69,765
Directors'/Trustees' fees and expenses (note 6)................... 1,586 2,039
Professional fees................................................. 19,001 23,404
Shareholders' reports--printing and mailing expenses.............. 72,305 80,812
Stock exchange listing fees....................................... 24,529 15,903
Portfolio insurance expense....................................... 12,281 60,598
Investor relations expense........................................ 15,517 24,488
Other expenses.................................................... 26,603 44,152
----------- -----------
Total expenses............................................... 2,603,894 3,405,021
----------- -----------
Net investment income................................... 16,224,285 20,673,186
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investment transactions, net of taxes, if
applicable (notes 1 and 3)........................................... (1,944,767) (12,029,555)
Net change in unrealized appreciation or depreciation of investments... 31,478,880 55,044,396
----------- -----------
Net gain from investments............................... 29,534,113 43,014,841
----------- -----------
Net increase in net assets from operations............................. $45,758,398 $ 63,688,027
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 111
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NPE NPX
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
10/31/95 10/31/94 10/31/95 10/31/94
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income...................... $ 16,224,285 $ 16,634,025 $ 20,673,186 $ 20,193,798
Net realized gain (loss) from investment
transactions, net of taxes, if
applicable............................... (1,944,767) (961,639) (12,029,555) (10,409,736)
Net change in unrealized appreciation or
depreciation of investments.............. 31,478,880 (41,716,448) 55,044,396 (55,190,281)
------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from operations......... 45,758,398 (26,044,062) 63,688,027 (45,406,219)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (note 1)
From undistributed net investment income:
Common shareholders................... (12,707,908) (14,311,525) (15,419,632) (15,997,611)
Preferred shareholders................ (4,215,008) (2,876,081) (6,051,636) (4,047,134)
------------ ------------ ------------ ------------
Decrease in net assets from
distributions to
shareholders................... (16,922,916) (17,187,606) (21,471,268) (20,044,745)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS (note 2)
Preferred shares, net proceeds from sale
of shares................................ -- -- -- 156,068,392
------------ ------------ ------------ ------------
Net increase in net assets derived
from capital share transactions..... -- -- -- 156,068,392
------------ ------------ ------------ ------------
Net increase (decrease) in net
assets......................... 28,835,482 (43,231,668) 42,216,759 90,617,428
Net assets at beginning of year............ 300,008,460 343,240,128 385,691,600 295,074,172
------------ ------------ ------------ ------------
Net assets at end of year.................. $328,843,942 $300,008,460 $427,908,359 $385,691,600
============ ============ ============ ============
Balance of undistributed net investment
income at end of year.................... $ 265,613 $ 964,245 $ 398,674 $ 1,196,756
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 112
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
At October 31, 1995, the National Funds (the "Funds") covered in this
report and their corresponding New York Stock Exchange symbols are Nuveen
Insured Premium Income Municipal Fund, Inc. (NPE) and Nuveen Insured Premium
Income Municipal Fund 2 (NPX).
The Funds are registered under the Investment Company Act of 1940 as
closed-end, diversified management investment companies.
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
Portfolio securities for which market quotations are readily available are
valued at the mean between the quoted bid and asked prices or the yield
equivalent. Portfolio securities for which market quotations are not readily
available are valued at fair value by consistent application of methods
determined in good faith by the Board of Directors/Trustees. Temporary
investments in securities that have variable rate and demand features qualifying
them as short-term securities are traded and valued at amortized cost.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. The securities so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of their purchase commitments. At
October 31, 1995, NPX had outstanding purchase commitments of $6,450,920. There
were no such purchase commitments in NPE.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premiums and accretion of discounts on long-term debt
securities when required for federal income tax purposes.
Federal Income Taxes
The Funds intend to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies by distributing all of their
net investment income, in addition to any significant amounts of net realized
gains from investments, to shareholders. The Funds currently consider
significant net realized gains as amounts in excess of $.01 per Common share.
Furthermore, each Fund intends to satisfy conditions which will enable interest
from municipal securities, which is exempt from regular federal income tax, to
retain such tax-exempt status when distributed to shareholders of the Funds. All
income dividends paid during the year ended October 31, 1995, have been
designated Exempt Interest Dividends.
Dividends and Distributions to Shareholders
Net investment income is declared as a dividend monthly and payment is made
or reinvestment is credited to shareholder accounts after month-end. Net
realized gains from securities transactions are distributed to shareholders not
less frequently than annually only to the extent they exceed available capital
loss carryovers.
Distributions to shareholders of net investment income and net realized
capital gains are recorded on the ex-dividend date. The amount and timing of
such distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
Accordingly, temporary over-distributions as a result of these differences may
result and will be classified as either distributions in excess of net
investment income or distributions in excess of net realized capital gains, if
applicable.
F-6
<PAGE> 113
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Preferred Shares
The following Funds have issued and outstanding $25,000 stated value
Preferred shares. Each Fund's Preferred shares are issued in more than one
Series. The dividend rate on each Series may change every seven days, as set by
the auction agent. The number of shares outstanding, by Series and in total, at
October 31, 1995, for each Fund is as follows:
<TABLE>
<CAPTION>
NPE NPX
----- -----
<S> <C> <C>
Number of shares:
Series M.................................................. -- 2,080
Series T.................................................. 2,200 --
Series W.................................................. -- 2,080
Series Th................................................. 2,200 --
Series F.................................................. -- 2,196
----- -----
Total................................................ 4,400 6,356
===== =====
</TABLE>
Insurance
The Funds invest in municipal securities which are covered by insurance
guaranteeing the timely payment of principal and interest thereon or backed by
an escrow or trust account containing sufficient U.S. Government or U.S.
Government agency securities to ensure the timely payment of principal and
interest. Each insured municipal security is covered by Original Issue
Insurance, Secondary Market Insurance or Portfolio Insurance. Such insurance
does not guarantee the market value of the municipal securities or the value of
the Funds' shares. Original Issue Insurance and Secondary Market Insurance
remain in effect as long as the municipal securities covered thereby remain
outstanding and the insurer remains in business, regardless of whether the Funds
ultimately dispose of such municipal securities. Consequently, the market value
of the municipal securities covered by Original Issue Insurance or Secondary
Market Insurance may reflect value attributable to the insurance. Portfolio
Insurance is effective only while the municipal securities are held by the
Funds. Accordingly, neither the prices used in determining the market value of
the underlying municipal securities nor the net asset value of the Funds' shares
include value, if any, attributable to the Portfolio Insurance. Each policy of
the Portfolio Insurance does, however, give the Funds the right to obtain
permanent insurance with respect to the municipal security covered by the
Portfolio Insurance policy at the time of its sale.
Derivative Financial Instruments
In October 1994, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 119 Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments which prescribes
disclosure requirements for transactions in certain derivative financial
instruments including futures, forward, swap, and option contracts, and other
financial instruments with similar characteristics. Although the Funds are
authorized to invest in such financial instruments, and may do so in the future,
they did not make any such investments during the year ended October 31, 1995,
other than occasional purchases of high quality synthetic money market
securities which were held temporarily pending the re-investment in long-term
portfolio securities.
2. FUND SHARES
There were no share transactions during the year ended October 31, 1995, in
either of the Funds. There were no share transactions during the year ended
October 31, 1994, in either of the Funds, except for 6,356 Preferred shares
issued by NPX.
F-7
<PAGE> 114
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. SECURITIES TRANSACTIONS
Purchase and sales (including maturities) of investments in municipal
securities and temporary municipal investments during the year ended October 31,
1995, were as follows:
<TABLE>
<CAPTION>
NPE NPX
------------ ------------
<S> <C> <C>
PURCHASES
Investments in municipal securities............... $ 86,398,533 $116,844,877
Temporary municipal investments................... 137,600,000 99,110,000
SALES AND MATURITIES
Investments in municipal securities............... 85,261,457 118,444,279
Temporary municipal investments................... 138,500,000 96,710,000
============ ============
</TABLE>
At October 31, 1995, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for each Fund.
At October 31, 1995, the Funds had unused capital loss carryovers available
for federal income tax purposes to be applied against future capital gains, if
any. If not applied, the carryovers will expire as follows:
<TABLE>
<CAPTION>
NPE NPX
---------- -----------
<S> <C> <C>
Expiration year:
2001............................................ $ 289,342 $ --
2002............................................ 961,639 10,409,736
2003............................................ 1,944,767 12,029,555
---------- -----------
Total................................................ $3,195,748 $22,439,291
========== ===========
</TABLE>
4. DISTRIBUTIONS TO COMMON SHAREHOLDERS
On November 1, 1995, the Funds declared dividend distributions from their
ordinary income which were paid December 1, 1995, to shareholders of record on
November 15, 1995, as follows:
<TABLE>
<CAPTION>
NPE NPX
------ ------
<S> <C> <C>
Dividend per share........................................... $.0670 $.0595
====== ======
</TABLE>
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at October 31, 1995, were as follows:
<TABLE>
<CAPTION>
NPE NPX
----------- -----------
<S> <C> <C>
Gross unrealized:
Appreciation................................... $11,989,342 $ 7,770,566
Depreciation................................... (75,551) (3,136,037)
----------- -----------
Net unrealized appreciation......................... $11,913,791 $ 4,634,529
=========== ===========
</TABLE>
F-8
<PAGE> 115
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Funds' investment management agreements with Nuveen Advisory
Corp. (the "Adviser"), a wholly owned subsidiary of The John Nuveen Company,
each Fund pays to the Adviser an annual management fee, payable monthly, at the
rates set forth below, which are based upon the average daily net asset value of
each Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
<S> <C>
--------------------------------------------------------------------------------
For the first $125,000,000..................................... .65 of%1
For the next $125,000,000...................................... .6375 of 1
For the next $250,000,000...................................... .625 of 1
For the next $500,000,000...................................... .6125 of 1
For the next $1,000,000,000.................................... .6 of 1
For net assets over $2,000,000,000............................. .5875 of 1
</TABLE>
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Funds pay no
compensation directly to those Directors/Trustees who are affiliated with the
Adviser or to their officers, all of whom receive remuneration for their
services to the Funds from the Adviser.
7. COMPOSITION OF NET ASSETS
At October 31, 1995, net assets consisted of:
<TABLE>
<CAPTION>
NPE NPX
------------ ------------
<S> <C> <C>
Preferred shares, $25,000 stated value per share,
at liquidation value............................ $110,000,000 $158,900,000
Common shares, $.01 par value per share........... 151,285 206,421
Paid-in surplus................................... 209,709,001 286,208,026
Balance of undistributed net investment income.... 265,613 398,674
Accumulated net realized gain (loss) from
investment transactions......................... (3,195,748) (22,439,291)
Net unrealized appreciation or depreciation of
investments..................................... 11,913,791 4,634,529
------------ ------------
Net assets.............................. $328,843,942 $427,908,359
============ ============
Authorized shares:
Common.................................. 200,000,000 Unlimited
Preferred............................... 1,000,000 Unlimited
============ ============
</TABLE>
F-9
<PAGE> 116
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INVESTMENT COMPOSITION
Each Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At October 31, 1995, the revenue sources by
municipal purpose for these investments, expressed as a percent of total
investments, were as follows:
<TABLE>
<CAPTION>
NPE NPX
--- ---
<S> <C> <C>
Revenue Bonds:
Housing Facilities......................................... 9 % 14 %
Health Care Facilities..................................... 14 10
Pollution Control Facilities............................... 18 9
Transportation............................................. 12 11
Electric Utilities......................................... 5 9
Water/Sewer Facilities..................................... 4 9
Lease Rental Facilities.................................... 7 1
Educational Facilities..................................... 3 4
Other...................................................... 4 6
General Obligation Bonds........................................ 15 23
Escrowed Bonds.................................................. 9 4
--- ---
100% 100%
=== ===
</TABLE>
All of the long-term and intermediate-term investments owned by the Funds
are covered by insurance issued by several private insurers or are backed by an
escrow or trust containing U.S. Government or U.S. Government agency securities,
either of which ensure the timely payment of principal and interest in the event
of default. Such insurance or escrow, however, does not guarantee the market
value of the municipal securities or the value of any of the Funds' shares.
All of the temporary investments in short-term municipal securities have
credit enhancements (letters of credit, guarantees or insurance) issued by third
party domestic or foreign banks or other institutions.
For additional information regarding each investment security, refer to the
Portfolio of Investments of each Fund.
F-10
<PAGE> 117
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND, INC. (NPE)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALASKA--1.6%
Anchorage General Obligation:
$ 2,020,000 5.900%, 2/01/06..................................................... No Opt. Call Aaa $ 2,166,753
3,000,000 6.250%, 6/01/23..................................................... 6/99 at 100 Aaa 3,061,860
CALIFORNIA--7.9%
6,590,000 California Housing Finance Agency, Multi-Unit Rental, Alternative
Minimum Tax, 6.625%, 2/01/24...................................... 2/03 at 102 A1 6,756,134
3,000,000 M-S-R Public Power Agency, San Juan Project, 6.000%, 7/01/20........ 7/03 at 102 Aaa 3,044,760
7,000,000 Palmdale Community Redevelopment Agency, 8.000%, 4/01/16............ No Opt. Call Aaa 8,828,330
San Leandro Housing Finance Corporation (Ashland Village
Apartments):
2,005,000 6.550%, 1/01/12..................................................... 1/02 at 102 Aaa 2,094,884
5,100,000 6.650%, 1/01/25..................................................... 1/02 at 102 Aaa 5,311,038
DISTRICT OF COLUMBIA--4.4%
5,000,000 District of Columbia (Children's Hospital), 6.250%, 7/15/19......... 7/02 at 102 Aaa 5,078,150
3,910,000 District of Columbia Housing Finance Agency, Single Family Mortgage,
Alternative Minimum Tax, 6.350%, 12/01/24......................... 6/03 at 102 AAA 3,951,642
5,250,000 District of Columbia (The Catholic University of America), 6.450%,
10/01/23.......................................................... 10/03 at 102 AAA 5,450,130
ILLINOIS--17.2%
8,000,000 Illinois Development Finance Authority, Pollution Control
(Illinois Power Company), 8.300%, 4/01/17......................... 4/98 at 102 Aaa 8,858,320
3,635,000 Illinois Development Finance Authority (Indian Prairie Community
Unit School District No. 204), 7.750%, 12/30/03................... No Opt. Call Aaa 4,345,315
Illinois Health Facilities Authority (Lutheran General Health
System):
4,355,000 6.125%, 4/01/12..................................................... 4/03 at 102 Aaa 4,486,565
5,000,000 6.250%, 4/01/18..................................................... 4/03 at 102 Aaa 5,122,950
1,770,000 Illinois Health Facilities Authority (Elmhurst Memorial Hospital),
6.625%, 1/01/22................................................... 1/02 at 102 Aaa 1,867,863
Illinois State Toll Highway Authority:
4,000,000 6.200%, 1/01/16..................................................... 1/03 at 102 Aaa 4,105,000
4,250,000 5.750%, 1/01/17..................................................... 1/03 at 102 Aaa 4,216,213
2,750,000 Chicago Midway Airport, Alternative Minimum Tax,
6.250%, 1/01/14................................................... 1/04 at 102 Aaa 2,844,848
9,000,000 Chicago O'Hare International Airport, International Terminal,
6.750%, 1/01/18................................................... 1/02 at 102 Aaa 9,492,120
3,000,000 Cook County Community College, District No. 508,
8.750%, 1/01/06................................................... No Opt. Call Aaa 3,869,670
6,500,000 Metropolitan Pier & Exposition Authority (McCormick Place Expansion
Project), 6.500%, 6/15/22......................................... 6/03 at 102 Aaa 6,942,585
INDIANA--1.0%
2,220,000 Indiana Municipal Power Agency, Power Supply System, 6.125%,
1/01/19........................................................... 1/03 at 102 Aaa 2,269,728
1,000,000 Fort Wayne South Side School Building Corporation,
6.125%, 1/15/12................................................... 1/04 at 102 Aaa 1,037,540
KANSAS--0.4%
Kansas Development Finance Authority:
515,000 5.700%, 6/01/11..................................................... 6/03 at 102 Aaa 522,375
750,000 5.875%, 6/01/21..................................................... 6/03 at 102 Aaa 759,878
LOUISIANA--0.8%
2,500,000 Louisiana Public Facilities Authority (Louisiana Department of
Health and Hospitals Medical Center), 6.250%, 10/15/10............ 10/02 at 100 AAA 2,590,300
MICHIGAN--5.7%
8,300,000 Michigan Hospital Finance Authority (Henry Ford Health System),
5.750%, 9/01/17................................................... 9/02 at 102 Aaa 8,182,555
10,000,000 Monroe County Pollution Control (Detroit Edison), Alternative
Minimum Tax, 6.550%, 9/01/24...................................... 9/03 at 103 Aaa 10,535,900
MONTANA--0.8%
2,500,000 Forsyth Pollution Control (Puget Sound Power and Light Company),
5.875%, 4/01/20................................................... 4/03 at 102 Aaa 2,501,650
</TABLE>
F-11
<PAGE> 118
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEVADA--5.3%
$ 2,905,000 Clark County General Obligation (Limited Tax), 10.000%, 6/01/01..... No Opt. Call Aaa $ 3,663,786
5,000,000 Clark County (Nevada Power Company), Alternative Minimum Tax,
6.700%, 6/01/22................................................... 6/02 at 102 Aaa 5,257,450
7,295,000 Clark County School District, General Obligation, 7.250%, 6/15/03... No Opt. Call Aaa 8,461,981
NEW JERSEY--16.4%
15,495,000 New Jersey Economic Development Authority (Elizabethtown Gas
Company), Alternative Minimum Tax, 6.750%, 10/01/21............... 10/96 at 102 Aaa 16,056,539
5,000,000 New Jersey Economic Development Authority (Hackensack Water
Company), 7.000%, 1/01/19......................................... 1/97 at 102 Aaa 5,245,900
New Jersey Economic Development Authority:
750,000 7.000%, 7/01/03..................................................... No Opt. Call Aaa 860,685
4,000,000 7.000%, 7/01/04..................................................... No Opt. Call Aaa 4,631,440
5,000,000 New Jersey Housing and Mortgage Finance Agency,
5.350%, 10/01/15.................................................. 10/03 at 102 Aaa 4,747,350
15,000,000 New Jersey Transportation Trust Fund Authority, 6.500%, 6/15/05..... No Opt. Call Aaa 16,902,600
New Jersey Turnpike Authority:
3,000,000 6.500%, 1/01/08..................................................... No Opt. Call Aaa 3,355,290
2,000,000 6.500%, 1/01/16..................................................... No Opt. Call Aaa 2,253,520
NEW YORK--5.1%
Metropolitan Transportation Authority, Transit Facilities:
5,000,000 6.300%, 7/01/06..................................................... No Opt. Call Aaa 5,582,350
4,985,000 8.000%, 7/01/07..................................................... No Opt. Call Aaa 6,271,579
4,000,000 New York City General Obligation, 8.000%, 8/01/05................... No Opt. Call Aaa 4,939,360
OHIO--2.7%
5,500,000 Ohio Air Quality Development Authority, Pollution Control (Cleveland
Electric Illuminating Company), 8.000%, 12/01/13.................. 6/02 at 103 Aaa 6,515,905
2,250,000 Hamilton County Sewer System, 5.450%, 12/01/09...................... No Opt. Call Aaa 2,293,178
OKLAHOMA--2.7%
8,425,000 McGee Creek Authority, Water System, 6.000%, 1/01/23................ No Opt. Call Aaa 8,996,131
PENNSYLVANIA--10.6%
2,000,000 Pennsylvania Industrial Development Authority, 7.000%, 1/01/06...... No Opt. Call Aaa 2,309,540
8,275,000 Bethlehem Authority, Water System, 6.250%, 11/15/21 (Pre-refunded to
11/15/01)......................................................... 11/01 at 100 Aaa 9,065,180
10,140,000 Erie County Prison Authority, 6.250%, 11/01/11 (Pre-refunded to
11/01/01)......................................................... 11/01 at 100 Aaa 11,103,097
1,000,000 Luzerne County Industrial Development Authority (Pennsylvania Gas
and Water Company Project), Alternative Minimum Tax, 7.000%,
12/01/17.......................................................... 12/04 at 102 Aaa 1,105,750
7,000,000 Philadelphia School District, General Obligation, 5.300%, 7/01/04... No Opt. Call Aaa 7,217,770
4,000,000 University of Pittsburgh, 6.125%, 6/01/21........................... 6/02 at 102 Aaa 4,098,920
SOUTH CAROLINA--2.0%
6,500,000 Piedmont Municipal Power Agency, 6.300%, 1/01/22.................... 1/03 at 102 Aaa 6,720,935
TEXAS--5.2%
9,590,000 Texas Veterans Housing, General Obligation, Alternative Minimum Tax,
6.800%, 12/01/23.................................................. 12/03 at 102 Aaa 10,052,622
7,075,000 Houston Housing Finance Corporation, Single Family Mortgage, 5.950%,
12/01/10.......................................................... 6/03 at 102 Aaa 7,198,600
WASHINGTON--6.1%
6,130,000 Washington Health Care Facilities Authority (Swedish Hospital
Medical Center of Seattle), 6.300%, 11/15/22...................... 11/02 at 102 Aaa 6,310,528
8,100,000 Washington Health Care Facilities Authority (Virginia Mason),
6.300%, 2/15/17................................................... 2/03 at 102 Aaa 8,307, 926
5,535,000 Washington Public Power Supply System, Nuclear Project No. 3,
6.000%, 7/01/18................................................... 7/99 at 100 Aaa 5,537,158
WISCONSIN--1.2%
4,000,000 Wisconsin Health and Educational Facilities Authority (Wheaton
Franciscan Services), 5.750%, 8/15/22............................. 8/03 at 102 Aaa 3,927,240
PUERTO RICO--1.1%
3,270,000 Puerto Rico Public Buildings Authority, 6.250%, 7/01/12............. No Opt. Call Aaa 3,589,707
- -------------------------------------------------------------------------------------------------------------------------------
$301,140,000 Total Investments--(cost $310,961,282)--98.2%....................... 322,875,073
============ ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE> 119
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES--0.4%
$ 1,300,000 Port Authority of New York and New Jersey, Versatile Structure
Obligations, Variable Rate Demand Bonds, 3.600%, 5/01/19+......... A-1+ $ 1,300,000
------------
Other Assets Less Liabilities--1.4%................................. 4,668,869
------------
Net Assets--100%.................................................... $328,843,942
============
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET MARKET
STANDARD & POOR'S MOODY'S OF ISSUES VALUE PERCENT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF RATINGS** AAA Aaa 59 $316,118,939 98%
PORTFOLIO OF INVESTMENTS A+ A1 1 6,756,134 2
(EXCLUDING TEMPORARY
INVESTMENTS):
- --------------------------------------------------------------------------------------------------------------------------------
Total 60 $322,875,073 100%
========================================================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments in short-term
municipal securities, are either covered by Original Issue Insurance, Secondary
Market Insurance or Portfolio Insurance, or are backed by an escrow or trust
containing sufficient U.S. Government or U.S. Government agency securities to
ensure the timely payment of principal and interest.
* Optional Call Provisions (not covered by the report of independent auditors):
Dates (month and year) and prices of the earliest optional call or
redemption. There may be other call provisions at varying prices at later
dates.
** Ratings (not covered by the report of independent auditors): Using the higher
of Standard & Poor's or Moody's rating.
+ The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed
is that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
F-13
<PAGE> 120
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2 (NPX)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ALASKA--0.9%
$ 2,000,000 Alaska International Airports, Alternative Minimum Tax, 5.500%,
10/01/15...................................................... 10/03 at 102 Aaa $ 1,965,480
2,000,000 Anchorage General Obligation, 5.600%, 1/01/14................... 1/04 at 100 Aaa 1,991,940
ARIZONA--1.5%
3,700,000 Glendale Union High School District No. 205 General Obligation,
5.700%, 7/01/14............................................... 7/05 at 101 Aaa 3,754,834
2,750,000 Phoenix Civic Improvement Corporation, Water System, 5.500%,
7/01/21....................................................... 7/04 at 102 Aaa 2,725,498
ARKANSAS--0.3%
1,500,000 Pulaski County, Special School District, Limited Tax, 5.250%,
2/01/19....................................................... 2/99 at 100 Aaa 1,442,430
CALIFORNIA--15.2%
10,355,000 California General Obligation, 11.000%, 8/01/03................. No Opt. Call Aaa 14,463,553
15,325,000 California Pollution Control Finance Authority (Pacific Gas and
Electric Company), 5.850%, 12/01/23........................... 12/03 at 102 A2 14,772,381
20,000,000 Los Angeles Community, Redevelopment Agency (Bunker Hill
Project), 5.625%, 12/01/18.................................... 12/03 at 102 Aaa 19,544,200
3,500,000 Northern California Power Agency Hydroelectric,
5.500%, 7/01/16............................................... 7/03 at 102 Aaa 3,438,260
5,000,000 Oakland Pension Financing, 7.600%, 8/01/21...................... 8/98 at 102 Aaa 5,503,200
8,000,000 University of California, 5.000%, 9/01/14....................... 9/03 at 102 Aaa 7,379,520
DISTRICT OF COLUMBIA--3.3%
District of Columbia General Obligation:
5,000,000 6.500%, 6/01/09................................................. No Opt. Call Aaa 5,537,050
5,000,000 5.500%, 6/01/12................................................. No Opt. Call Aaa 4,739,350
4,030,000 District of Columbia Housing Finance Agency (Southview
Apartments), 6.000%, 1/01/25.................................. 7/03 at 102 Aaa 3,969,590
FLORIDA--5.2%
5,250,000 Florida Department of General Services, Bond Finance Division,
4.750%, 7/01/12............................................... 7/04 at 101 Aaa 4,794,090
5,500,000 Florida Municipal Power Agency, 6.500%, 10/01/20 (Pre-refunded
to 10/01/02).................................................. 10/02 at 102 Aaa 6,242,280
9,000,000 Dade County, Water and Sewer System, 5.000%, 10/01/13........... 10/03 at 102 Aaa 8,456,760
3,000,000 Orlando and Orange County Expressway Authority, 5.500%,
7/01/18....................................................... 7/03 at 102 Aaa 2,948,280
GEORGIA--0.7%
3,000,000 Georgia Municipal Electric Authority, 6.000%, 1/01/22........... 1/04 at 102 Aaa 3,034,980
ILLINOIS--10.7%
4,340,000 Illinois Development Finance Authority (Indian Prairie Community
Unit School District No. 204), 7.750%, 12/30/04............... No Opt. Call Aaa 5,235,255
1,950,000 Illinois Health Facilities Authority, 6.550%, 6/01/14........... No Opt. Call Aaa 2,130,083
500,000 Illinois Health Facilities Authority (Rush-Presbyterian-St.
Luke's Medical Center), 5.500%, 11/15/25...................... 11/03 at 102 Aaa 473,005
4,000,000 Illinois Housing Development Authority, 6.000%, 7/01/18......... 1/04 at 102 A1 3,970,240
3,000,000 Illinois Sales Tax, 7.000%, 6/15/20 (Pre-refunded to 6/15/01)... 6/01 at 102 AAA 3,426,690
1,500,000 Chicago General Obligation, 6.125%, 1/01/16..................... 7/05 at 102 Aaa 1,537,575
1,100,000 Chicago Midway Airport, Alternative Minimum Tax, 6.100%,
1/01/08....................................................... 1/04 at 102 Aaa 1,152,525
5,660,000 Chicago O'Hare International Airport, 6.375%, 1/01/15........... 1/05 at 102 Aaa 5,983,865
4,000,000 Chicago Public Building Commission (Board of Education), 5.750%,
12/01/18...................................................... 12/03 at 102 Aaa 3,951,960
2,000,000 Chicago Wastewater Transmission, 5.125%, 1/01/20................ 1/03 at 100 Aaa 1,836,460
520,000 Cook County General Obligation, 5.500%, 11/15/22................ 11/02 at 102 Aaa 498,477
5,825,000 Franklin Park General Obligation, 5.500%, 7/01/13............... 7/04 at 102 Aaa 5,701,568
4,500,000 Northlake General Obligation, 5.600%, 12/01/14.................. 12/05 at 102 Aaa 4,420,620
5,000,000 Peoria, Moline and Freeport Single Family Mortgage,
Alternative Minimum Tax, 7.600%, 4/01/27...................... 10/05 at 105 AAA 5,509,750
INDIANA--2.2%
9,770,000 Northwest Allen Building Corporation, 5.500%, 6/01/15........... 6/05 at 102 Aaa 9,434,596
</TABLE>
F-14
<PAGE> 121
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KANSAS--1.5%
$ 3,460,000 Olathe/Labette County, Single Family Mortgage,
Alternative Minimum Tax, 8.100%, 8/01/23...................... 2/05 at 105 Aaa $ 3,904,195
2,330,000 Sedgwick County and Shawnee County, Single Family Mortgage,
Alternative Minimum Tax, 8.050%, 5/01/24...................... 11/04 at 105 Aaa 2,618,058
KENTUCKY--3.5%
Louisville-Jefferson County Regional Airport Authority,
Alternative Minimum Tax:
1,570,000 5.500%, 7/01/13................................................. 7/03 at 102 Aaa 1,485,063
13,745,000 5.500%, 7/01/23................................................. 7/03 at 102 Aaa 13,447,558
LOUISIANA--1.8%
4,105,000 Louisiana Housing Finance Agency, Multi-Family Housing (GNMA),
6.200%, 6/20/28............................................... 12/02 at 103 Aaa 4,110,747
3,750,000 Jefferson Parish Hospital Service District No. 1,
5.250%, 1/01/13............................................... 1/04 at 102 Aaa 3,576,300
MAINE--0.5%
1,745,000 Maine Turnpike Authority, 7.500%, 7/01/09....................... No Opt. Call Aaa 2,113,823
MARYLAND--2.4%
9,770,000 Maryland Transportation Authority (Baltimore/Washington
International Airport), Alternative Minimum Tax, 6.400%,
7/01/19....................................................... 7/04 at 102 Aaa 10,294,063
MICHIGAN--0.9%
3,250,000 Wayne County (Detroit Metropolitan Airport),
5.250%, 12/01/21.............................................. 12/03 at 102 Aaa 3,021,298
1,000,000 Wayne County (Detroit Metropolitan Airport), Alternative Minimum
Tax, 5.500%, 12/01/21......................................... 12/03 at 102 Aaa 974,950
MISSOURI--2.7%
2,600,000 Missouri Third State Building, General Obligation, 7.050%,
8/01/05
(Pre-refunded to 8/01/96)..................................... 8/96 at 102 Aaa 2,713,828
3,415,000 Missouri Health and Educational Facilities, 6.250%, 2/15/22..... 2/02 at 102 Aaa 3,520,284
5,000,000 Kansas City Land Clearance Redevelopment Authority, 5.900%,
12/01/18...................................................... 12/05 at 102 Aaa 5,045,000
NEVADA--5.9%
8,320,000 Clark County, School District, General Obligation, 7.250%,
6/15/04....................................................... No Opt. Call Aaa 9,728,826
Reno (St. Mary's Regional Medical Center):
3,100,000 5.625%, 5/15/18................................................. 5/03 at 102 Aaa 3,037,876
10,000,000 5.625%, 5/15/23................................................. 5/03 at 102 Aaa 9,780,600
2,490,000 University of Nevada, Community College System, 5.600%,
7/01/13....................................................... 7/03 at 101 Aaa 2,490,896
NEW JERSEY--0.6%
2,500,000 New Jersey Housing and Mortgage Finance Agency, Multi-Family,
6.000%, 11/01/14.............................................. 11/05 at 102 Aaa 2,526,900
NEW YORK--4.2%
New York State Medical Care Facilities Finance Agency,
FHA-Insured (New York Hospital):
3,000,000 6.750%, 8/15/14................................................. 2/05 at 102 Aaa 3,306,990
2,500,000 6.800%, 8/15/24................................................. 2/05 at 102 Aaa 2,730,350
3,000,000 New York State Medical Care Facilities Finance Agency
(Mental Health Facilities), 6.000%, 8/15/15................... 2/05 at 102 Aaa 3,080,160
4,090,000 Metropolitan Transportation Authority, Commuter Facilities,
8.000%, 7/01/07............................................... No Opt. Call Aaa 5,145,588
2,500,000 New York City General Obligation, 5.750%, 8/01/10............... 8/02 at 101 1/2 Aaa 2,552,275
1,070,000 Niagara Falls General Obligation, 7.500%, 3/01/09............... No Opt. Call Aaa 1,294,636
OHIO--4.8%
8,320,000 Ohio Housing Finance Agency, Single Family Mortgage (GNMA),
Alternative Minimum Tax, 7.650%, 3/01/29...................... 9/99 at 102 AAA 8,707,546
2,000,000 Cleveland Waterworks System, 6.250%, 1/01/15.................... 1/02 at 102 Aaa 2,084,760
3,000,000 Fairfield City School District, General Obligation, 6.000%,
12/01/20...................................................... 12/05 at 100 Aaa 3,073,920
6,450,000 Hamilton Electric System, 6.000%, 10/15/23...................... 10/02 at 102 Aaa 6,581,774
OKLAHOMA--1.5%
6,000,000 Norman Regional Hospital Authority, 6.900%, 9/01/21............. 9/01 at 102 Aaa 6,527,880
PENNSYLVANIA--5.0%
Philadelphia School District, General Obligation:
2,680,000 6.250%, 9/01/08 (WI)............................................ No Opt. Call Aaa 2,942,211
2,000,000 5.500%, 9/01/15 (WI)............................................ 9/05 at 102 Aaa 1,972,520
</TABLE>
F-15
<PAGE> 122
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(CONTINUED)Philadelphia Water and Wastewater System:
$ 3,700,000 5.500%, 6/15/14................................................. 6/03 at 102 Aaa $ 3,568,243
4,000,000 5.500%, 6/15/15................................................. 6/03 at 102 Aaa 3,908,240
10,000,000 5.000%, 6/15/16................................................. 6/03 at 100 Aaa 9,151,000
TENNESSEE--0.9%
2,000,000 Knoxville Community Development Corporation, Multi-Family
Mortgage (GNMA), 6.200%, 7/20/28.............................. 7/03 at 101 AAA 2,017,200
2,000,000 Madison Suburban Utility Water District, 5.000%, 2/01/19........ 2/08 at 100 Aaa 1,833,940
TEXAS--3.7%
4,000,000 Texas Southern University, 5.750%, 8/01/18...................... 8/03 at 101 Aaa 4,007,000
1,915,000 Texas Veterans Housing General Obligation, Alternative
Minimum Tax, 6.800%, 12/01/23................................. 12/03 at 102 Aa 1,975,437
2,845,000 Austin Combined Utility System, 11.125%, 11/15/09
(Pre-refunded to 11/15/99).................................... 11/99 at 100 Aaa 3,555,397
6,370,000 Brazos River Authority, Pollution Control (Texas Utilities
Electric Company), 5.500%, 5/01/22............................ 11/03 at 102 Aaa 6,175,715
UTAH--1.5%
3,600,000 Utah State Board of Regents, Student Loan, Alternative
Minimum Tax, 5.900%, 11/01/13................................. 11/03 at 102 Aaa 3,594,060
2,720,000 Salt Lake County Water Conservancy District, 5.350%, 10/01/18... 10/03 at 100 Aaa 2,563,110
WASHINGTON--6.7%
Washington Public Power Supply System, Nuclear Project No. 1:
3,750,000 5.600%, 7/01/15................................................. 7/03 at 102 AAA 3,664,500
11,000,000 5.700%, 7/01/17................................................. 7/03 at 102 AAA 10,764,820
6,295,000 Washington Public Power Supply System, Nuclear Project No. 3,
5.600%, 7/01/17............................................... 7/03 at 102 Aaa 6,174,514
4,000,000 Snohomish County Public Utility District No. 1, Electric System,
5.800%, 1/01/24............................................... 1/04 at 102 A1 3,888,880
2,500,000 Tacoma Department of Public Utilities,
6.375%, 12/01/15.............................................. 12/05 at 100 Aaa 2,632,825
1,465,000 Yakima County School District No. 7, General Obligation, 6.250%,
12/01/07 (WI)................................................. No Opt. Call Aaa 1,597,054
WEST VIRGINIA--2.3%
10,000,000 Mason County Pollution Control (Ohio Power Company), 5.450%,
12/01/16...................................................... 12/03 at 102 Aaa 9,700,900
WISCONSIN--7.6%
2,000,000 Wisconsin Health and Educational Facilities Authority
(Children's Hospital of Wisconsin), 6.500%, 8/15/10........... 8/02 at 102 Aaa 2,132,680
3,750,000 Wisconsin Health and Educational Facilities Authority (Sisters
of the Sorrowful Mother Ministry), 5.400%, 8/15/13............ 8/03 at 102 Aaa 3,608,700
5,000,000 Wisconsin Health and Educational Facilities Authority, 6.125%,
8/15/13....................................................... 8/05 at 102 Aaa 5,184,450
14,500,000 Wisconsin Housing and Economic Development Authority, 5.800%,
11/01/13...................................................... 12/03 at 102 A1 14,388,060
6,000,000 Superior Limited Obligation (Detroit Edison Company), 6.900%,
8/01/21....................................................... No Opt. Call Aaa 6,987,840
- -------------------------------------------------------------------------------------------------------------------------------
$409,745,000 Total Investments--(cost $414,797,256)--98.0%................... 419,431,785
============ ---------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES--0.6%
$ 1,700,000 Gulf Coast Waste Disposal Authority Pollution Control Revenue
Refunding (Amoco Oil Company Project), Series 1992, Variable
Rate Demand Bonds, 3.900%, 10/01/17+.......................... VMIG-1 1,700,000
500,000 Missouri Health and Educational Facilities Authority (Washington
University), Variable Rate Demand Bonds, 4.100%, 3/01/17+..... VMIG-1 500,000
300,000 North Carolina Medical Care Commission Hospital Pooled Financing
(Duke University Hospital), Variable Rate Demand Bonds,
3.950%, 10/01/20+............................................. VMIG-1 300,000
- -------------------------------------------------------------------------------------------------------------------------------
$ 2,500,000 Total Temporary Investments--0.6%............................... 2,500,000
============ ---------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--1.4%............................. 5,976,574
---------------------------------------------------------------------------------------------------------------
Net Assets--100%................................................ $427,908,359
===============================================================================================================
</TABLE>
F-16
<PAGE> 123
<TABLE>
<CAPTION>
NUMBER MARKET MARKET
STANDARD & POOR'S MOODY'S OF ISSUES VALUE PERCENT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF RATINGS** AAA Aaa 83 $380,436,787 91%
PORTFOLIO OF INVESTMENTS AA+, AA, AA- Aa1, Aa, Aa2, Aa3 1 1,975,437 1
(EXCLUDING TEMPORARY INVESTMENTS): A+ A1 3 22,247,180 5
A, A- A, A2, A3 1 14,772,381 3
- ---------------------------------------------------------------------------------------------------------------------------------
Total 88 $419,431,785 100%
=================================================================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments in short-term
municipal securities, are either covered by Original Issue Insurance, Secondary
Market Insurance or Portfolio Insurance, or are backed by an escrow or trust
containing sufficient U.S. Government or U.S. Government agency securities to
ensure the timely payment of principal and interest.
* Optional Call Provisions (not covered by the report of independent auditors):
Dates (month and year) and prices of the earliest optional call or
redemption. There may be other call provisions at varying prices at later
dates.
** Ratings (not covered by the report of independent auditors): Using the higher
of Standard & Poor's or Moody's rating.
+ The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed
is that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
(WI) Security purchased on a when-issued basis (note 1).
See accompanying notes to financial statements.
F-17
<PAGE> 124
NUVEEN EXCHANGE-TRADED FUNDS
FINANCIAL HIGHLIGHTS
Selected data for a Common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE
-------------------------- DIVIDENDS FROM NET
NET REALIZED ORGANIZATION
AND INVESTMENT INCOME AND OFFERING
NET ASSET UNREALIZED ---------------------------- COSTS AND
VALUE NET GAIN(LOSS) TO PREFERRED SHARE
BEGINNING INVESTMENT FROM TO COMMON PREFERRED UNDERWRITING
OF PERIOD INCOME INVESTMENTS++ SHAREHOLDERS SHAREHOLDERS+ DISCOUNTS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NPE
- ----------------------------------------------------------------------------------------------------------------------------
Year ended 10/31,
1995 $12.560 $1.073 $ 1.956 $(.840) $ (.279) $ --
1994 15.420 1.100 (2.824) (.946) (.190) --
12/17/92 to 10/31/93 14.050 .779 1.453 (.584) (.095) (.183)
- ----------------------------------------------------------------------------------------------------------------------------
NPX
- ----------------------------------------------------------------------------------------------------------------------------
Year ended 10/31,
1995 10.990 1.001 2.079 (.747) (.293) --
1994 14.290 .978 (3.170) (.775) (.196) (.137)
7/22/93 to 10/31/93 14.050 .114 .228 (.064) -- (.038)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
PER ------------------------------------------
COMMON TOTAL TOTAL RATIO OF NET
SHARE INVESTMENT RETURN NET ASSETS RATIO OF INVESTMENT
NET ASSET MARKET RETURN ON ON NET END OF EXPENSES TO INCOME TO
VALUE END VALUE END MARKET ASSET PERIOD (IN AVERAGE NET AVERAGE NET
OF PERIOD OF PERIOD VALUE** VALUE** THOUSANDS) ASSETS+++ ASSETS+++
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NPE
- -------------------------------------------------------------------------------------------------------------------------------
Year ended 10/31,
1995 $14.470 $12.750 22.67% 22.56% $328,844 .82% 5.12%
1994 12.560 11.125 (20.42) (12.88) 300,008 .82 5.14
12/17/92 to 10/31/93 15.420 15.000 4.01 14.13 343,240 .81* 4.75*
- -------------------------------------------------------------------------------------------------------------------------------
NPX
- -------------------------------------------------------------------------------------------------------------------------------
Year ended 10/31,
1995 13.030 11.375 23.46 26.20 427,908 .83 5.07
1994 10.990 9.875 (23.99) (18.24) 385,692 .83 4.83
7/22/93 to 10/31/93 14.290 13.875 (7.08) 2.16 295,074 .86* 3.16*
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PORTFOLIO
TURNOVER
RATE
- -------------------------------------------------
<S> <C>
NPE
- -------------------------------------------------
Year ended 10/31,
1995 28%
1994 16
12/17/92 to 10/31/93 10
- -------------------------------------------------
NPX
- -------------------------------------------------
Year ended 10/31,
1995 30
1994 25
7/22/93 to 10/31/93 --
- -------------------------------------------------
</TABLE>
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total Return on Net Asset Value is the combination
of reinvested dividend income, reinvested capital gains distributions, if
any, and changes in net asset value per share.
+ The amounts shown are based on Common share equivalents.
++ Net of taxes, if applicable.
+++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
F-18
<PAGE> 125
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pro Forma Portfolio of Investments (Unaudited).............................................. P-2
Pro Forma Financial Information (Unaudited)................................................. P-7
Pro Forma Capitalization (Unaudited)...................................................... P-7
Pro Forma Condensed Balance Sheet (Unaudited)............................................. P-7
Pro Forma Condensed Income Statement (Unaudited).......................................... P-8
</TABLE>
P-1
<PAGE> 126
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF OCTOBER 31, 1995
<TABLE>
<CAPTION>
ACQUIRING FUND (AS ADJUSTED) (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALASKA--1.2%
$ 2,000,000 Alaska International Airports, Alternative Minimum Tax,
5.500%, 10/01/15....................................................... 10/03 at 102 Aaa $ 1,965,480
Anchorage General Obligation:
2,020,000 5.900%, 2/01/06........................................................ No Opt. Call Aaa 2,166,753
2,000,000 5.600%, 1/01/14........................................................ 1/04 at 100 Aaa 1,991,940
3,000,000 6.250%, 6/01/23........................................................ 6/99 at 100 Aaa 3,061,860
ARIZONA--0.9%
3,700,000 Glendale Union High School District No. 205 General Obligation, 5.700%,
7/01/14.............................................................. 7/05 at 101 Aaa 3,754,834
2,750,000 Phoenix Civic Improvement Corporation, Water System, 5.500%, 7/01/21... 7/04 at 102 Aaa 2,725,498
ARKANSAS--0.2%
1,500,000 Pulaski County Special School District, Limited Tax, 5.250%, 2/01/19... 2/99 at 100 Aaa 1,442,430
CALIFORNIA--12.1%
10,355,000 California General Obligation, 11.000%, 8/01/03........................ No Opt. Call Aaa 14,463,553
6,590,000 California Housing Finance Agency, Multi-Unit Rental, Alternative
Minimum Tax, 6.625%, 2/01/24......................................... 2/03 at 102 A1 6,756,134
15,325,000 California Pollution Control Finance Authority (Pacific Gas and
Electric Company), 5.850%, 12/01/23.................................. 12/03 at 102 A2 14,772,381
20,000,000 Los Angeles Community Redevelopment Agency (Bunker Hill Project),
5.625%, 12/01/18..................................................... 12/03 at 102 Aaa 19,544,200
3,000,000 M-S-R Public Power Agency, San Juan Project Revenue, 6.000%, 7/01/20... 7/03 at 102 Aaa 3,044,760
3,500,000 Northern California Power Agency Hydroelectric, 5.500%, 7/01/16........ 7/03 at 102 Aaa 3,438,260
5,000,000 Oakland Pension Financing, 7.600%, 8/01/21............................. 8/98 at 102 Aaa 5,503,200
7,000,000 Palmdale Community Redevelopment Agency, 8.000%, 4/01/16............... No Opt. Call Aaa 8,828,330
San Leandro Housing Finance Corporation (Ashland Village Apartments):
2,005,000 6.550%, 1/01/12........................................................ 1/02 at 102 Aaa 2,094,884
5,100,000 6.650%, 1/01/25........................................................ 1/02 at 102 Aaa 5,311,038
8,000,000 University of California, 5.000%, 9/01/14.............................. 9/03 at 102 Aaa 7,379,520
DISTRICT OF COLUMBIA--3.8%
District of Columbia General Obligation:
5,000,000 6.500%, 6/01/09...................................................... No Opt. Call Aaa 5,537,050
5,000,000 5.500%, 6/01/12...................................................... No Opt. Call Aaa 4,739,350
5,000,000 District of Columbia (Children's Hospital), 6.250%, 7/15/19............ 7/02 at 102 Aaa 5,078,150
3,910,000 District of Columbia Housing Finance Agency, Single Family Mortgage,
Alternative Minimum Tax, 6.350%, 12/01/24............................ 6/03 at 102 AAA 3,951,642
4,030,000 District of Columbia Housing Finance Agency, (Southview Apartments),
6.000%, 1/01/25...................................................... 7/03 at 102 Aaa 3,969,590
5,250,000 District of Columbia (The Catholic University of America), 6.450%,
10/01/23............................................................. 10/03 at 102 AAA 5,450,130
FLORIDA--3.0%
5,250,000 Florida Department of General Services, Bond Finance Division, 4.750%,
7/01/12.............................................................. 7/04 at 101 Aaa 4,794,090
5,500,000 Florida Municipal Power Agency, 6.500%, 10/01/20 (Pre-refunded to
10/01/02)............................................................ 10/02 at 102 Aaa 6,242,280
9,000,000 Dade County Water and Sewer System, 5.000%, 10/01/13................... 10/03 at 102 Aaa 8,456,760
3,000,000 Orlando and Orange County Expressway Authority, 5.500%, 7/01/18........ 7/03 at 102 Aaa 2,948,280
GEORGIA--0.4%
3,000,000 Georgia Municipal Electric Authority, 6.000%, 1/01/22.................. 1/04 at 102 Aaa 3,034,980
ILLINOIS--13.5%
8,000,000 Illinois Development Finance Authority, Pollution Control (Illinois
Power Company), 8.300%, 4/01/17...................................... 4/98 at 102 Aaa 8,858,320
Illinois Development Finance Authority (Indian Prairie Community Unit
School District No. 204):
3,635,000 7.750%, 12/30/03..................................................... No Opt. Call Aaa 4,345,315
4,340,000 7.750%, 12/30/04..................................................... No Opt. Call Aaa 5,235,255
1,950,000 Illinois Health Facilities Authority, 6.550%, 06/01/14................. No Opt. Call Aaa 2,130,083
Illinois Health Facilities Authority (Lutheran General Health System):
4,355,000 6.125%, 4/01/12........................................................ 4/03 at 102 Aaa 4,486,565
5,000,000 6.250%, 4/01/18........................................................ 4/03 at 102 Aaa 5,122,950
500,000 Illinois Health Facilities Authority (Rush-Presbyterian-St. Luke's
Medical Center, 5.500%, 11/15/25..................................... 11/03 at 102 Aaa 473,005
</TABLE>
P-2
<PAGE> 127
<TABLE>
<CAPTION>
ACQUIRING FUND (AS ADJUSTED) (UNAUDITED) (Continued)
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,770,000 Illinois Health Facilities Authority, (Elmhurst Memorial Hospital),
6.625%, 1/01/22...................................................... 1/02 at 102 Aaa $ 1,867,863
4,000,000 Illinois Housing Development Authority, 6.000%, 7/01/18................ 1/04 at 102 A1 3,970,240
Illinois State Toll Highway Authority, Priority Revenue:
4,000,000 6.200%, 1/01/16........................................................ 1/03 at 102 Aaa 4,105,000
4,250,000 5.750%, 1/01/17........................................................ 1/03 at 102 Aaa 4,216,213
3,000,000 Illinois Sales Tax, 7.000%, 6/15/20 (Pre-refunded to 6/15/01).......... 6/01 at 102 AAA 3,426,690
1,500,000 Chicago General Obligation, 6.125%, 1/01/16............................ 7/05 at 102 Aaa 1,537,575
Chicago Midway Airport, Alternative Minimum Tax:
1,100,000 6.100%, 1/01/08........................................................ 1/04 at 102 Aaa 1,152,525
2,750,000 6.250%, 1/01/14........................................................ 1/04 at 102 Aaa 2,844,848
9,000,000 Chicago O'Hare International Airport, International Terminal, 6.750%,
1/01/18.............................................................. 1/02 at 102 Aaa 9,492,120
5,660,000 Chicago O'Hare International Airport, 6.375%, 1/01/15.................. 1/05 at 102 Aaa 5,983,865
4,000,000 Chicago Public Building Commission (Board of Education), 5.750%,
12/01/18............................................................. 12/03 at 102 Aaa 3,951,960
2,000,000 Chicago Wastewater Transmission, 5.125%, 1/01/20....................... 1/03 at 100 Aaa 1,836,460
520,000 Cook County General Obligation, 5.500%, 11/15/22....................... 11/02 at 102 Aaa 498,477
3,000,000 Cook County Community College, District No. 508, 8.750%, 1/01/06....... No Opt. Call Aaa 3,869,670
5,825,000 Franklin Park General Obligation, 5.500%, 7/01/13...................... 7/04 at 102 Aaa 5,701,568
6,500,000 Metropolitan Pier & Exposition Authority (McCormick Place Expansion
Project), 6.500%, 6/15/22............................................ 6/03 at 102 Aaa 6,942,585
4,500,000 Northlake General Obligation, 5.600%, 12/01/14......................... 12/05 at 102 Aaa 4,420,620
5,000,000 Peoria, Moline and Freeport Single Family Mortgage Alternative Minimum
Tax, 7.600%, 4/01/27................................................. 10/05 at 105 AAA 5,509,750
INDIANA--1.7%
2,220,000 Indiana Municipal Power Agency, Power Supply System, 6.125%, 1/01/19... 1/03 at 102 Aaa 2,269,728
1,000,000 Fort Wayne South Side School Building Corporation, 6.125%, 1/15/12..... 1/04 at 102 Aaa 1,037,540
9,770,000 Northwest Allen Building Corporation, 5.500%, 6/01/15.................. 6/05 at 102 Aaa 9,434,596
KANSAS--1.0%
Kansas Development Finance Authority:
515,000 5.700%, 6/01/11........................................................ 6/03 at 102 Aaa 522,375
750,000 5.875%, 6/01/21........................................................ 6/03 at 102 Aaa 759,878
3,460,000 Olathe/Labette County Single Family Mortgage, Alternative Minimum Tax,
8.100%, 8/01/23...................................................... 2/05 at 105 Aaa 3,904,195
2,330,000 Sedgwick County and Shawnee County, Single Family Mortgage, Alternative
Minimum Tax, 8.050%, 5/01/24......................................... 11/04 at 105 Aaa 2,618,058
KENTUCKY--2.0%
Louisville-Jefferson County Regional Airport Authority, Alternative
Minimum Tax:
1,570,000 5.500%, 7/01/13........................................................ 7/03 at 102 Aaa 1,485,063
13,745,000 5.500%, 7/01/23........................................................ 7/03 at 102 Aaa 13,447,558
LOUISIANA--1.4%
4,105,000 Louisiana Housing Finance Agency, Multi-Family Housing (GNMA), 6.200%,
6/20/28.............................................................. 12/02 at 103 Aaa 4,110,747
2,500,000 Louisiana Public Facilities Authority (Louisiana Department of Health
and Hospitals Medical Center), 6.250%, 10/15/10...................... 10/02 at 100 AAA 2,590,300
3,750,000 Jefferson Parish Hospital Service District No. 1, 5.250%, 1/01/13...... 1/04 at 102 Aaa 3,576,300
MAINE--0.3%
1,745,000 Maine State Turnpike Authority, 7.500%, 7/01/09........................ No Opt. Call Aaa 2,113,823
MARYLAND--1.3%
9,770,000 Maryland Transportation Authority (Baltimore/Washington International
Airport), Alternative Minimum Tax, 6.400%, 7/01/19................... 7/04 at 102 Aaa 10,294,063
MICHIGAN--3.0%
8,300,000 Michigan State Hospital Finance Authority (Henry Ford Health System),
5.750%, 9/01/17...................................................... 9/02 at 102 Aaa 8,182,555
10,000,000 Monroe County Pollution Control (Detroit Edison), Alternative Minimum
Tax, 6.550%, 9/01/24................................................. 9/03 at 103 Aaa 10,535,900
3,250,000 Wayne County (Detroit Metropolitan Wayne County Airport), 5.250%,
12/01/21............................................................. 12/03 at 102 Aaa 3,021,298
1,000,000 Wayne County (Detroit Metropolitan Airport), Alternative Minimum Tax,
5.500%, 12/01/21..................................................... 12/03 at 102 Aaa 974,950
</TABLE>
P-3
<PAGE> 128
<TABLE>
<CAPTION>
ACQUIRING FUND (AS ADJUSTED) (UNAUDITED) (Continued)
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI--1.5%
$ 2,600,000 Missouri Third State Building, General Obligation, 7.050%, 8/01/05
(Pre-refunded to 8/01/96)............................................ 8/96 at 102 Aaa $ 2,713,828
3,415,000 Missouri Health and Educational Facilities, 6.250%, 2/15/22............ 2/02 at 102 Aaa 3,520,284
5,000,000 Kansas City Land Clearance Redevelopment Authority, 5.900%, 12/01/18... 12/05 at 102 Aaa 5,045,000
MONTANA--0.3%
2,500,000 Forsyth Pollution Control (Puget Sound Power and Light Company),
5.875%, 4/01/20...................................................... 4/03 at 102 Aaa 2,501,650
NEVADA--5.6%
2,905,000 Clark County General Obligation (Limited Tax), 10.000%, 6/01/01........ No Opt. Call Aaa 3,663,786
5,000,000 Clark County (Nevada Power Company), Alternative Minimum Tax, 6.700%,
6/01/22.............................................................. 6/02 at 102 Aaa 5,257,450
Clark County School District General Obligation:
7,295,000 7.250%, 6/15/03........................................................ No Opt. Call Aaa 8,461,981
8,320,000 7.250%, 6/15/04........................................................ No Opt. Call Aaa 9,728,826
Reno (St. Mary's Regional Medical Center):
3,100,000 5.625%, 5/15/18........................................................ 5/03 at 102 Aaa 3,037,876
10,000,000 5.625%, 5/15/23........................................................ 5/03 at 102 Aaa 9,780,600
2,490,000 University of Nevada, Community College System, 5.600%, 7/01/13........ 7/03 at 101 Aaa 2,490,896
NEW JERSEY--7.5%
15,495,000 New Jersey Economic Development Authority (Elizabethtown Gas Company)
Alternative Minimum Tax, 6.750%, 10/01/21............................ 10/96 at 102 Aaa 16,056,539
5,000,000 New Jersey Economic Development Authority (Hackensack Water Company),
7.000%, 1/01/19...................................................... 1/97 at 102 Aaa 5,245,900
New Jersey Economic Development Authority:
750,000 7.000%, 7/01/03........................................................ No Opt. Call Aaa 860,685
4,000,000 7.000%, 7/01/04........................................................ No Opt. Call Aaa 4,631,440
2,500,000 New Jersey Housing and Mortgage Finance Agency, Multi-Family, 6.000%,
11/01/14............................................................. 11/05 at 102 Aaa 2,526,900
5,000,000 New Jersey Housing and Mortgage Finance Agency, 5.350%, 10/01/15....... 10/03 at 102 Aaa 4,747,350
15,000,000 New Jersey Transportation Trust Fund Authority, 6.500%, 6/15/05........ No Opt. Call Aaa 16,902,600
New Jersey Turnpike Authority:
3,000,000 6.500%, 1/01/08........................................................ No Opt. Call Aaa 3,355,290
2,000,000 6.500%, 1/01/16........................................................ No Opt. Call Aaa 2,253,520
NEW YORK--4.4%
New York State Medical Care Facilities Finance Agency, FHA-Insured
(New York Hospital):
3,000,000 6.750%, 8/15/14........................................................ 2/05 at 102 Aaa 3,306,990
2,500,000 6.800%, 8/15/24........................................................ 2/05 at 102 Aaa 2,730,350
3,000,000 New York State Medical Care Facilities Finance Agency (Mental Health
Facilities), 6.000%, 8/15/15......................................... 2/05 at 102 Aaa 3,080,160
4,090,000 Metropolitan Transportation Authority, Commuter Facilities, 8.000%,
7/01/07.............................................................. No Opt. Call Aaa 5,145,588
Metropolitan Transportation Authority, Transit Facilities:
5,000,000 6.300%, 7/01/06........................................................ No Opt. Call Aaa 5,582,350
4,985,000 8.000%, 7/01/07........................................................ No Opt. Call Aaa 6,271,579
New York City General Obligation:
4,000,000 8.000%, 8/01/05........................................................ No Opt. Call Aaa 4,939,360
2,500,000 5.750%, 8/01/10........................................................ 8/02 at Aaa 2,552,275
101 1/2
1,070,000 Niagara Falls General Obligation, 7.500%, 3/01/09...................... No Opt. Call Aaa 1,294,636
OHIO--3.9%
5,500,000 Ohio Air Quality Development Authority, Pollution Control (Cleveland
Electric Illuminating Company), 8.000%, 12/01/13..................... 6/02 at 103 Aaa 6,515,905
8,320,000 Ohio Housing Finance Agency, Single Family Mortgage (GNMA), Alternative
Minimum Tax, 7.650%, 3/01/29......................................... 9/99 at 102 AAA 8,707,546
2,000,000 Cleveland Waterworks System, 6.250%, 1/01/15........................... 1/02 at 102 Aaa 2,084,760
3,000,000 Fairfield City School District, General Obligation, 6.000%, 12/01/20... 12/05 at 100 Aaa 3,073,920
6,450,000 Hamilton Electric System, 6.000%, 10/15/23............................. 10/02 at 102 Aaa 6,581,774
2,250,000 Hamilton County Sewer System, 5.450%, 12/01/09......................... No Opt. Call Aaa 2,293,178
OKLAHOMA--2.1%
8,425,000 McGee Creek Authority Water System, 6.000%, 1/01/23.................... No Opt. Call Aaa 8,996,131
6,000,000 Norman Regional Hospital Authority, 6.900%, 9/01/21.................... 9/01 at 102 Aaa 6,527,880
</TABLE>
P-4
<PAGE> 129
<TABLE>
<CAPTION>
ACQUIRING FUND (AS ADJUSTED) (UNAUDITED) (Continued)
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA--7.5%
$ 2,000,000 Pennsylvania Industrial Development Authority, 7.000%, 1/01/06......... No Opt. Call Aaa $ 2,309,540
8,275,000 Bethlehem Authority Water System, 6.250%, 11/15/21 (Pre-refunded to
11/15/01)............................................................ 11/01 at 100 Aaa 9,065,180
10,140,000 Erie County Prison Authority, 6.250%, 11/01/11 (Pre-refunded to
11/01/01)............................................................ 11/01 at 100 Aaa 11,103,097
1,000,000 Luzerne County Industrial Development Authority (Pennsylvania Gas and
Water Company Project) Alternative Minimum Tax, 7.000%, 12/01/17..... 12/04 at 102 Aaa 1,105,750
Philadelphia School District General Obligation:
7,000,000 5.300%, 7/01/04........................................................ No Opt. Call Aaa 7,217,770
2,680,000 6.250%, 9/01/08 (WI)................................................... No Opt. Call Aaa 2,942,211
2,000,000 5.500%, 9/01/15 (WI)................................................... 9/05 at 102 Aaa 1,972,520
Philadelphia Water and Wastewater System:
3,700,000 5.500%, 6/15/14........................................................ 6/03 at 102 Aaa 3,568,243
4,000,000 5.500%, 6/15/15........................................................ 6/03 at 102 Aaa 3,908,240
10,000,000 5.000%, 6/15/16........................................................ 6/03 at 100 Aaa 9,151,000
4,000,000 University of Pittsburgh, 6.125%, 6/01/21.............................. 6/02 at 102 Aaa 4,098,920
SOUTH CAROLINA--0.9%
6,500,000 Piedmont Municipal Power Agency, 6.300%, 1/01/22....................... 1/03 at 102 Aaa 6,720,935
TENNESSEE--0.5%
2,000,000 Knoxville Community Development Corporation, Multi-Family Mortgage
(GNMA), 6.200%, 7/20/28.............................................. 7/03 at 101 AAA 2,017,200
2,000,000 Madison Suburban Utility Water District, 5.000%, 2/01/19............... 2/08 at 100 Aaa 1,833,940
TEXAS--4.4%
4,000,000 Texas Southern University, 5.750%, 8/01/18............................. 8/03 at 101 Aaa 4,007,000
Texas Veterans Housing General Obligation, Alternative Minimum Tax:
9,590,000 6.800%, 12/01/23....................................................... 12/03 at 102 Aaa 10,052,622
1,915,000 6.800%, 12/01/23....................................................... 12/03 at 102 Aa 1,975,437
2,845,000 Austin Combined Utility System, 11.125%, 11/15/09 (Pre-refunded to
11/15/99)............................................................ 11/99 at 100 Aaa 3,555,397
6,370,000 Brazos River Authority, Pollution Control (Texas Utilities Electric
Company), 5.500%, 5/01/22............................................ 11/03 at 102 Aaa 6,175,715
7,075,000 Houston Housing Finance Corporation, Single Family Mortgage, 5.950%,
12/01/10............................................................. 6/03 at 102 Aaa 7,198,600
UTAH--0.8%
3,600,000 Utah State Board of Regents, Student Loan, Alternative Minimum Tax,
5.900%, 11/01/13..................................................... 11/03 at 102 Aaa 3,594,060
2,720,000 Salt Lake County Conservancy District, 5.350%, 10/01/18................ 10/03 at 100 Aaa 2,563,110
WASHINGTON--6.5%
6,130,000 Washington Health Care Facilities Authority (Swedish Hospital Medical
Center of Seattle), 6.300%, 11/15/22................................. 11/02 at 102 Aaa 6,310,529
8,100,000 Washington Health Care Facilities Authority (Virginia Mason), 6.300%,
2/15/17.............................................................. 2/03 at 102 Aaa 8,307,927
Washington Public Power Supply System, Nuclear Project No. 1:
3,750,000 5.600%, 7/01/15...................................................... 7/03 at 102 Aaa 3,664,500
11,000,000 5.700%, 7/01/17...................................................... 7/03 at 102 Aaa 10,764,820
Washington Public Power Supply System, Nuclear Project No. 3:
6,295,000 5.600%, 7/01/17...................................................... 7/03 at 102 Aaa 6,174,513
5,535,000 6.000%, 7/01/18...................................................... 7/99 at 100 Aaa 5,537,158
4,000,000 Snohomish County Public Utility District No. 1, Electric System,
5.800%, 1/01/24........................................................ 1/04 at 100 A1 3,888,880
2,500,000 Tacoma Department of Public Utilities, 6.375%, 12/01/15................ 12/05 at 100 Aaa 2,632,824
1,465,000 Yakima County School District No. 7, General Obligation, 6.250%,
12/01/07 (WI).......................................................... No Opt. Call Aaa 1,597,054
WEST VIRGINIA--1.3%
10,000,000 Mason County Pollution Control (Ohio Power Company), 5.450%,
12/01/16............................................................. 12/03 at 102 Aaa 9,700,900
</TABLE>
P-5
<PAGE> 130
<TABLE>
<CAPTION>
ACQUIRING FUND (AS ADJUSTED) (UNAUDITED) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN--4.7%
$ 2,000,000 Wisconsin Health and Educational Facilities Authority (Children's
Hospital of Wisconsin), 6.500%, 8/15/10.............................. 8/02 at 102 Aaa $ 2,132,680
4,000,000 Wisconsin Health and Educational Facilities Authority (Wheaton
Franciscan Services), 5.750%, 8/15/22................................ 8/03 at 102 Aaa 3,927,240
3,750,000 Wisconsin Health and Educational Facilities Authority (Sisters of the
Sorrowful Mother Ministry), 5.400%, 8/15/13.......................... 8/03 at 102 Aaa 3,608,700
5,000,000 Wisconsin Health and Educational Facilities Authority, 6.125%,
8/15/13.............................................................. 8/05 at 102 Aaa 5,184,450
14,500,000 Wisconsin Housing and Economic Development Authority, 5.800%,
11/01/13............................................................. 12/03 at 102 A1 14,388,060
6,000,000 Superior Limited Obligation (Detroit Edison Company), 6.900%,
8/01/21.............................................................. No Opt. Call Aaa 6,987,840
PUERTO RICO--0.5%
3,270,000 Puerto Rico Public Buildings Authority, 6.250%, 7/01/12................ No Opt. Call Aaa 3,589,707
- -------------------------------------------------------------------------------------------------------------------------------
$710,885,000 Total Investments (cost $725,758,538)--98.2%........................... 742,306,858
============ ----------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES--0.5%
$ 1,530,000 Gulf Coast Waste Disposal Authority Pollution Control Revenue.......... VMIG-1 1,530,000
Refunding (Amoco Oil Company Project), Series 1992 Variable Rate Demand
Bonds, 3.900%, 10/01/17+
500,000 Missouri Health and Educational Facilities Authority (Washington
University), Variable Rate Demand Bonds, 4.100%, 3/01/17+............ VMIG-1 500,000
300,000 North Carolina Medical Care Commission Hospital Pooled Financing (Duke
University Hospital), Variable Rate Demand Bonds, 3.950%,
10/01/20+............................................................ VMIG-1 300,000
1,000,000 Port Authority of New York and New Jersey, Versatile Structure
Obligations, 3.600%, 5/01/19+........................................ A-1+ 1,000,000
- -------------------------------------------------------------------------------------------------------------------------------
$ 3,330,000 Total Temporary Investments--0.4%...................................... 3,330,000
============ ----------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--1.4%.................................... 10,529,407
----------------------------------------------------------------------------------------------------------------
Net Assets--100%....................................................... $756,166,265
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
STANDARD & POOR'S MOODY'S OF ISSUES VALUE PERCENT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF RATINGS* AAA Aaa 142 $696,555,726 93%
PORTFOLIO OF INVESTMENTS AA+, AA, AA- Aa1, Aa, Aa2, Aa3 1 1,975,437 1
(EXCLUDING TEMPORARY A+ A1 4 29,003,314 4
INVESTMENTS): A, A- A, A2, A3 1 14,772,381 2
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL 148 $742,306,858 100%
==================================================================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments in short-term
municipal securities, are either covered by Original Issue Insurance, Secondary
Market Insurance or Portfolio Insurance, or are backed by an escrow or trust
containing sufficient U.S. Government or U.S. Government agency securities to
ensure the timely payment of principal and interest.
* Optional Call Provisions: Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
+ The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed
is that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
(WI) Security purchased on a when-issued basis (note 1).
See accompanying notes to financial statements.
P-6
<PAGE> 131
PRO FORMA FINANCIAL INFORMATION
The following tables set forth the unaudited capitalization, net asset
value per share and income of the Funds as of October 31, 1995 and for the
period then ended and as adjusted to give effect to the Reorganization. The
relevant financial statements for the Acquiring Fund and the Acquired Fund are
set forth below.
PRO FORMA CAPITALIZATION AS OF OCTOBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED ACQUIRING
FUND FUND FUND
(ACTUAL) (ACTUAL) (AS ADJUSTED)(1)
------------ ------------ ----------------
<S> <C> <C> <C>
Shareholders' Equity:
Common Shares, $.01 par value per share; 20,642,068 shares outstanding
for NPX (Actual); 15,128,458 shares outstanding for NPE (Actual);
37,421,145 shares outstanding for NPX (Adjusted).................... $ 206,421 $ 151,285 $ 374,212(2)
Preferred shares, $25,000 stated value per share, at liquidation
value............................................................... 158,900,000 110,000,000 268,900,000
Paid-in surplus....................................................... 286,208,026 209,709,001 495,580,098(3)
Undistributed net investment income................................... 398,674 265,613 398,674(4)
Net realized gain (loss) from investment transactions................. (22,439,291) (3,195,748) (25,635,039)(5)
Net unrealized appreciation of investments............................ 4,634,529 11,913,791 16,548,320
------------ ------------ ----------------
Net Assets........................................................ $427,908,359 $328,843,942 $756,166,265
=========== =========== ================
</TABLE>
- ------------
(1) The adjusted balances are presented as if the Reorganization were effective
as of October 31, 1995 for information purposes only. The actual Effective
Time of the Reorganization is expected to be September 9, 1996, at which
time the results would be reflective of the actual composition of
shareholders' equity at that date.
(2) Assumes the issuance of 16,779,077 Acquiring Fund Common shares in exchange
for the net assets of the Acquired Fund, which number is based on the net
asset value of the Acquiring Fund Common shares, and the net asset value of
the Acquired Fund, as of October 31, 1995, after adjustment for the
distributions referred to in (4) below. The issuance of such number of
Acquiring Fund Common shares would result in the distribution of 1.1091069
Acquiring Fund Common shares for each Common share of the Acquired Fund upon
liquidation of the Acquired Fund.
(3) Includes the impact of estimated Reorganization costs of $320,423.
(4) Assumes the Acquired Fund distributes all of its undistributed net
investment income ($265,613) to its shareholders.
(5) Assumes the Acquired Fund carries forward all of its net realized losses
from investment transactions ($3,195,748) to the Acquiring Fund, as
permitted under applicable tax regulations.
PRO FORMA CONDENSED BALANCE SHEET AS OF OCTOBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND PRO FORMA ACQUIRING FUND
(ACTUAL) (ACTUAL) ADJUSTMENTS (AS ADJUSTED)
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Investments in municipal securities, at market value..... $419,431,785 $322,875,073 $ $742,306,858
Temporary investments in short-term municipal securities,
at amortized cost...................................... 2,500,000 1,300,000 (470,000 )(1) 3,330,000
Cash..................................................... 60,127 72,882 (116,036 )(2) 16,973
Other assets less liabilities............................ 5,916,447 4,595,987 -- 10,512,434
------------ ------------ ---------- ------------
Net assets............................................... $427,908,359 $328,843,942 $ (586,036 ) $756,166,265
============ ============ ========== ============
Preferred Shares, at liquidation value................... $158,900,000 $110,000,000 $ -- $268,900,000
============ ============ ========== ============
Preferred Shares outstanding............................. 6,356 4,400 -- 10,756
============ ============ ========== ============
Common Shares outstanding................................ 20,642,068 15,128,458 1,650,619 (3) 37,421,145
============ ============ ========== ============
Net asset value per Common Share:
As of October 31, 1995............................... $ 13.03 $ 14.47
============ ============
After distribution of ordinary income and capital
gains, if applicable............................... $ 13.03 $ 14.45
============ ============
After Reorganization related expenses................ $ 13.02 $ 14.44 $ 13.02
============ ============ ============
</TABLE>
- ------------
(1) See note (1) to Pro Forma Capitalization table above as to time of
Reorganization. Assumes sales of temporary investments in short-term
municipal securities to provide additional cash needed to make distributions
of ordinary income and to pay estimated Reorganization related expenses.
(2) Net effect on cash after sales of temporary investments in short-term
municipal securities and payment of Reorganization related expenses.
(3) See note (1) to Pro Forma Capitalization table above as to Time of
Reorganization. Based on the issuance of 16,779,077 additional Acquiring
Fund Common shares and the cancellation of 15,128,458 Acquired Fund Common
shares.
P-7
<PAGE> 132
PRO FORMA CONDENSED INCOME STATEMENT YEAR ENDED OCTOBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND PRO FORMA ACQUIRING FUND
(ACTUAL) (ACTUAL) ADJUSTMENTS (AS ADJUSTED)
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income......................................... $ 24,078,207 $18,828,179 $ -- $ 42,906,386
----------- ----------- -------- ------------
Expenses:
Management fees....................................... 2,595,700 2,026,982 (72,781)(1) 4,549,901
All other expenses.................................... 809,321 576,912 (103,927)(2) 1,282,306
----------- ----------- -------- ------------
Total expenses...................................... 3,405,021 2,603,894 (176,708) 5,832,207
----------- ----------- -------- ------------
Net investment income..................................... 20,673,186 16,224,285 176,708 37,074,179
----------- ----------- -------- ------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) from investment transactions... (12,029,555) (1,944,767) -- (13,974,322)
Net change in unrealized appreciation or depreciation of
investments........................................... 55,044,396 31,478,880 -- 86,523,276
----------- ----------- -------- ------------
Net gain on investments............................. 43,014,841 29,534,113 -- 72,548,954
----------- ----------- -------- ------------
Net increase in net assets from operations................ $ 63,688,027 $45,758,398 $ 176,708 $109,623,133
=========== =========== ======== ============
</TABLE>
- ------------
(1) Reflects the management fee of .65% of net assets for the first $125
million, .6375% of net assets for the next $125 million, .625% for net
assets of the next $250 million and .6125% for net assets over $500 million.
(2) Represents estimated reduction in operating expenses, including audit,
legal, custodian, stock exchange and report printing. The Acquiring Fund (As
Adjusted) would have a much larger asset base than either Fund currently
has. Certain operating expenses would have been reduced had they been
applied to the larger asset base for one Fund, rather than to two smaller
separate Funds.
P-8
<PAGE> 133
ANNEX A
RATINGS OF INVESTMENTS
STANDARD & POOR'S CORPORATION--A brief description of the applicable
Standard & Poor's Corporation ("S&P") rating symbols and their meanings (as
published by S&P) follows:
LONG TERM DEBT
An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees. The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances. The ratings are based, in varying degrees, on the
following considerations:
1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
Investment Grade
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
SPECULATIVE GRADE RATING
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation and
'C' the highest. While such debt will likely have some quality and protective
characteristics these are outweighed by major uncertainties or major exposures
to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'BBB-' rating.
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.
A-1
<PAGE> 134
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
The 'CCC' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied 'B' or 'B-' rating.
CC The rating 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' debt rating.
C The rating 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C'
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
'D' rating also will be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
L The letter 'L' indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is federally insured and interest is adequately
collateralized.* In the case of certificates of deposit the letter 'L'
indicates that the deposit, combined with other deposits being held in
the same right and capacity, will be honored for principal and accrued
pre-default interest up to the federal insurance limits within 30 days
after closing of the insured institution or, in the event that the
deposit is assumed by a successor insured institution, upon maturity.
- ------------
* Continuance of the rating is contingent upon S&P's receipt of an executed copy
of the escrow agreement or closing documentation confirming investments and
cash flow.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
NOTE RATING SYMBOLS ARE AS FOLLOWS:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
A-2
<PAGE> 135
A note rating is not a recommendation to purchase, sell, or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designation.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to S&P by the issuer or obtained by S&P from other sources
it considers reliable. S&P does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information or based on other circumstances.
MOODY'S INVESTORS SERVICE, INC.--A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings
(as published by Moody's) follows:
MUNICIPAL BONDS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
BAA Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great
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length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
CON(...)Bonds for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
NOTE: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
SHORT-TERM LOANS
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broadbased access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less
well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
S.G. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
COMMERCIAL PAPER
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser
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degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
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ANNEX B
AUCTION PROCEDURES
The following procedures will be set forth as Sections 1 through 8 of Part
II of the Acquiring Fund Statement. Capitalized terms used but not defined in
this Annex B have the meanings given them in Annex D to this Statement of
Additional Information.
1. ORDERS. (a) Prior to the Submission Deadline on each Auction Date for
shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for shares of such series
for the next succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner offers to sell if
the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series shall be less than the rate per
annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for shares of such series for the
next succeeding Rate Period of shares of such series; and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if any,
of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall not be less than the
rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to
the Auction Agent, of information referred to in clause (i)(A), (i)(B),
(i)(C) or (ii) of this paragraph (a) is hereinafter referred to as an
"Order" and collectively as "Orders" and each Beneficial Owner and each
Potential Beneficial Owner placing an Order with a Broker-Dealer, and
such Broker-Dealer placing an Order with the Auction Agent, is
hereinafter referred to as a "Bidder" and collectively as "Bidders"; an
Order containing the information referred to in clause (i)(A) of this
paragraph (a) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information
referred to in clause (i)(B) or (ii) of this paragraph (a) is
hereinafter referred to as a "Bid" and collectively as "Bids"; and an
Order containing the information referred to in clause (i)(C) of this
paragraph (a) is hereinafter referred to as a "Sell Order" and
collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of
a series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in
such Bid if the Applicable Rate for shares of such series determined on
such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such
series to be determined as set forth in clause (iv) of paragraph (a) of
Section 4 of this Part II if the Applicable Rate for shares of such
series determined on such Auction Date shall be equal to the rate
specified therein; or
(C) the number of Outstanding shares of such series specified in
such Bid if the rate specified therein shall be higher than the Maximum
Rate for shares of such series, or such number or a lesser number of
Outstanding shares of such series to be determined as set forth in
clause (iii) of paragraph (b) of Section 4 of this Part II if the rate
specified therein shall be higher than the Maximum Rate for shares of
such series and Sufficient Clearing Bids for shares of such series do
not exist.
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(ii) A Sell Order by a Beneficial Owner or an Existing Holder of
shares of a series of MuniPreferred subject to an Auction on any Auction
Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in
such Sell Order; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (iii) of paragraph (b) of Section 4 of
this Part II if Sufficient Clearing Bids for shares of such series do
not exist.
(iii) A Bid by a Potential Beneficial Owner or a Potential Holder of
shares of a series of MuniPreferred subject to an Auction on any Auction
Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in
such Bid if the Applicable Rate for shares of such series determined on
such Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (v) of paragraph (a) of Section 4 of this
Part II if the Applicable Rate for shares of such series determined on
such Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other than
whole shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of MuniPreferred
of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are the
subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares
of such series:
(A) the number of shares, if any, of such series subject to any
Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid
of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any
Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such
series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent shall round such rate
up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to
the Auction Agent prior to the Submission Deadline, the Auction Agent shall
deem a Hold Order to have been submitted by or on behalf of such Existing
Holder covering the number of Outstanding shares of such series held by
such Existing Holder and not subject to Orders submitted to the Auction
Agent; provided, however, that if an Order or Orders covering all of the
Outstanding shares of such series held by any Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline for an
Auction relating to a Special Rate Period consisting of more than 28 Rate
Period Days, the Auction Agent shall deem a Sell Order to have been
submitted by or on behalf of such Existing Holder covering the number of
outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
shares of MuniPreferred of a series subject to an Auction held by such
Existing Holder, such Orders shall be considered valid in the following
order of priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if
the number of shares of such series subject to such Hold Orders exceeds
the number of Outstanding shares of
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such series held by such Existing Holder, the number of shares subject
to each such Hold Order shall be reduced pro rata to cover the number of
Outstanding shares of such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares
of such series held by such Existing Holder over the number of shares of
such series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing
Holder for shares of such series is submitted to the Auction Agent with
the same rate and the number of Outstanding shares of such series
subject to such Bids is greater than such excess, such Bids shall be
considered valid up to and including the amount of such excess, and the
number of shares of such series subject to each Bid with the same rate
shall be reduced pro rata to cover the number of shares of such series
equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid of an
Existing Holder for shares of such series is submitted to the Auction
Agent with different rates, such Bids shall be considered valid in the
ascending order of their respective rates up to and including the amount
of such excess; and
(D) in any such event, the number, if any, of such Outstanding
shares of such series subject to any portion of Bids considered not
valid in whole or in part under this clause (ii) shall be treated as the
subject of a Bid for shares of such series by or on behalf of a
Potential Holder at the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares
of such series held by such Existing Holder over the sum of shares of
such series subject to valid Hold Orders referred to in clause (i) above
and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
MuniPreferred is submitted to the Auction Agent by or on behalf of any
Potential Holder, each such Bid submitted shall be a separate Bid with the
rate and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date, shall be
irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE. (a) Not earlier than the Submission Deadline on each Auction
Date for shares of a series of MuniPreferred, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over
the number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject to
Submitted Bids of Potential Holders specifying one or more rates equal
to or lower than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject to
Submitted Bids of Existing Holders specifying one or more rates higher
than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject to
Submitted Sell Orders (in the event such excess or such equality exists
(other than because the number of shares of such series in subclauses
(B) and (C) above is zero because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), such Submitted Bids in
subclause (A) above being hereinafter referred to collectively as
"Sufficient Clearing Bids" for shares of such series); and
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(iii) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for
shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders specifying such
lowest rate and (II) all other such Submitted Bids of Existing Holders
specifying lower rates were rejected, thus entitling such Existing
Holders to continue to hold the shares of such series that are subject
to such Submitted Bids; and
(B) (I) each such Submitted Bid of Potential Holders specifying
such lowest rate and (II) all other such Submitted Bids of Potential
Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in subclause
(B) above, would equal not less than the Available MuniPreferred of such
series.
(b) Promptly after the Auction Agent has made the determinations
pursuant to paragraph (a) of this Section 3, the Auction Agent shall advise
the Fund of the Maximum Rate for shares of the series of MuniPreferred for
which an Auction is being held on the Auction Date and, based on such
determination, the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist,
that the Applicable Rate for all shares of such series for the next
succeeding Rate Period thereof shall be equal to the Winning Bid Rate
for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not
exist (other than because all of the Outstanding shares of such series
are subject to Submitted Hold Orders), that the Applicable Rate for all
shares of such series for the next succeeding Rate Period thereof shall
be equal to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject
to Submitted Hold Orders, that the Applicable Rate for all shares of
such series for the next succeeding Rate Period thereof shall be equal
to the lesser of the Kenny Index (if such Rate Period consists of fewer
than 183 Rate Period Days) or the product of (A)(I) the "AA" Composite
Commercial Paper Rate on such Auction Date for such Rate Period, if such
Rate Period consists of fewer than 183 Rate Period Days; (II) the
Treasury Bill Rate on such Auction Date for such Rate Period, if such
Rate Period consists of more than 182 but fewer than 365 Rate Period
Days; or (III) the Treasury Note Rate on such Auction Date for such Rate
Period, if such Rate Period is more than 364 Rate Period Days (the rate
described in the foregoing clause (A) (I), (II) or (III), as applicable,
being referred to herein as the "Benchmark Rate") and (B) 1 minus the
maximum marginal regular Federal income tax rate, if any, applicable to
ordinary income or the maximum marginal regular Federal corporate income
tax rate applicable to ordinary income, whichever is greater; provided,
however, that if the Fund has notified the Auction Agent of its intent
to allocate to shares of such series in such Rate Period any net capital
gains or other income taxable for Federal income tax purposes ("Taxable
Income"), the Applicable Rate for shares of such series for such Rate
Period will be (i) if the Taxable Yield Rate (as defined below) is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the
Taxable Yield Rate is less than or equal to the Benchmark Rate, then the
rate equal to the sum of (x) the lesser of the Kenny Index (if such Rate
Period consists of fewer than 183 Rate Period Days) or the product of
the Benchmark Rate multiplied by the factor set forth in the preceding
clause (B) and (y) the product of the maximum marginal regular Federal
income tax rate, if any, applicable to ordinary income (taking into
account the Federal income tax deductibility of state taxes paid or
incurred) or the maximum marginal regular Federal corporate income tax
applicable to ordinary income, whichever is greater, multiplied by the
Taxable Yield Rate. For purposes of the foregoing, Taxable Yield Rate
means the rate determined by (a) dividing the amount of Taxable Income
available for distribution per such share of MuniPreferred by the number
of days in the Dividend Period in respect of which such Taxable Income
is contemplated to be distributed, (b) multiplying the amount determined
in (a) above by 365 (in the case of a Dividend Period of 7 Rate Period
Days) or 360 (in the case of any other Dividend Period), and (c)
dividing the amount determined in (b) above by $25,000.
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Existing Holders shall continue to hold the shares of
MuniPreferred that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 3 of this Part II, the
Submitted Bids and
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Submitted Sell Orders shall be accepted or rejected by the Auction Agent and the
Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series MuniPreferred have
been made, all Submitted Sell Orders with respect to shares of such series shall
be accepted and, subject to the provisions of paragraphs (d) and (e) of this
Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares of
such series shall be accepted, thus requiring each such Existing Holder to
sell the shares of MuniPreferred subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder to
continue to hold the shares of MuniPreferred subject to such Submitted
Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be rejected, thus entitling such Existing Holder to continue
to hold the shares of MuniPreferred subject to such Submitted Bid, unless
the number of Outstanding shares of MuniPreferred subject to all such
Submitted Bids shall be greater than the number of shares of MuniPreferred
("remaining shares") in the excess of the Available MuniPreferred of such
series over the number of shares of MuniPreferred subject to Submitted Bids
described in clauses (ii) and (iii) of this paragraph (a), in which event
such Submitted Bid of such Existing Holder shall be rejected in part, and
such Existing Holder shall be entitled to continue to hold shares of
MuniPreferred subject to such Submitted Bid, but only in an amount equal to
the number of shares of MuniPreferred of such series obtained by
multiplying the number of remaining shares by fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred held by
such Existing Holder subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding shares of MuniPreferred
subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate for shares of such series;
and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be accepted but only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares in the
excess of the Available MuniPreferred of such series over the number of
shares of MuniPreferred subject to Submitted Bids described in clauses (ii)
through (iv) of this paragraph (a) by a fraction, the numerator of which
shall be the number of Outstanding shares of MuniPreferred subject to such
Submitted Bid and the denominator of which shall be the aggregate number of
Outstanding shares of MuniPreferred subject to such Submitted Bids made by
all such Potential Holders that specified a rate equal to the Winning Bid
Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series
specifying any rate that is higher than the Maximum Rate for shares of such
series and the Submitted Sell Orders for shares of such series of each
Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted or on whose behalf was submitted any such Submitted Bid or
Submitted Sell Order to sell the shares of such series subject to such
Submitted Bid or Submitted Sell Order, but in both cases only in an amount
equal to the number of shares of such series obtained by multiplying the
number of shares of such series subject to Submitted Bids described in
clause (ii) of this paragraph (b) by a fraction, the numerator of which
shall be the number of Outstanding shares of such series held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order and
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the denominator of which shall be the aggregate number of Outstanding
shares of such series subject to all such Submitted Bids and Submitted Sell
Orders.
(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to Submitted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as it
shall determine in its sole discretion, round up or down the number of shares of
MuniPreferred of such series to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date as a result of such procedures so that the
number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole shares of MuniPreferred.
(e) If, as a result of the procedures described in clause (v) of paragraph
(a) of this Section 4, any Potential Holder would be entitled or required to
purchase less than a whole share of a series of MuniPreferred on any Auction
Date, the Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate shares of MuniPreferred of such series for purchase among
Potential Holders so that only whole shares of MuniPreferred of such series are
purchased on such Auction Date as a result of such procedures by any Potential
Holder, even if such allocation results in one or more Potential Holders not
purchasing shares of MuniPreferred of such series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of shares
of such series to be purchased and the aggregate number of shares of such series
to be sold by Potential Holders and Existing Holders and, with respect to each
Potential Holder and Existing Holder, to the extent that such aggregate number
of shares to be purchased and such aggregate number of shares to be sold differ,
determine to which other Potential Holder(s) or Existing Holder(s) they shall
deliver, or from which other Potential Holder(s) or Existing Holder(s) they
shall receive, as the case may be, shares of MuniPreferred of such series.
5. Notification of Allocations. Whenever the Fund intends to include any
net capital gains or other income taxable for Federal income tax purposes in any
dividend on shares of MuniPreferred, the Fund shall, in the case of a Minimum
Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and may,
in the case of any other Special Rate Period, notify the Auction Agent of the
amount to be so included not later than the Dividend Payment Date next preceding
the Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Fund, it
will be required in turn to notify each Broker-Dealer, who, on or prior to such
Auction Date, in accordance with its Broker-Dealer Agreement, will be required
to notify its Beneficial Owners and Potential Beneficial Owners of shares of
MuniPreferred believed by it to be interested in submitting an Order in the
Auction to be held on such Auction Date.
6. Auction Agent. For so long as any shares of MuniPreferred are
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Fund and its affiliates (which however, may engage or have
engaged in business transactions with the Fund or its affiliates) and at no time
shall the Fund or any of its affiliates act as the Auction Agent in connection
with the Auction Procedures. If the Auction Agent resigns or for any reason its
appointment is terminated during any period that any shares or MuniPreferred are
outstanding, the Board of Directors shall use its best efforts promptly
thereafter to appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent.
7. Transfer of Share of MuniPreferred. Unless otherwise permitted by the
Fund, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of shares of MuniPreferred only in whole shares and only pursuant to a
Bid or Sell Order placed with the Auction Agent in accordance with the
procedures described in this Part II or to a Broker-Dealer; provided, however,
that in the case of all transfers other than pursuant to Auctions, (i) any such
Beneficial Owner or any such Existing Holder that is not a Broker-Dealer shall
advise its Broker-Dealer of such transfer who in turn shall advise the Auction
Agent of such transfer and (ii) any such Existing Holder that is a Broker-Dealer
shall advise the Auction Agent of such transfer.
8. Global Certificate. Prior to the commencement of a Voting Period, (i)
all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the name of the
Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of MuniPreferred shall be made on the books of the Fund to
any Person other than the Securities Depository or its nominee.
B-6
<PAGE> 144
ANNEX C
SETTLEMENT PROCEDURES
Capitalized terms used but not defined in this Annex C have the meanings
given them in Annex B or D to this Statement of Additional Information.
(a) On each Auction Date for shares of a series of MuniPreferred, the
Auction Agent shall notify by telephone the Broker-Dealers that participated in
the Auction for shares of such series held on such Auction Date and submitted an
Order to the Auction Agent for shares of such series as or on behalf of an
Existing Holder or Potential Holder of:
(i) the Applicable Rate for shares of such series fixed for the next
succeeding Rate Period of such shares;
(ii) whether Sufficient Clearing Bids existed for the determination of
the Applicable Rate for shares of such series;
(iii) if such Broker-Dealer submitted a Bid or a Sell Order to the
Auction Agent for shares of such series as or on behalf of an Existing
Holder, whether such Bid or Sell Order was accepted of rejected, in whole
or in part, and the number of shares, if any, of such series then
outstanding to be sold by such Existing Holder;
(iv) if such Broker-Dealer submitted a Bid to the Auction Agent for
shares of such series as or on behalf of a Potential Holder, whether such
Bid was accepted or rejected, in whole or in part, and the number of
shares, if any, of such series to be purchased by such Potential Holder;
(v) if the aggregate number of shares of such series to be sold by all
Existing Holders with respect to whom such Broker-Dealer submitted Bids or
Sell Orders to the Auction Agent for shares of such series is different
than the aggregate number of shares of such series to be purchased by all
Potential Holders with respect to whom such Broker-Dealer submitted Bids to
the Auction Agent for shares of such series, the name or names of one or
more other Broker-Dealers (and the Agent Member, if any, of each such
Broker-Dealer) and the number of shares of such series to be (x) purchased
from one or more Existing Holders with respect to whom such other
Broker-Dealers submitted Bids or Sell Orders to the Auction Agent for
shares of such series, or (y) sold to one or more Potential Holders with
respect to whom such Broker-Dealers submitted Bids to the Auction Agent for
shares of such series; and
(vi) the scheduled Auction Date of the next succeeding Auction for
shares of such series.
(b) On each Auction Date for shares of a series of MuniPreferred, each
Broker-Dealer that submitted an Order to the Auction Agent for shares of such
series as or on behalf of any Existing Holder or Potential Holder shall:
(i) advise each Existing Holder and Potential Holder (and each
Beneficial Owner and Potential Beneficial Owner) with respect to whom such
Broker-Dealer submitted a Bid or Sell Order to the Auction Agent for shares
of such series whether such Bid or Sell Order was accepted or rejected, in
whole or in part;
(ii) instruct each Potential Holder (and each Potential Beneficial
Owner) with respect to whom such Broker-Dealer submitted a Bid to the
Auction Agent for shares of such series that was accepted, in whole or in
part, to instruct such Bidder's Agent Member to pay to such Broker-Dealer
(or its Agent Member) through the Securities Depository the amount
necessary to purchase the number of shares of such series to be purchased
pursuant to such Bid against receipt of shares of such series;
(iii) instruct each Existing Holder (and each Beneficial Owner) with
respect to whom such Broker-Dealer submitted a Bid to the Auction Agent for
shares of such series that was accepted, in whole or in part, or a Sell
Order for shares of such series that was accepted, in whole or in part, to
instruct such Bidder's Agent Member to deliver to such Broker-Dealer (or
its Agent Member) through the Securities Depository the number of shares of
such series to be sold pursuant to such Bid or Sell Order against payment
therefor;
(iv) advise each Existing Holder (and each Beneficial Owner) with
respect to whom such Broker-Dealer submitted an Order to the Auction Agent
for shares of such series and each Potential Holder (and each Potential
Beneficial Owner) with respect to whom such Broker-Dealer submitted a Bid
to the Auction Agent for shares of such series of the Applicable Rate for
shares of such series for the next succeeding Rate Period of shares of such
series;
C-1
<PAGE> 145
(v) advise each Existing Holder (and each Beneficial Owner) with
respect to whom such Broker-Dealer submitted an Order to the Auction Agent
for shares of such series of the Auction Date of the next succeeding
Auction for shares of such series; and
(vi) advise each Potential Holder (and each Potential Beneficial
Owner) with respect to whom such Broker-Dealer submitted a Bid to the
Auction Agent for shares of such series that was accepted, in whole or in
part, of the Auction Date of the next succeeding Auction for shares of such
series.
(c) On the basis of the information provided to it pursuant to paragraph
(a) above, each Broker-Dealer that submitted a Bid or Sell Order to the Auction
Agent for any shares of a series of MuniPreferred shall allocate any funds
received by it (or its Agent Member) in respect of shares of such series
pursuant to paragraph (b)(ii) above and any shares of such series received by it
(or its Agent Member) pursuant to paragraph (b)(iii) above among the Potential
Holders and Potential Beneficial Owners, if any, with respect to whom such
Broker-Dealer submitted Bids to the Auction Agent for shares of such series, the
Existing Holders and Beneficial Owners, if any, with respect to whom such
Broker-Dealer submitted Bids or Sell Orders to the Auction Agent for shares of
such series, and any Broker-Dealer identified to it by the Auction Agent
pursuant to paragraph (a)(v) above.
(d) On the Business Day after the Auction Date, the Securities Depository
shall execute the transactions described above, debiting and crediting the
accounts of the respective Agent Members as necessary to effect the purchases
and sale of shares of a series of MuniPreferred as determined in the Auction for
shares of such series.
C-2
<PAGE> 146
ANNEX D
GLOSSARY OF TERMS
Capitalized terms used but not defined in this Annex D have the meanings
given them in the text of this Statement of Additional Information
Statement--Prospectus.
" 'AA' COMPOSITE COMMERCIAL PAPER RATE" shall have the meaning set forth on
page S-34 of this Statement of Additional Information.
"ACQUIRED FUND" shall have the meaning set forth on page S-1 of this
Statement of Additional Information.
"ACQUIRING FUND" shall have the meaning set forth on page S-1 of this
Statement of Additional Information.
"ACQUIRING FUND SHARES" shall have the meaning set forth on page S-1 of
this Statement of Additional Information.
"ACQUIRING FUND STATEMENT" shall have the meaning set forth on page S-13 of
this Statement of Additional Information.
"ADVISER" shall mean Nuveen Advisory Corp.
"AFFILIATE" shall mean, for purposes of the definition of "Outstanding,"
any Person known to the Auction Agent to be controlled by, in control of or
under common control with the Fund; provided, however, that no Broker-Dealer
controlled by, in control of or under common control with the Fund shall be
deemed to be an Affiliate nor shall any corporation or any Person controlled by,
in control of or under common control with such corporation one of the
directors, trustees or executive officers of which is a trustee of the Fund be
deemed to be an Affiliate solely because such director, trustee or executive
officer is also a trustee of the Fund.
"AGENT MEMBER" shall have the meaning set forth on page S-31 of this
Statement of Additional Information.
"AGREEMENT" shall have the meaning set forth on page S-1 of this Statement
of Additional Information.
"ALL HOLD ORDER RATE" shall have the meaning set forth on page S-37 of this
Statement of Additional Information.
"ANTICIPATION NOTES" shall mean the following obligations: Tax Anticipation
Notes (TANs), Revenue Anticipation Notes (RANs), Tax and Revenue Anticipation
Notes (TRANs), Grant Anticipation Notes (GANs) that are rated by S&P and Bond
Anticipation Notes (BANs) that are rated by S&P.
"APPLICABLE RATE" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"AUCTION" shall have the meaning set forth on page S-29 of this Statement
of Additional Information.
"AUCTION AGENCY AGREEMENT" shall have the meaning set forth on page S-30 of
this Statement of Additional Information.
"AUCTION AGENT" shall mean the entity appointed as such by a resolution of
the Board.
"AUCTION DATE" shall have the meaning set forth on page S-29 of this
Statement of Additional Information.
"AUCTION PROCEDURES" shall have the meaning set forth on page S-29 of this
Statement of Additional Information.
"AVAILABLE MUNIPREFERRED" shall have the meaning set forth on page S-37 of
this Statement of Additional Information.
"BENCHMARK RATE" shall have the meaning set forth on page S-37 of this
Statement of Additional Information.
"BENEFICIAL OWNER" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"BID" shall have the meaning set forth on page S-31 of this Statement of
Additional Information.
"BIDDER" or "BIDDERS" shall have the respective meanings set forth on page
S-32 of this Statement of Additional Information.
"BOARD OF DIRECTORS" or "BOARD," with respect to the Acquired Fund, shall
mean the Board of Directors of that Fund or any duly authorized committee
thereof.
D-1
<PAGE> 147
"BOARD OF TRUSTEES" or "BOARD," with respect to the Acquiring Fund, shall
mean the Board of Trustees of that Fund or any duly authorized committee
thereof.
"BROKER-DEALER" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-Dealer,
that is a member of, or a participant in, the Securities Depository or is an
affiliate of such member or participant, has been selected by the Acquiring Fund
and has entered into a Broker-Dealer Agreement that remains effective.
"BROKER-DEALER AGREEMENT" shall have the meaning set forth on page S-30 of
this Statement of Additional Information.
"BUSINESS DAY" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"CEDE" shall mean Cede & Co.
"CFTC" shall have the meaning set forth on page S-10 of this Statement of
Additional Information.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLATERALIZED OBLIGATIONS" shall have the meaning set forth on page S-3
of this Statement of Additional Information.
"COMMERCIAL PAPER DEALERS" shall have the meaning set forth on page S-34 of
this Statement of Additional Information.
"COMMISSION" shall have the meaning set forth on page S-9 of this Statement
of Additional Information.
"CURE DATE" shall have the meaning set forth on page S-27 of this Statement
of Additional Information.
"DATE OF ORIGINAL ISSUE" shall have the meaning set forth on page S-30 of
this Statement of Additional Information.
"DECLARATION" shall have the same meaning set forth on page S-13 of this
Statement of Additional Information.
"DEPOSIT SECURITIES" shall have the meaning set forth on pages S-27 of this
Statement of Additional Information.
"DISCOUNT FACTOR" shall mean a Moody's Discount Factor or an S&P Discount
Factor, as the case may be.
"DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with respect
to an S&P Eligible Asset, the quotient of the market value thereof divided by
the applicable S&P Discount Factor and (ii) (a) with respect to a Moody's
Eligible Asset that is not currently callable as of such Valuation Date at the
option of the issuer thereof, the quotient of the market value thereof divided
by the applicable Moody's Discount Factor, or (b) with respect to a Moody's
Eligible Asset that is currently callable as of such Valuation Date at the
option of the issuer thereof, the quotient of (1) the lesser of the market value
or call price thereof, including any call premium, divided by (2) the applicable
Moody's Discount Factor.
"DIVIDEND PAYMENT DATE" shall have the meaning set forth on page S-30 of
this Statement of Additional Information.
"DIVIDEND PERIOD" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"DTC" shall have the meaning set forth on page S-30 of this Statement of
Additional Information.
"EFFECTIVE TIME" shall mean the time as of which the Reorganization is
consummated.
"ELIGIBLE ASSETS" shall mean Moody's Eligible Assets or S&P Eligible
Assets, as the case may be.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXISTING HOLDER" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"FAILURE TO DEPOSIT," with respect to shares of a series of Acquiring Fund
MuniPreferred, shall mean a failure by the Acquiring Fund to pay to the Auction
Agent, not later than 12:00 Noon, New York City time, (A) on the Business Day
next preceding any Dividend Payment Date for shares of such series, in funds
available on such Dividend Payment Date in The City of New York, New York, the
full amount of any dividend (whether or not earned or declared) to be paid on
such Dividend Payment Date on any share of such series or (B) on the Business
Day next preceding any redemption date in funds available on such redemption
date for shares of such series in The
D-2
<PAGE> 148
City of New York, New York, the Redemption Price to be paid on such redemption
date for any share of such series after Notice of Redemption is mailed as set
forth in the Joint Proxy Statement Prospectus, including this Statement of
Additional Information; provided, however, that the foregoing clause (B) shall
not apply to the Fund's failure to pay the Redemption Price in respect of shares
of Acquiring Fund MuniPreferred when the related Notice of Redemption provides
that redemption of such shares is subject to one or more conditions precedent
and any such condition precedent shall not have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.
"FISCAL AGENT" shall have the meaning set forth on page S-4 of this
Statement of Additional Information.
"FUND" shall mean the Acquiring Fund or, where the context requires, the
Acquired Fund.
"GROSS-UP PAYMENT" shall have the meaning set forth on page S-16 of this
Statement of Additional Information.
"HOLD ORDER" shall have the meaning set forth on page S-31 of this
Statement of Additional Information.
"HOLDER," with respect to shares of a series of Acquiring Fund
MuniPreferred, shall mean the registered holder of such shares as the same
appears on the record books of the Fund.
"INITIAL RATE PERIOD" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"IRS" shall mean the Internal Revenue Service.
"KENNY INDEX" has the meaning set forth on page S-34 of this Statement of
Additional Information.
"LATE CHARGE" shall have the meaning set forth on page S-15 of this
Statement of Additional Information.
"LIQUIDATION PREFERENCE," with respect to a given number of shares of
Acquiring Fund MuniPreferred, shall mean $25,000 times that number.
"MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY" shall have the meaning set
forth on page S-22 of this Statement of Additional Information.
"MAXIMUM RATE" shall have the meaning set forth on page S-33 of this
Statement of Additional Information.
"MINIMUM RATE PERIOD" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
"MOODY'S DISCOUNT FACTORS" shall have the meaning set forth on page S-24 of
this Statement of Additional Information.
"MOODY'S ELIGIBLE ASSETS" shall have the meaning set forth on page S-24 of
this Statement of Additional Information.
"MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a given
Valuation Date and ending 56 days thereafter.
"MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i) in
the case of any Minimum Rate Period, any Special Rate Period of 28 Rate Period
Days or fewer, or any Special Rate Period of 57 Rate Period Days or more, a
multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%. If, as a result of the enactment of changes to the Code,
the greater of the maximum marginal Federal individual income tax rate
applicable to ordinary income and the maximum marginal Federal corporate income
tax rate applicable to ordinary income will increase, such increase being
rounded up to the next five percentage points (the "Federal Tax Rate
D-3
<PAGE> 149
Increase"), until the effective date of such increase, the Moody's Volatility
Factor in the case of any Rate Period described in (i) above in this definition
instead shall be determined by reference to the following table:
<TABLE>
<CAPTION>
FEDERAL
TAX RATE VOLATILITY
INCREASE FACTOR
- -------- ----------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
</TABLE>
"MUNICIPAL LEASE OBLIGATION" shall have the meaning set forth on page S-6
of this Statement of Additional Information.
"MUNICIPAL OBLIGATION" shall mean "Municipal Obligation" as defined in the
Joint Proxy Statement-- Prospectus, including this Statement of Additional
Information.
"MUNIPREFERRED" shall mean the Municipal Auction Rate Cumulative Preferred
Shares of the Acquiring Fund or, when the context requires, the Municipal
Auction Rate Cumulative Preferred Shares of the Acquired Fund.
"MUNIPREFERRED BASIC MAINTENANCE AMOUNT," shall have the meaning set forth
on page S-22 of this Statement of Additional Information.
"MUNIPREFERRED BASIC MAINTENANCE CURE DATE" shall have the meaning set
forth on page S-22 of this Statement of Additional Information.
"MUNIPREFERRED BASIC MAINTENANCE REPORT" shall have the meaning set forth
on page S-23 of this Statement of Additional Information.
"1940 ACT" shall mean the Investment Company Act of 1940, as amended.
"1940 ACT CURE DATE" shall have the meaning set forth on page S-21 of this
Statement of Additional Information.
"1940 ACT MUNIPREFERRED ASSET COVERAGE" shall have the meaning set forth on
page S-21 of this Statement of Additional Information.
"NOTICE OF REDEMPTION" shall have the meaning set forth on page S-28 of
this Statement of Additional Information.
"NOTICE OF SPECIAL RATE PERIOD" shall have the meaning set forth on page
S-19 of this Statement of Additional Information.
"NUVEEN" shall mean John Nuveen & Co. Incorporated.
"NYSE" shall mean the New York Stock Exchange.
"ORDER" and "ORDERS" shall have the respective meanings set forth on page
S-32 of this Statement of Additional Information.
"ORIGINAL ISSUE INSURANCE" shall have the meaning set forth on pages S-2 of
this Statement of Additional Information.
"OTHER ISSUES" shall have the meaning set forth on page S-25 of this
Statement of Additional Information.
"OUTSTANDING" shall mean, as of any Auction Date with respect to shares of
a series of Acquiring Fund MuniPreferred, the number of shares of such series
theretofore issued by the Acquiring Fund except, without duplication, (i) any
shares of such series theretofore cancelled or delivered to the Auction Agent
for cancellation or redeemed by the Acquiring Fund, (ii) any shares of such
series as to which the Acquiring Fund or any Affiliate thereof shall be an
Existing Holder and (iii) any shares of such series represented by any
certificate in lieu of which a new certificate has been executed and delivered
by the Acquiring Fund.
"PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
D-4
<PAGE> 150
"PORTFOLIO INSURANCE" shall have the same meaning set forth on pages S-2
and S-3 of this Statement of Additional Information.
"POTENTIAL BENEFICIAL OWNER" shall have the meaning set forth on page S-30
of this Statement of Additional Information.
"POTENTIAL HOLDER" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"RATE MULTIPLE" shall have the meaning set forth on page S-35 of this
Statement of Additional Information.
"RATE PERIOD" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"RATE PERIOD DAYS" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD," for purposes of calculating
Moody's Eligible Assets or S&P Eligible Assets, as the case may be, shall have
the meaning set forth on pages S-25 and S-24 of this Statement of Additional
Information, respectively.
"REDEMPTION PRICE" shall have the meaning set forth on page S-27 of this
Statement of Additional Information.
"REFERENCE RATE" shall have the meaning set forth on page S-33 of this
Statement of Additional Information.
"REORGANIZATION" shall have the meaning set forth on page 1 of this
Statement of Additional Information.
"S&P" shall mean Standard & Poor's, a division of McGraw Hill Companies,
and its successors.
"S&P DISCOUNT FACTORS" shall have the meaning set forth on page S-23 of
this Statement of Additional Information.
"S&P ELIGIBLE ASSETS" shall have the meaning set forth on page S-23 of this
Statement of Additional Information.
"S&P EXPOSURE PERIOD" shall have the meaning set forth on page S-23 of this
Statement of Additional Information.
"S&P VOLATILITY FACTOR" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period
or any Special Rate Period of 28 Rate Period Days or fewer; (ii) 268% in the
case of any Special Rate Period of more than 28 Rate Period Days but fewer than
183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of
more than 182 Rate Period Days.
"SECONDARY MARKET INSURANCE" shall have the same meaning set forth on page
S-2 of this Statement of Additional Information.
"SECURITIES DEPOSITORY" shall mean DTC and its successors and assigns or
any other securities depository selected by the Acquiring Fund which agrees to
follow the procedures required to be followed by such securities depository in
connection with shares of Acquiring Fund MuniPreferred.
"SELL ORDER" shall have the meaning set forth on page S-31 of this
Statement of Additional Information.
"SPECIAL RATE PERIOD" shall have the meaning set forth on page S-30 of this
Statement of Additional Information.
"SPECIAL REDEMPTION PROVISIONS" has the meaning set forth on page S-26 of
this Statement of Additional Information.
"SUBMISSION DEADLINE" shall have the meaning set forth on page S-36 of this
Statement of Additional Information.
"SUBMITTED BID" AND "SUBMITTED BIDS" shall have the respective meanings set
forth on page S-37 of this Statement of Additional Information.
"SUBMITTED HOLD ORDER" AND "SUBMITTED HOLD ORDERS" shall have the
respective meanings set forth on page S-37 of this Statement of Additional
Information.
"SUBMITTED ORDER" AND "SUBMITTED ORDERS" shall have the respective meanings
set forth on page S-37 of this Statement of Additional Information.
D-5
<PAGE> 151
"SUBMITTED SELL ORDER" AND "SUBMITTED SELL ORDERS" shall have the
respective meanings set forth on page S-37 of this Statement of Additional
Information.
"SUBSEQUENT RATE PERIOD" shall have the meaning set forth on page S-30 of
this Statement of Additional Information.
"SUBSTITUTE COMMERCIAL PAPER DEALER" shall have the meaning set forth on
page S-35 of this Statement of Additional Information.
"SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall have the meaning set
forth on page S-35 of this Statement of Additional Information.
"SUFFICIENT CLEARING BIDS" shall have the meaning set forth on page S-37 of
this Statement of Additional Information.
"TAXABLE ALLOCATION" shall have the meaning set forth on page S-16 of this
Statement of Additional Information.
"TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE" have the meaning
set forth on page S-34 of this Statement of Additional Information.
"TAXABLE INCOME" shall have the meaning set forth on pages S-37 and S-38 of
this Statement of Additional Information.
"TAXABLE YIELD RATE" shall have the meaning set forth on page S-38 of this
Statement of Additional Information.
"TREASURY BILL" shall have the meaning set forth on page S-35 of this
Statement of Additional Information.
"TREASURY BILL RATE," shall have the meaning set forth on page S-35 of this
Statement of Additional Information.
"TREASURY NOTE" shall have the meaning set forth on page S-35 of this
Statement of Additional Information.
"TREASURY NOTE RATE," shall have the meaning set forth on page S-35 of this
Statement of Additional Information.
"U.S. GOVERNMENT SECURITIES DEALER" shall have the meaning set forth on
page S-35 of this Statement of Additional Information.
"VALUATION DATE" shall have the meaning set forth on page S-22 of this
Statement of Additional Information.
"VOLATILITY FACTOR" shall mean, as of any Valuation Date, the greater of
the Moody's Volatility Factor and the S&P Volatility Factor.
"WINNING BID RATE" shall have the meaning set forth on page S-37 of this
Statement of Additional Information.
D-6
<PAGE> 152
ANNEX E
PORTFOLIO INSURANCE
Set forth below is a brief description of the following municipal bond
insurers with whom each Fund may obtain municipal insurance policies covering
each Fund's Municipal Obligations: AMBAC Indemnity Corporation ("AMBAC
Indemnity"), Financial Security Assurance Inc. ("Financial Security"), MBIA
Insurance Corporation ("MBIA") and Financial Guaranty Insurance Company
("Financial Guaranty").
The above municipal bond insurers have insurance claims-paying ability
ratings of AAA from Standard & Poor's Rating Group, a division of McGraw Hill
("S&P") and Aaa from Moody's Investors Service, Inc. ("Moody's"). In addition,
each Fund may purchase municipal insurance policies from other municipal bond
insurers not described in this Annex E, but only if such other insurers have
total admitted assets of at least $75 million, capital and surplus of at least
$50 million and claims-paying ability ratings of both AAA from S&P and Aaa from
Moody's. Each Fund currently intends to obtain insurance policies only from
mono-line insurers specializing in insuring municipal debt.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is adjudged by S&P to be extremely strong
and highly likely to remain so over a long period of time. A Moody's insurance
claims-paying ability rating is an opinion of the ability of an insurance
company to repay punctually senior policyholder obligations and claims. An
insurer with an insurance claims-paying ability rating of Aaa is adjudged by
Moody's to be of the best quality. In the opinion of Moody's, the policy
obligations of an insurance company with an insurance claims-paying ability
rating of Aaa carry the smallest degree of credit risk and, while the financial
strength of these companies is likely to change, such changes as can be
visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating by S&P or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment, nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
The assignment of ratings by S&P or Moody's to debt issues that are fully
or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
S&P's and Moody's ratings are not recommendations to buy, sell or hold the
Municipal Obligations insured by policies issued by AMBAC Indemnity, Financial
Security, MBIA or Financial Guaranty and such ratings may be subject to revision
or withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of either or both ratings may have an adverse effect on the market
price of the Municipal Obligations insured by policies issued by AMBAC
Indemnity, Financial Security, MBIA or Financial Guaranty.
S&P's ratings of AMBAC Indemnity, Financial Security, MBIA and Financial
Guaranty should be evaluated independently of Moody's ratings. Any further
explanation as to the significance of the ratings may be obtained only from the
applicable rating agency.
The following information has been furnished by AMBAC Indemnity, Financial
Security, MBIA and Financial Guaranty, respectively, for use in this Statement
of Additional Information.
AMBAC INDEMNITY CORPORATION
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in 50 states, the District of Columbia and
the Commonwealth of Puerto Rico, with admitted assets of approximately
$2,440,000,000 (unaudited) and statutory capital of approximately $1,387,000,000
(unaudited) as of March 31, 1996. Statutory capital consists of AMBAC
Indemnity's policyholders' surplus and statutory contingency reserve. AMBAC
Indemnity is a wholly-owned subsidiary of AMBAC Inc., a 100% publicly-held
company. Moody's Investors Service, Inc., Standard & Poor's Corporation and
Fitch Investors Service, Inc. have each assigned a triple-A claims-paying
ability rating to AMBAC Indemnity.
E-1
<PAGE> 153
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity. The
address of AMBAC Indemnity's administrative offices and its telephone number are
One State Street Plaza, 17th Floor, New York, New York 10004 and (212) 668-0340.
FINANCIAL SECURITY ASSURANCE INC.
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in financial guaranty insurance business in all 50 states, the District
of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities, thereby enhancing the credit rating of those securities, in
consideration for payment of premiums to the insurer. Financial Security and its
subsidiaries principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by residential
mortgage loans, consumer or trade receivables, securities or other assets having
an ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments.
Financial Security insures both newly issued securities sold in the primary
market and outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
As of March 31, 1996, the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively, of Financial
Security and its consolidated subsidiaries were, in accordance with statutory
accounting principles, approximately $650,052,000 (unaudited) and $387,239,000
(unaudited), and the total shareholders' equity and the total unearned premium
reserve, respectively, of Financial Security and its consolidated subsidiaries
were, in accordance with generally accepted accounting principles, approximately
$779,177,000 (unaudited) and $340,226,000 (unaudited). Copies of Financial
Security's financial statements may be obtained by writing to Financial Security
at 350 Park Avenue, New York, New York 10022, Attention: Communications
Department, Financial Security's telephone number is (212) 826-0100. Pursuant to
an intercompany agreement, liabilities on financial guaranty insurance written
by Financial Security of any of its domestic operating insurance company
subsidiaries are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, Financial
Security reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with unaffiliated reinsurers under various quota
share treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements. It does not alter or limit
Financial Security's obligations under any financial guaranty insurance policy.
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
MBIA, formerly known as Municipal Bond Investors Assurance Corporation, is
the principal operating subsidiary of MBIA, Inc., a New York Stock Exchange
listed company. MBIA, Inc. is not obligated to pay the debts of or claims
against MBIA. MBIA is a limited liability corporation rather than a several
liability association. MBIA is domiciled in the State of New York and licensed
to do business to all 50 states, the District of Columbia, the Commonwealth of
Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin
Islands of the United States and the Territory of Guam. The Insurer has one
European branch in the Republic of France.
As of December 31, 1995, MBIA had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total capital and
surplus of $1.3 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1996, MBIA had admitted assets of $4.0 billion
(unaudited), total liabilities of $2.7 billion (unaudited), and total capital
and surplus of $1.3 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA's year end financial statements prepared in
accordance with
E-2
<PAGE> 154
statutory accounting practices are available from MBIA. The address of MBIA is
113 King Street, Armonk, New York 10504.
MBIA's policy unconditionally and irrevocably guarantees to each Fund the
full and complete payment required to be made by or on behalf of the issuer to
the applicable paying agent or its successor of an amount equal to (i) the
principal of (either at the stated maturity or by advancement of maturity
pursuant to a mandatory sinking fund payment) and interest on, the Municipal
Obligations as such payments shall become due but shall not be so paid (except
that in the event of any acceleration of the due date of such principal by
reason of mandatory or optional redemption or acceleration resulting from
default or otherwise, other than any advancement of maturity pursuant to a
mandatory sinking fund payment, the payments guaranteed by MBIA's policy shall
be made in such amounts and at such times as such payments of principal would
have been due had there not been any such acceleration) and (ii) the
reimbursement of any such payment which is subsequently recovered from the Fund
of the Municipal Obligations pursuant to a final judgment by a court of
competent jurisdiction that such payment constitutes an avoidable preference to
the Fund within the meaning of any applicable bankruptcy law (a "Preference").
MBIA's policy does not insure against loss of any prepayment premium which
may at any time by payable with respect to any Municipal Obligation. MBIA's
policy does not, under any circumstance, insure against loss relating to: (i)
optional or mandatory redemptions (other than mandatory sinking fund
redemptions); (ii) any payments to be made on an accelerated basis; (iii)
payments of the purchase price of Municipal Obligations upon tender thereof; or
(iv) any Preference relating to (i) through (iii) above. MBIA's policy also does
not insure against nonpayment of principal of or interest on the Municipal
Obligations resulting from the insolvency, negligence or any other act or
omission of any paying agent for the Municipal Obligations.
With respect to small issue industrial development bonds and pollution
control revenue bonds covered by the policy, MBIA guarantees the full and
complete payments required to be made by or on behalf of an issuer of such bonds
if there occurs pursuant to the terms of the bonds an event which results in the
loss of the tax-exempt status of interest on such bonds, including principal,
interest or premium payments payable thereon, if any, as and when required to be
made by or on behalf of the issuer pursuant to the terms of such bonds.
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by MBIA from the paying agent or a Fund
that a required payment of any insured amount which is then due, that such
required payment has not been made, MBIA on the due date of such payment or
within one business day after receipt of notice of such nonpayment, whichever is
later, will make a deposit of funds, in an account with Citibank, N.A., in New
York, New York, or its successor, sufficient for the payment of any such insured
amounts which are then due. Upon presentment and surrender of such Municipal
Obligations or presentment of such other proof of ownership of the Municipal
Obligations, together with any appropriate instruments of assignment to evidence
the assignment of the insured amounts due on the Municipal Obligations as are
paid by MBIA, and appropriate instruments to effect the appointment of MBIA as
agent for a Fund in any legal proceeding related to payment of insured amounts
on Municipal Obligations, such instruments being in a form satisfactory to
Citibank, N.A., Citibank, N.A. shall disburse to the Fund or the paying agent
payment of the insured amounts due on such Municipal Obligations, less any
amount held by paying agent for the payment of such insured amounts and legally
available therefor.
FINANCIAL GUARANTY INSURANCE COMPANY
Set forth below is a brief description of Financial Guaranty, from whom
each Fund may purchase a mutual fund insurance policy (the "Portfolio Insurance
Policy") securing certain municipal securities (the "Insured Bonds") held in a
Fund.
The Portfolio Insurance Policy is non-cancellable except for failure to pay
premium. The premium rate for each purchase of a security covered by the
Portfolio Insurance Policy is fixed for the life of the Insured Bond. The
insurance premiums are payable monthly by a Fund and are adjusted for purchases,
sales and payments prior to maturity of Insured Bonds during the month. In the
event of a sale of any Insured Bond by a Fund or payment thereof prior to
maturity, the Portfolio Insurance policy terminates as to such Insured Bond.
Under the provisions of the Portfolio Insurance Policy, Financial Guaranty
unconditionally and irrevocably agrees to pay to Citibank, N.A., or its
successor, as its agent (the "Fiscal Agent"), that portion of the principal of
and interest on the Insured Bonds which shall become due for payment but shall
be unpaid by reason of nonpayment by the issuer of the Insured Bonds. The term
"due for payment" means, when referring to the principal of an Insured Bond, its
stated maturity date or the date on which it shall have been called for
mandatory sinking fund
E-3
<PAGE> 155
redemption and does not refer to any earlier date on which payment is due by
reason of call for redemption (other than by mandatory sinking fund redemption),
acceleration or other advancement of maturity and means, when referring to
interest on an Insured Bond, the stated date for payment of interest. In
addition, the Portfolio Insurance Policy covers nonpayment by the issuer that
results from any payment of principal or interest made by such issuer on the
Insured Bond to a Fund which has been recovered from the Fund or its
shareholders pursuant to the United States Bankruptcy Code by a trustee in
bankruptcy in accordance with a final, nonappealable order of a court having
competent jurisdiction.
Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse to the Trustee
the face amount of principal and interest which is then due for payment but is
unpaid by reason or nonpayment by the issuer but only upon receipt by the Fiscal
Agent of (i) evidence of the Trustee's right to receive payment of the principal
or interest due for payment and (ii) evidence, including any appropriate
instruments of assignment, that all of the rights to payment of such principal
or interest due for payment thereupon shall vest in Financial Guaranty. Upon
such disbursement, Financial Guaranty shall become the owner of the Insured
Bond, appurtenant coupon or right to payment of principal or interest on such
Insured Bond and shall be fully subrogated to all of the Trustee's rights
thereunder, including the right to payment thereof.
In determining whether to insure municipal securities held in each Fund,
Financial Guaranty will apply its own standards which are not necessarily the
same as the criteria used in regard to the selection of securities by a Fund's
Board of Directors or Trustees, as the case may be.
Certain of the municipal securities insured under the Portfolio Insurance
Policy may also be insured under an insurance policy obtained by the issuer of
such municipal securities. The premium for any insurance policy or policies
obtained by an issuer of Insured Bonds has been paid in advance by such issuer
and any such policy or policies are non-cancellable and will continue in force
so long as the Insured Bonds so insured are outstanding. Financial Guaranty has
also agreed, if requested by the Board of Directors on or before the fifth day
preceding the 1st day of any month, to insure to maturity Insured Bonds sold by
the Trustee during the month immediately following such request of the Board of
Directors. The premium for any such insurance to maturity provided by Financial
Guaranty is paid by the Fund and any such insurance is non-cancellable and will
continue in force so long as the Bonds so insured are outstanding.
Financial Guaranty Insurance Company ("Financial Guaranty") is a
wholly-owned subsidiary of FGIC Corporation ("Corporation"), a Delaware holding
company. The Corporation is a wholly-owned subsidiary of General Electric
Capital Corporation ("GECC"). Neither the Corporation nor GECC is obligated to
pay the debts of or the claims against Financial Guaranty. Financial Guaranty is
domiciled in the State of New York and is subject to regulation by the State of
New York Insurance Department. As of December 31, 1995, the total capital and
surplus of Financial Guaranty was approximately $1,032,675,000. Copies of
Financial Guaranty's financial statements, prepared on the basis of statutory
accounting principles, and the Corporation's financial statements, prepared on
the basis of generally accepted accounting principles, may be obtained by
writing to Financial Guaranty at 115 Broadway, New York, New York 10006,
Attention: Communications Department [telephone number is (212) 312-3000] or to
the New York State Insurance Department at 160 West Broadway, 18th Floor, New
York, New York 10013. Attention: Property Companies Bureau [telephone number:
(212) 621-0389].
In addition, Financial Guaranty is currently licensed to write insurance in
all 50 states and the District of Columbia.
E-4
<PAGE> 156
NUVEEN INSURED PREMIUM
INCOME MUNICIPAL FUND 2
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
JUNE 17, 1996
NPX 7/96
<PAGE> 157
PART C--OTHER INFORMATION
ITEM 15: INDEMNIFICATION
Section 4 of Article XII of the Registrant's Declaration of Trust provides
as follows:
Subject to the exceptions and limitations contained in this Section 4,
every person who is, or has been, a Trustee, officer, employee or agent of the
Trust, including persons who serve at the request of the Trust as directors,
trustees, officers, employees or agents of another organization in which the
Trust has an interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person"), shall be indemnified by the Trust to the
fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been such a Trustee, director, officer, employee or agent and
against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b) and resulting in a payment by
a Covered Person, unless there has been either a determination that such Covered
Person did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or a
reasonable determination, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that he did not engage in such conduct:
(i) by a vote of 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
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the rust prior to final disposition thereof upon receipt of
an undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any such
advances; or
(b) 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 determine, based upon a
review of the readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the recipient ultimately will be found
entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not
an Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) 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.
As used in this Section 4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
1
<PAGE> 158
The Board Members and officers of the Registrant are covered by an
Investment Trust Errors and Omission policy in the aggregate amount of
$20,000,000 (with a maximum deductible of $350,000) against liability and
expenses of claims of wrongful acts arising out of their position with the
Registrant, except for matters which involve willful acts, bad faith, gross
negligence and willful disregard of duty (i.e., where the insured did not act in
good faith for a purpose he or she reasonably believed to be in the best
interest of Registrant or where he or she had reasonable cause to believe this
conduct was unlawful).
ITEM 16: EXHIBITS
The exhibits to this Registration Statement are set forth on the Index to
Exhibits attached hereto.
ITEM 17: UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the 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 director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such directors, 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.
2
<PAGE> 159
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 THIS CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 11TH DAY OF JUNE, 1996.
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
/s/ JAMES J. WESOLOWSKI
--------------------------------------------------
James J. Wesolowski, 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 AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- --------------------------- ---------------------------------
<S> <C> <C>
/s/ O. WALTER RENFFTLEN Vice President and June 11, 1996
- ----------------------------------- Controller (Principal
O. Walter Renfftlen Financial and Accounting
Officer)
Timothy R. Schwertfeger President and Trustee
(Principal Executive
Officer)
Lawrence H. Brown Trustee By /s/ James J. Wesolowski
Richard J. Franke Trustee ----------------------------
Anne E. Impellizzeri Trustee James J. Wesolowski
Margaret K. Rosenheim Trustee Attorney-in-Fact
Peter R. Sawers Trustee June 11, 1996
</TABLE>
ORIGINAL POWERS OF ATTORNEY AUTHORIZING TIMOTHY R. SCHWERTFEGER, JAMES J.
WESOLOWSKI, LARRY W. MARTIN AND GIFFORD R. ZIMMERMAN, AND EACH OF THEM, TO
EXECUTE THIS REGISTRATION STATEMENT AND AMENDMENTS HERETO, FOR EACH OF THE
OFFICERS AND TRUSTEES OF REGISTRANT ON WHOSE BEHALF THIS REGISTRATION STATEMENT
IS FILED, HAVE BEEN EXECUTED AND FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
<PAGE> 160
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
<C> <S> <C>
- -------------------------------------------------------------------------------------------------------
99. 1.1 Declaration of Trust of Registrant, as amended...............................
99. 1.2 Form of Amendment of Statement Establishing and Fixing the Rights and
Preference of Registrant's Municipal Auction Rate Cumulative Preferred
Shares.......................................................................
99. 2. By-Laws of Registrant, as amended............................................
99. 3. Not Applicable...............................................................
99. 4.1 Form of Agreement and Plan of Reorganization (incorporated by reference to
Annex A to the Joint Proxy Statement--Prospectus)............................
99. 4.2 Auction Agency Agreement, as amended.........................................
99. 4.3 Broker-Dealer Agreement, as amended..........................................
99. 4.4 Letter of Representation to The Depository Trust Company relating to Series M
MuniPreferred(a).............................................................
99. 4.5 Letter of Representation to The Depository Trust Company relating to Series T
MuniPreferred................................................................
99. 4.6 Letter of Representation to The Depository Trust Company relating to Series W
MuniPreferred(b).............................................................
99. 4.7 Letter of Representation to The Depository Trust Company relating to Series
TH MuniPreferred.............................................................
99. 4.8 Letter of Representation to The Depository Trust Company relating to Series F
MuniPreferred(c).............................................................
99. 5. Dividend Reinvestment Plan...................................................
99. 6. Investment Management Agreement..............................................
99. 7. Not Applicable...............................................................
99. 8. Directors' Deferred Compensation Plan........................................
99. 9.1 Exchange Traded Fund Custody Agreement.......................................
99. 9.2 Fund Accounting Agreement....................................................
99. 9.3 Shareholder Transfer Agency Agreement........................................
99.10. Not Applicable...............................................................
99.11.1 Opinion and consent of Vedder, Price, Kaufman & Kammholz.....................
99.11.2 Opinion and consent of Bingham, Dana & Gould.................................
99.12. Tax opinion and consent of Vedder, Price, Kaufman & Kammholz.................
99.13. Not Applicable...............................................................
99.14. Consent of Ernst & Young LLP.................................................
99.15. Not Applicable...............................................................
99.16.1 Power of Attorney of Richard J. Franke(d)....................................
99.16.2 Power of Attorney of Timothy R. Schwertfeger(d)..............................
99.16.3 Power of Attorney of Lawrence H. Brown(d)....................................
99.16.4 Power of Attorney of Anne E. Impellizzeri(d).................................
99.16.5 Power of Attorney of Margaret K. Rosenheim(d)................................
99.16.6 Power of Attorney of Peter R. Sawers(d)......................................
99.17.1 Form of Proxy for the Acquiring Fund common shareholders(d)..................
99.17.2 Form of Proxy for the Acquiring Fund preferred shareholders(d)...............
99.17.3 Form of Proxy for the Acquired Fund common shareholders(d)...................
99.17.4 Form of Proxy for the Acquired Fund preferred shareholders(d)................
</TABLE>
(a) Incorporated by reference to Exhibit d.4 of the Registrant's Registration
Statement on Form N-2 (Registration Nos. 33-70616 and 811-7792) which was
filed on November 3, 1993.
(b) Incorporated by reference to Exhibit d.5 of the Registrant's Registration
Statement on Form N-2 (Registration Nos. 33-70616 and 811-7792) which was
filed on November 3, 1993.
(c) Incorporated by reference to Exhibit d.3 of the Registrant's Registration
Statement on Form N-2 (Registration Nos. 33-70616 and 811-7792) which was
filed on November 3, 1993.
(d) Incorporated by reference to Registrant's Registration Statement on Form
N-14, which was filed on May 7, 1996.
<PAGE> 1
EXHIBIT 99.1.1
DECLARATION OF TRUST
DECLARATION OF TRUST made this 26th day of May, 1993 by the Trustees
hereunder.
WHEREAS, the Trustees desire to establish a trust fund for the purposes
of carrying on the business of a management investment company; and
WHEREAS, in furtherance of such purposes, the Trustees and any
successor Trustees elected in accordance with Article V hereof are acquiring
and may hereafter acquire assets and properties which they will hold and manage
as trustees of a Massachusetts business trust with transferable shares in
accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees and any successor Trustees elected in
accordance with Article V hereof hereby declare that they will hold all cash,
securities and other assets and properties, which they may from time to time
acquire in any manner as Trustees hereunder, IN TRUST, that they will manage
and dispose of the same upon the following terms and conditions for the pro
rata benefit of the holders from time to time of shares of beneficial interest
in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as the "Nuveen Insured Premium
Income Municipal Fund 2," and the Trustees shall conduct the business of the
Trust under that name or any other name as they may from time to time
determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) The "Trust" refers to the Massachusetts voluntary association
established by this Declaration of Trust, as amended from time to time, pursuant
to Massachusetts General Laws, Chapter 182;
(b) "Trustee" or "Trustees" refers to the Trustees of the Trust
named herein or elected in accordance with Article V hereof and then in office;
(c) "Shares" mean the various units authorized by Article IV hereof
into which the beneficial interest in the Trust shall be divided from time to
time and include fractions of Shares as well as whole Shares;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 (and
any successor statute) and the Rules and Regulations thereunder, all as amended
from time to time;
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(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter" and "vote of a majority of the
outstanding voting securities" shall have the meanings given them in the 1940
Act;
(g) "Declaration of Trust" shall mean this Declaration of Trust as
amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time.
ARTICLE II
NATURE AND PURPOSE OF TRUST
The Trust is a voluntary association (commonly known as a business
trust) of the type referred to in Chapter 182 of the General Laws of the
Commonwealth of Massachusetts. The Trust is not intended to be, shall not be
deemed to be, and shall not be treated as, a general or a limited partnership,
joint venture, corporation or joint stock company, nor shall the Trustees or
shareholders or any of them for any purpose be deemed to be, or be treated in
any way whatsoever as though they were, liable or responsible hereunder as
partners or joint venturers. The purpose of the Trust is to engage in, operate
and carry on the business of a closed-end management investment company and to
do any and all acts or things as are necessary, convenient, appropriate,
incidental or customary in connection therewith, including the following:
To hold, invest, and reinvest its funds, and in connection therewith
to hold part of all of its funds in cash, and to purchase or otherwise
sell, assign, negotiate, transfer, exchange or otherwise dispose of or
turn to account or realize upon securities and other negotiable or
non-negotiable instruments, obligations and evidences of indebtedness
created or issued by any persons, firms, associations, corporations,
syndicates, combinations, organizations, governments or subdivisions
thereof, and generally deal in any such securities and other negotiable or
non-negotiable instruments, obligations and evidences of indebtedness; and
to exercise, as owner or holder of any securities or other instruments,
all rights, powers, and privileges in respect thereof; and to do any and
all acts and things for the preservation, protection and improvement of
any and all such securities or other instruments, and in general, to
conduct the business of a closed-end investment company as that term is
defined in the 1940 Act; and
To engage in any lawful act or activity for which business trusts may
be organized under Massachusetts law.
The enumeration herewith of the objects and purposes of the Trust
shall be construed as powers as well as objects and purposes and shall not
be deemed to exclude by inference any powers, objects or purposes which
the Trust may lawfully pursue or exercise.
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ARTICLE III
REGISTERED AGENT: PRINCIPAL PLACE OF BUSINESS
The name of the registered agent of the Trust is CT Corporation System
at 2 Oliver Street, Boston, Massachusetts. The principal place of business of
the Trust is 333 West Wacker Drive, Chicago, Illinois 60606.
ARTICLE IV
BENEFICIAL INTEREST
Section 1. SHARES OF BENEFICIAL INTEREST. The beneficial interest in the
Trust shall be divided into such transferable Shares of beneficial interest, of
such classes or series, and of such designations and par values (if any), and
with such rights, preferences, privileges and restrictions as the Trustees may,
without shareholder approval, from time to time create and establish. The
number of Shares is unlimited and each Share shall be fully paid and
nonassessable. There shall be no cumulative voting. The Shares shall initially
be divided into two classes, a class of an unlimited number of common Shares,
$.01 par value (the "Common Shares"), and a class of an unlimited number of
preferred Shares, $.01 par value (the "Preferred Shares"), each having the
powers, preferences, rights, qualifications, limitations and restrictions
described below:
(a) Preferred Shares. The Preferred Shares shall be issued from time to
time in one or more classes or series with such distinctive serial designations
and (i) may have such voting powers, full or limited; (ii) may be subject to
redemption at such time or times and at such price or prices; (iii) may be
entitled to receive dividends (which may be cumulative or noncumulative) at
such rate or rates, on such conditions, and at such times, and payable in
preference to, or in such relation to, the dividends payable on any other class
or classes of Shares; (iv) may have such rights upon the termination of, or
upon any distribution of the assets of, the Trust; (v) may be made convertible
into, or exchangeable for, Shares of any other class or classes or of any other
series of the same or any other class or classes of Shares of the Trust, at
such price or prices or at such rates of exchange and with such adjustments;
and (vi) shall have such other relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof, all as
shall hereafter be stated and expressed in the resolution or resolutions
providing for the issue of such Preferred Shares from time to time adopted by
the Trustees (or a Committee thereof) in accordance with Section 2 of this
Article IV. Any of such matters may be made dependent upon facts ascertainable
outside this Declaration of Trust, or outside the resolution or resolutions
providing for the issue of such Preferred Shares.
(b) Common Shares.
(i) Subject to the rights of the holders of the Preferred Shares, in
the event of the termination of the Trust the holders of the Common Shares
shall be entitled to receive pro rata the net distributable assets of the
Trust.
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(ii) The holders of the Common Shares shall not, as such holders, have
any right to acquire, purchase or subscribe for any Common Shares or
securities of the Trust which it may hereafter issue or sell, other than
such right, if any, as the Trustees in their discretion may determine.
(iii) Subject to the rights of the holders of the Preferred Shares,
dividends, when, as and if declared by the Trustees, shall be shared
equally by the holders of Common Shares on a share for share basis. The
Trustees may direct that any dividends as declared and distributed shall
be paid in cash to the holder, or, alternatively, may direct that any such
dividends be reinvested in full and fractional Shares of the Trust if such
holder elects to have them reinvested.
(iv) If any Common Shares shall have been purchased or otherwise
reacquired by the Trust in accordance with law, all Shares so purchased or
otherwise reacquired shall be retired automatically, and such retired
Shares shall have the status of authorized but unissued Common Shares.
(v) Common Shares shall be issued from time to time either for cash or
for such other consideration (which may be in any one or more instances a
certain specified consideration or certain specified considerations) as
the Trustees, from time to time, may deem advisable subject to any
applicable limitations contained in the 1940 Act.
(vi) The Trust may issue Common Shares in fractional denominations to
the same extent as its whole Shares, and Shares in fractional
denominations shall be Common Shares having proportionately to the
respective fractions represented thereby all the rights of whole Shares,
including, without limitation, the right to vote, the right to receive
dividends and distributions and the right to participate upon termination
of the Trust, but excluding the right to receive a certificate
representing fractional Shares.
Section 2. ESTABLISHMENT OF CLASS OR SERIES OF SHARES. The establishment and
designation of any class or series of Shares shall be effective upon the
adoption of a resolution by a majority of the then Trustees (or a Committee
thereof) setting forth such establishment and designation and the relative
rights and preferences of the Shares of such class or series. At any time that
there are no Shares outstanding of any particular class or series previously
established and designated, the Trustees (or a Committee thereof) may by a
majority vote abolish that class or series and the establishment and
designation thereof. Notwithstanding any provision of this Declaration of Trust
to the contrary, no such resolution establishing and designating any class or
series of Shares shall constitute an amendment to or a part of this Declaration
of Trust.
Section 3. OWNERSHIP OF SHARES. The ownership and transfer of Shares shall be
recorded on the books of the Trust or its transfer or similar agent. No
certificates certifying the ownership of Preferred Shares shall be issued
except as the Trustees may otherwise determine from time to time. The Trustees
may make such rules as they consider appropriate for the issuance of Share
certificates, transfer of Shares and similar matters. The record books of the
Trust, as kept by the Trust or any transfer or similar agent of the Trust,
shall be conclusive as to who are the holders of Shares and as to the number of
Shares held from time to time by each Shareholder.
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Section 4. NO PREEMPTIVE RIGHTS, ETC. The holders of Shares of any class or
series shall not, as such holders, have any right to acquire, purchase or
subscribe for any Shares or securities of the Trust which it may hereafter
issue or sell, other than such right, if any, as the Trustees in their
discretion may determine. The holders of Shares of any class or series shall
have no appraisal rights with respect to their Shares and, except as otherwise
determined by resolution of the Trustees in their sole discretion, shall have
no exchange or conversion rights with respect to their Shares.
Section 5. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every shareholder by virtue of having become a shareholder shall be
held to have expressly assented and agreed to the terms of this Declaration of
Trust and to have become a party thereto. The death of a shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle
the representative of any deceased shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting. Neither the Trustees, nor any officer, employee or agent of the
Trust shall have any power to bind any shareholder personally or to call upon
any shareholder for the payment of any sum of money or assessment whatsoever
other than such as the shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise.
ARTICLE V
THE TRUSTEES
Section 1. MANAGEMENT OF THE TRUST. The business and affairs of the Trust
shall be managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility.
Section 2. QUALIFICATION AND NUMBER. Each Trustee shall be a natural person.
A Trustee need not be a shareholder, a citizen of the United States, or a
resident of the Commonwealth of Massachusetts. The number of Trustees shall be
such number as shall be fixed from time to time by the vote or consent of a
majority of the Trustees then in office; provided, however, that the number of
Trustees shall in no event be less than two (2) nor more than twelve (12). The
initial number of Trustees of the Trust shall be two (2), and the following
persons shall act as Trustees: Richard J. Franke and Donald E. Sveen. By the
vote or consent of a majority of the Trustees then in office, the Trustees may
fix the number of Trustees at a number greater than two (2) and may fill the
vacancies created by any such increase in the number of Trustees. Except as
determined from time to time by resolution of the Trustees, no decrease in the
number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of his term, but the number of Trustees may be
decreased in conjunction with the removal of a Trustee pursuant to Section 4 of
this Article V.
Section 3. TERM AND ELECTION. Each Trustee named in or pursuant to the
provisions of Section 2 shall serve as a Trustee until the first meeting of
shareholders and until his successor is duly elected and qualified. Thereafter,
each Trustee shall hold office until the next meeting of
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shareholders called for the purpose of considering the election of re-election
of such Trustee or of a successor to such Trustee, and until his successor is
elected and qualified, and any Trustee who is elected in the interim to fill a
vacancy shall have the same remaining term as that of his predecessor, if any,
or such term as the Trustees may determine. Any vacancy resulting from a newly
created Trusteeship or the death, resignation, retirement, removal, or
disqualification of a Trustee may be filled by the affirmative vote of a
majority of the remaining Trustees, even though less than a quorum. The power
of appointment described in this Section 3 is subject to the provisions of
Section 16(a) of the 1940 Act.
Section 4. RESIGNATION AND REMOVAL. Any Trustee may resign his trust or
retire as a Trustee (without need for prior or subsequent accounting except in
the event of removal) by an instrument in writing signed by him and delivered
or mailed to the Chairman, if any, the President or the Secretary and such
resignation or retirement shall be effective upon such delivery, or at a later
date according to the terms of the instrument. Any Trustee may be removed from
office only for "Cause" (as hereinafter defined) and only (i) by action of at
least sixty-six and two-thirds percent (66 2/3%) of the outstanding Shares of
the class or classes of Shares that elected such Trustee, or (ii) by written
instrument, signed by at least sixty-six and two-thirds percent (66 2/3%) of
the remaining Trustees, specifying the date when such removal shall become
effective. "Cause" shall require willful misconduct, dishonesty, fraud or a
felony conviction. Upon the resignation, retirement or removal of a Trustee, or
his otherwise ceasing to be a Trustee, he shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust property held in the name of
the resigning or removed Trustee. Upon the incapacity or death of any Trustee,
his legal representative shall execute and deliver on his behalf such documents
as the remaining Trustees shall require as provided in the preceding sentence.
Section 5. EFFECT OF DEATH, RESIGNATION, ETC. The death, declination,
resignation, retirement, removal, incapacity, or inability of the Trustees, or
any one of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
Section 6. OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust shall be
held separate and apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any successor Trustees. All
of the assets of the Trust shall at all times be considered as vested in the
Trustees. No shareholder shall be deemed to have a severable ownership in any
individual asset of the Trust or any right of partition or possession thereof,
but each shareholder of a class shall have an undivided beneficial interest in
the Trust which is proportionate to the interests of each other shareholder of
such class.
Section 7. VOTING REQUIREMENTS. In addition to the voting requirements
imposed by law or by any other provision of this Declaration of Trust; the
provisions set forth in this Article V may not be amended, altered or repealed
in any respect, nor may any provision inconsistent with this Article V be
adopted, unless such action is approved by the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding
Common Shares and outstanding Preferred Shares, voting together as a single
class. In the event the holders of Common Shares or the holders of Preferred
Shares, as the case may be, are required by law or by any other provision of
this Declaration of Trust to approve such an action by a class vote of such
holders, such action must be approved by the holders of at least sixty-six and
two-thirds percent (66-2/3%) of such holders or such lower percentage as may be
required by law or by any other provision of this Declaration of Trust.
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ARTICLE VI
POWERS OF TRUSTEES
Section 1. POWERS. The Trustees in all instances shall have full, absolute
and exclusive power, control and authority over the Trust assets and the
business and affairs of the Trust to the same extent as if the Trustees were
the sole and absolute owners thereof in their own right. The Trustees shall
have full power and authority to do any and all acts and to make and execute
any and all contracts and instruments that they may consider necessary or
appropriate in connection with the management of the Trust. The enumeration of
any specific power herein shall not be construed as limiting the aforesaid
powers. In construing the provisions of this Declaration of Trust, there shall
be a presumption in favor of the grant of power and authority to the Trustees.
Subject to any applicable limitation in the 1940 Act, this Declaration, or any
resolution of the Trustees which authorizes the issuance of Preferred Shares,
the Trustees shall have power and authority:
(a) To invest and reinvest in, to buy or otherwise acquire, to hold, for
investment or otherwise, to sell or otherwise dispose of, to lend or to pledge,
to trade in or deal in securities or interests of all kinds, however evidenced,
or obligations of all kinds, however evidenced, or rights, warrants, or
contracts to acquire such securities, interests, or obligations, of any private
or public company, corporation, association, general or limited partnership,
trust or other enterprise or organization, foreign or domestic, or issued or
guaranteed by any national or state government, foreign or domestic, or their
agencies, instrumentalities or subdivisions (including but not limited to,
bonds, debentures, bills, time notes and all other evidences of indebtedness);
negotiable or non-negotiable instruments; any and all futures contracts;
government securities and money market instruments (including but not limited
to, bank certificates of deposit, finance paper, commercial paper, bankers
acceptances, and all kinds of repurchase agreements);
(b) To adopt By-Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the shareholders;
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(d) To employ a bank or trust company as custodian of any assets of the
Trust subject to any conditions set forth in this Declaration of Trust or in
the By-Laws;
(e) To retain a transfer agent and shareholder servicing agent, or both;
(f) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by
the Trust itself or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to any
officers of the Trust and to any agent, custodian or underwriter;
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(i) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XIII, Section 1 hereof;
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(k) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either in
its own name or in the name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual practice of investment
companies;
(m) To authorize the issuance from time to time of one or more classes
or series of Shares, and to issue, sell, repurchase, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer and otherwise deal in Shares and,
except as prohibited by the 1940 Act, in any options, warrants or other rights
to purchase Shares or any other interests in the Trust other than Shares;
(n) To set apart, from time to time, out of any funds of the Trust a
reserve or reserves for any proper purpose, and to abolish any such reserve;
(o) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security or property
of which is held in the Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or issuer, and to pay calls
or subscriptions with respect to any security held in the Trust;
(p) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not limited
to, claims for taxes;
(q) To make distributions of income and of capital gains to
shareholders;
(r) To borrow money and to pledge, mortgage, or hypothecate the assets
of the Trust, subject to applicable requirements of the 1940 Act;
(s) To establish, from time to time, a minimum total investment for
shareholders, and to require the redemption of the Shares of any shareholders
whose investment is less than such minimum upon giving notice to such
shareholder of the terms of such redemption as established by the Trustees;
(t) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall
deem proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall
deem proper;
8
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(u) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business of
the Trust, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the shareholders, Trustees,
officers, employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as shareholder, Trustee, officer,
employee, agent, investment adviser or manager, principal underwriter, or
independent contractor, whether or not any such action may be determined to
constitute negligence, and whether or not the Trust would have the power to
indemnify such person against such liability; and
(v) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life
insurance and annuity contracts as a means of providing such retirement and
other benefits, for any or all of the Trustees, officers, employees and agents
of the Trust.
Any determination made by or pursuant to the direction of the Trustees in
good faith and consistent with the provisions of this Declaration of Trust as
to any of the following matters shall be final and conclusive and shall be
binding upon the Trust and every holder at any time of Shares, namely: the
amount of the assets, obligations, liabilities and expenses of the Trust; the
amount of the net income of the Trust from dividends and interest for any period
and the amount of assets at any time legally available for the payment of
dividends or distributions; the amount, purpose, time of creation, increase or
decrease, alteration or cancellation of any reserves or charges and the
propriety thereof (whether or not any obligation or liability for which such
reserves or charges were created shall have been paid or discharged); the
market value, or any quoted price to be applied in determining the market
value, of any security owned or held by the Trust; the fair value of any
security for which quoted prices are not readily available, or of any other
asset owned or held by the Trust; the number of Shares of the Trust issued or
issuable; the net asset value per share; any matter relating to the
acquisition, holding and depositing of securities and other assets by the
Trust; any question as to whether any transaction constitutes a purchase of
securities on margin, a short sale of securities, or an underwriting of the
sale of, or participation in any underwriting or selling group in connection
with the public distribution of, any securities, and any matter relating to the
issue, sale, redemption, repurchase, and/or other acquisition or disposition of
Shares of the Trust. No provision of this Declaration of Trust shall be
effective to (i) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the 1940 Act, or of any valid rule,
regulation or order of the Commission thereunder, or (ii) protect or purport to
protect any Trustee or officer of the Trust against any liability to the Trust
or to its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 2. MEETINGS. Regular meetings of the Trustees may be held without
notice at such times as the Trustees shall fix. Special meetings of the
Trustees may be called by the Chairman of the Board or the President, and shall
be called at the written request of two or more Trustees. Unless waived by each
Trustee, three days' notice of special meetings shall be given to each Trustee
in person, by mail, by telephone, or by telegram or cable, or by any other
means that reasonably may be expected to provide similar notice. Notice of
special meetings need not state the purpose
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or purposes thereof. Meetings of the Board may be held at any place within or
outside the Commonwealth of Massachusetts. A conference among Trustees by any
means of communication through which the Trustees may simultaneously hear each
other during the conference constitutes a meeting of the Trustees or of a
committee of the Trustees, if the notice requirements have been met (or waived)
and if the number of Trustees participating in the conference would be
sufficient to constitute a quorum at such meeting. Participation in such
meeting by that means constitutes presence in person at the meeting.
Section 3. QUORUM AND ACTION. A majority of the Trustees currently holding
office, or in the case of a meeting of a committee of the Trustees, a majority
of the members of such committee, shall constitute a quorum for the transaction
of business at any meeting. If a quorum is present when a duly called or held
meeting is convened, the Trustees present may continue to transact business
until adjournment, even though the withdrawal of a number of Trustees
originally present leaves less than the proportion or number otherwise required
for a quorum. At any duly held meeting at which a quorum is present, the
affirmative vote of the majority of the Trustees present shall be the act of
the Trustees or the committee, as the case may be, on any question, except
where the act of a greater number is required by this Declaration of Trust, or
the By-Laws of the Trust.
Section 4. COMMITTEES. The Trustees, by resolution adopted by the affirmative
vote of a majority of the Trustees, may designate from its members an Executive
Committee, an Audit Committee (whose function shall be to advise the Trustees
as to the selection of and review of the work of the independent public
accountants of the Trust) and any other committee, each such committee to
consist of two or more persons who need not be Trustees and to have such powers
and authority (to the extent permitted by law) as may be provided in such
resolution.
Section 5. ACTION BY WRITTEN CONSENT IN LIEU OF MEETINGS. Any action required
or permitted to be taken by the Trustees (or a committee thereof) may be taken
by written action signed by the number of Trustees that would be required to
take the same action at a meeting of the Trustees (or a committee thereof) at
which all Trustees were present.
ARTICLE VII
EXPENSES OF THE TRUST
The Trustees shall have the power to reimburse themselves from the Trust
property for their expenses and disbursements, to pay reasonable compensation
to themselves from the Trust property, and to incur and pay any other expense
which in the opinion of the Trustees are necessary or incidental to carry out
any of the purposes of this Declaration of Trust, including, without
limitation, interest expenses, taxes, fees and commissions of every kind,
expenses of pricing Trust portfolio securities, expenses of issue, repurchase
and redemption of Shares, including expenses attributable to a program of
periodic repurchases or redemptions, expenses of registering and qualifying the
Trust and its Shares under Federal and State laws and regulations, charges of
custodians, transfer agents, and registrars, expenses of preparing prospectuses
and statements of additional information, expenses of printing and distributing
prospectuses to existing shareholders, auditing and legal expenses, reports to
shareholders, expenses of meetings of shareholders and proxy solicitations
therefor, insurance expenses, association membership dues, and for such
non-recurring items as may
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arise, including litigation to which the Trust is a party, and for all losses
and liabilities by them incurred in administering the Trust. This section shall
not preclude the Trust from directly paying any of the aforementioned fees and
expenses.
ARTICLE VIII
INVESTMENT ADVISER, PRINCIPAL UNDERWRITERS AND TRANSFER AGENT
Section 1. INVESTMENT ADVISER. The Trust may enter into a written contract
with one or more persons (which term shall include any firm, corporation, trust
or association), hereinafter referred to as the "Investment Adviser", to act as
investment adviser to the Trust and as such to perform such functions as the
Trustees may deem reasonable and proper, including, without limitation,
investment advisory, management, research, valuation of assets, clerical and
administrative functions. Any such contract shall be subject to the approval of
those persons required by the 1940 Act to approve such contract, and shall be
terminable at any time upon not more than 60 days' notice by resolution of the
Trustees or by vote of a majority of the outstanding Common Shares.
Subject to the provisions of Section 4 of this Article VIII, any such
contract may be made with any firm or corporation in which any Trustee of the
Trust may be interested. The compensation of the Investment Adviser may be
based upon a percentage of the net proceeds of the initial public offering of
the Shares after payment of underwriting discounts and organization and
offering costs, a percentage of the income or gross realized or unrealized gain
of the Trust, or a combination thereof, or otherwise, as may be provided in
such contract.
Upon the termination of any contract with Nuveen Advisory Corp., or any
corporation affiliated with John Nuveen & Co. Incorporated, acting as
investment adviser or manager, the Trustees are hereby authorized to promptly
change the name of the Trust to a name which does not include "Nuveen" or any
approximation or abbreviation thereof.
The Trustee may, subject to applicable requirements of the 1940 Act,
including those relating to shareholder approval, authorize the investment
adviser to employ one or more sub-advisers from time to time to perform such of
the acts and services of the investment adviser, and upon such terms and
conditions, as may be agreed upon between the investment adviser and
sub-adviser.
Section 2. PRINCIPAL UNDERWRITER. The Trust may enter into a written contract
or contracts with an underwriter or underwriters or distributor or distributors
whereby the Trust may either agree to sell Shares to the other party or parties
to the contract or appoint such other party or parties its sales agent or
agents for such Shares. Any such contract may provide that the Trust shall pay
such other party or parties such amounts as the Trustees may in their
discretion deem reasonable and proper, and may also provide that such other
party or parties may enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution of the Shares.
Subject to the provisions of Section 4 of this Article VIII, any such contract
may be made with any firm or corporation, including, without limitation, the
Investment Adviser, or any firm or corporation in which any Trustee of the
Trust or the Investment Adviser may be interested.
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<PAGE> 12
Section 3. TRANSFER AGENT. The Trustees may in their discretion from time to
time enter into a transfer agency and shareholder service contract(s) whereby
the other party shall undertake to furnish the Trustees with transfer agency
and shareholder services. The contract shall be on such terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Declaration of Trust or of the By-Laws. Such services may be
provided by one or more entities.
Section 4. PARTIES TO CONTRACT. Any contract of the character described in
Sections 1, 2 and 3 of this Article VIII or in Article X hereof may be entered
into with any corporation, firm, partnership, trust or association, although
one or more of the Trustees or officers of the Trust may be an officer,
director, trustee, shareholder, or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article
VIII, Article X, or the By-Laws. The same person (including a firm,
corporation, partnership, trust or association) may be the other party to
contracts entered into pursuant to Sections 1, 2 and 3 above or Article X, and
any individual may be financially interested or otherwise affiliated with
persons who are parties to any or all of the contracts mentioned in this
Section 4.
Section 5. PROVISIONS AND AMENDMENTS. Any contract entered into pursuant to
Sections 1 and 2 of this Article VIII shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act (including any amendments
thereof or other applicable laws) with respect to its continuance in effect,
its termination, and the method of authorization and approval of such contract
or renewal thereof, and no amendment to any contract entered into pursuant to
Section 1, shall be effective unless made in accordance with the requirements
of the 1940 Act.
ARTICLE IX
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. VOTING POWERS. The shareholders shall have power to vote only:
(a) for the election or removal of Trustees as provided in Article V, (b) with
respect to any investment advisory or management contract as provided in
Article VIII, Sections 1 and 5, (c) with respect to any termination of the
Trust to the extent and as provided in Article XIII, Section 1, (d) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article XIII, Section 4, (e) to the same extent as the shareholders
of a Massachusetts business corporation as to whether or not a court action,
proceeding or claim should be brought or maintained derivatively or as a class
action on behalf of the Trust or the shareholders, provided, however that a
shareholder of a particular class or series shall not be entitled to bring any
derivative or class action on behalf of any other class or series of the Trust,
and (f) with respect to such additional matters relating to the Trust as may be
required or authorized by law, the 1940 Act, this Declaration of Trust, the
By-Laws of the Trust, any resolution of the Trustees which authorizes the
issuance of Preferred Shares, or any registration of the Trust with the
Commission or any State, as the Trustees may consider necessary or desirable.
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<PAGE> 13
Notwithstanding any other provision of this Declaration of Trust, an
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding Common Shares and outstanding Preferred Shares,
voting as a single class, shall be required to approve, adopt or authorize (i)
a conversion of the Trust from a closed-end investment company to an open-end
investment company, (ii) a merger or consolidation of the Trust with any
corporation or reorganization or recapitalization, (iii) a sale, lease or
transfer of all or substantially all of the assets of the Trust (other than in
the regular course of the Trust's investment activities), or (iv) a termination
of the Trust, unless in any case such action has previously been approved,
adopted or authorized by the affirmative vote of two-thirds of the total number
of Trustees fixed in accordance with this Declaration of Trust or the By-Laws,
in which case the affirmative vote of the holders of at least a majority of the
outstanding Common Shares and outstanding Preferred Shares, voting as a single
class, shall be required. Except as may otherwise be required by law, in the
case of the conversion of the Trust from a closed-end investment company to an
open-end investment company, or in the case of any of the foregoing
transactions constituting a plan or reorganization (as such term is used in the
1940 Act) which adversely affects the Preferred Shares within the meaning of
Section 18(a)(2)(D) of the 1940 Act, approval, adoption or authorization of the
action in question will also require the affirmative vote of the holders of
sixty-six and two-thirds percent (66-2/3%) of the Preferred Shares voting as a
separate class; provided, however, that such separate class vote shall be a
majority vote if the action in question has previously been approved, adopted
or authorized by the affirmative vote of two-thirds of the total number of
Trustees fixed in accordance with this Declaration of Trust or the By-Laws.
In addition to the voting requirements imposed by law or by any other
provision of this Declaration of Trust, the provisions set forth in this
Article IX may not be amended, altered or repealed in any respect, nor may
any provision inconsistent with this Article IX be adopted, unless such action
is approved by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the outstanding Common Shares and outstanding
Preferred Shares, voting as a single class. In the event the holders of
Common Shares or the holders of Shares of Preferred Shares, as the case may be,
are required by law to approve such an action by a class vote of such holders,
such action must be approved by the holders of at least sixty-six and
two-thirds percent (66-2/3%) of such holders or such lower percentage as may be
required by law. Any series of a class which is adversely affected in a manner
different from other series of the same class shall, together with any other
series of the same class adversely affected in the same manner, be treated as a
separate class under this Section 1.
Section 2. MEETINGS. Meetings of the shareholders may be called and held from
time to time for the purpose of taking action upon any matter requiring the
vote or authority of the shareholders as herein provided or upon any other
matter deemed by the Trustees to be necessary or desirable. Meetings of the
shareholders shall be held at such place within the United States as shall be
fixed by the Trustees, and stated in the notice of the meeting. Meetings of the
shareholders may be called by the Trustees and shall be called by the Trustees
upon the written request of shareholders owning at least one-tenth of the
outstanding Shares entitled to vote. Shareholders shall be entitled to at least
ten days' written notice of any meeting, except where the meeting is an
adjourned meeting and the date, time and place of the meeting where announced
at the time of the adjournment.
Section 3. QUORUM AND ACTION. (a) The holders of a majority of the voting
power of the Shares entitled to vote at a meeting, present in person or by
proxy, are a quorum for the transaction
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<PAGE> 14
of business. If a quorum is present when a duly called or held meeting is
convened, the shareholders present may continue to transact business until
adjournment, even though the withdrawal of a number of shareholders originally
present leaves less than the proportion or number otherwise required for a
quorum. Notwithstanding the foregoing, when holders of Preferred Shares are
entitled to elect any of the Trustees by class vote of such holders, the
holders of 33 1/3% of such Shares entitled to vote at a meeting shall
constitute a quorum for the purpose of such an election.
(b) The shareholders shall take action by the affirmative vote of the
holders of a majority, except in the case of the election of Trustees which
shall only require a plurality, of the voting power of the Shares present in
person or by proxy and entitled to vote at a meeting of shareholders at which a
quorum is present, except as may be otherwise required by the 1940 Act, any
provision of this Declaration of Trust, any resolution of the Trustees which
authorizes the issuance of Preferred Shares, or the By-Laws.
Section 4. VOTING. At each meeting of the shareholders, every holder of Shares
then entitled to vote may vote in person or by proxy and, except as may be
otherwise provided by the 1940 Act, this Declaration of Trust, any resolution
of the Trustees which authorizes the issuance of Preferred Shares, or the
By-Laws, shall have one vote for each Share registered in his name.
Section 5. ACTION BY WRITTEN CONSENT IN LIEU OF MEETING OF SHAREHOLDERS. Any
action required or permitted to be taken at a meeting of the shareholders may
be taken without a meeting by written action signed by all of the shareholders
entitled to vote on that action. The written action is effective when it has
been signed by all of those shareholders, unless a different effective time is
provided in the written action.
ARTICLE X
CUSTODIAN
Section 1. APPOINTMENT AND DUTIES. All securities and cash of the Trust shall
be held by a custodian meeting the requirements for a custodian contained in the
1940 Act and the rules and regulations thereunder and in any applicable state
securities or blue sky laws. The Trust shall enter into a written contract with
the custodian regarding the powers, duties and compensation of the custodian
with respect to the cash and securities of the Trust held by the custodian. Said
contract and all amendments thereto shall be approved by the Trustees of the
Trust. The Trust shall upon the resignation or inability to serve of the
custodian obtain a successor custodian and require that the cash and securities
owned by the Trust be delivered directly to the successor custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian, and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall meet the requirements for
a custodian contained in the 1940 Act and the rules and regulations thereunder
and in any applicable state securities or blue sky laws.
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<PAGE> 15
Section 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations and
orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for
the central handling of securities established by a national securities
exchange or a national securities association registered with the Commission
under the Securities Exchange Act of 1934, or such other person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of
any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE XI
DISTRIBUTIONS
The Trustees may in their sole discretion from time to time declare and
pay such dividends and distributions to shareholders as they may deem necessary
or desirable, after providing for actual and accrued expenses and liabilities
(including such reserves as the Trustees may establish) determined in
accordance with this Declaration of Trust and good accounting practices.
ARTICLE XII
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. LIMITATION OF LIABILITY. No personal liability for any debt or
obligation of the Trust shall attach to any Trustee of the Trust. Without
limiting the foregoing, a Trustee shall not be responsible for or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, investment
adviser, principal underwriter or custodian of the Trust, nor shall any Trustee
be responsible or liable for the act or omission of any other Trustee. Nothing
contained herein shall protect any Trustee against any liability to which such
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his capacity as Trustees or Trustee and neither such
Trustees or Trustee nor the shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
this Declaration of Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts, shall recite that the same was executed or made
by or on behalf of the Trust by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are
not binding upon any of them or the shareholders individually but are binding
only upon the assets and property of the Trust, and may contain such further
recital as they or he may deem appropriate, but the omission
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<PAGE> 16
thereof shall not operate to bind any Trustees or Trustee or officers or
officer or shareholders or shareholder individually.
All persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Trust for payment under
such credit, contract or claim; and neither the shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.
Section 2. TRUSTEES' GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY. The
exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable only for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust and their duties as Trustees
hereunder, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. In
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written
reports made to the Trustees by any officer appointed by them, any independent
public accountant and (with respect to the subject matter of the contract
involved) any officer, partner or responsible employee of any other party to
any contract entered into hereunder. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
Section 3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. INDEMNIFICATION. Subject to the exceptions and limitations
contained in this Section 4, every person who is, or has been, a Trustee,
officer, employee or agent of the Trust, including persons who serve at the
request of the Trust as directors, trustees, officers, employees or agents of
another organization in which the Trust has an interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been such a
Trustee, director, officer, employee or agent and against amounts paid or
incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason
of a final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interests of the Trust; or
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<PAGE> 17
(c) in the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination that
such Covered Person did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office by the court or other body approving the settlement or other disposition
or a reasonable determination, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that he did not engage in such conduct:
(i) by a vote of 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
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding subject to a claim for indemnification under this
Section 4 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to
indemnification under this Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out
of any such advances; or
(b) 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 determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not
an Interested Person of the Trust (including anyone, as such Disinterested
Trustee, who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) 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.
As used in this Section 4, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened;
and the words "liability" and "expenses" shall include without limitation,
attorneys fees, costs, judgments, amounts paid in settlements, fines, penalties
and other liabilities.
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<PAGE> 18
Section 5. SHAREHOLDERS. No personal liability for any debt or obligation of
the Trust shall attach to any shareholder or former shareholder of the Trust.
In case any shareholder or former shareholder of the Trust shall be held to be
personally liable solely by reason of his being or having been a shareholder
and not because of his acts or omissions or for some other reason, the
shareholder or former shareholder (or his heirs, executors, administrators or
other legal representatives or in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out of the assets
of the Trust to be held harmless from and indemnified against all loss and
expense arising from such liability; provided, however, there shall be no
liability or obligation of the Trust arising hereunder to reimburse any
shareholder for taxes paid by reason of such shareholder's ownership of any
Share or for losses suffered by reason of any changes in value of any Trust
assets. The Trust shall, upon request by the shareholder or former shareholder,
assume the defense of any claim made against the shareholder for any act or
obligation of the Trust and satisfy any judgment thereon.
ARTICLE XIII
MISCELLANEOUS
Section 1. TERMINATION OF TRUST. (a) Unless terminated as provided herein,
the Trust shall continue without limitation of time. The Trust may be
terminated at any time by the Trustees by written notice to the shareholders
without a vote of the shareholders of the Trust or by the affirmative vote of
the shareholders entitled to vote at least sixty-six and two-thirds percent
(66 2/3%) of the outstanding Common Shares and Preferred Shares, voting as a
single class, unless such action has previously been approved, adopted or
authorized by the affirmative vote of two-thirds of the total number of
Trustees fixed in accordance with this Declaration of Trust or the By-Laws, in
which case the affirmative vote of the holders of at least a majority of the
outstanding Common Shares and Preferred Shares, voting as a single class, shall
be required.
Subject to any requirements of the 1940 Act, upon termination of the
Trust, after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as the Trustees
consider appropriate, reduce the remaining assets of the Trust to distributable
form in cash or other securities, or any combination thereof, and distribute
the proceeds to the holders of Preferred Shares in the manner set forth by
resolution of the Trustees, and to the holders of Common Shares held by such
holders on the date of termination.
At any time by the affirmative vote of the shareholders of the Trust
entitled to vote more than fifty percent (50%) of the votes entitled to be
cast, the Trustees may sell, convey and transfer the assets of the Trust to
another trust, partnership, association or corporation organized under the laws
of any state of the United States in exchange for cash, shares or other
securities with such transfer being made subject to, or with the assumption by
the transferee of, the liabilities belonging to the Trust. Following such
transfer, the Trustees shall distribute such cash, shares or other securities
among the shareholders of the Trust, and if all of the assets of the Trust have
been so distributed, the Trust shall be terminated.
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<PAGE> 19
Section 2. FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy of
this instrument and of each amendment hereto shall be kept in the office of the
Trust where it may be inspected by any shareholder. A copy of this instrument
and of each amendment shall be filed by the Trustees with the Secretary of
State of the Commonwealth of Massachusetts and with the Boston City Clerk, as
well as any other governmental office where such filing may from time to time
be required. Anyone dealing with the Trust may rely on a certificate by an
officer or Trustee of the Trust as to whether or not any such amendments have
been made and as to any matters in connection with the Trust hereunder, and
with the same effect as if it were the original, may rely on a copy certified
by an officer or Trustee of the Trust to be a copy of this instrument or of any
such amendments. In this instrument or in any such amendment, references to
this instrument, and all expressions like "herein," "hereof" and "hereunder,"
shall be deemed to refer to this instrument as amended or affected by any such
amendment. Headings are placed herein for convenience of reference only, and in
case of any conflict, the text of this instrument, rather than the headings,
shall control. This instrument may be executed in any number of counterparts,
each of which shall be deemed an original.
Section 3. APPLICABLE LAW. The Trust set forth in this instrument is made in
the Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth. The Trust shall be of the type commonly called a business trust,
and without limiting the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
Section 4. AMENDMENTS. Except as otherwise specifically provided in this
Declaration of Trust, this Declaration of Trust may be amended at any time by
an instrument in writing signed by a majority of the then Trustees with the
consent of shareholders holding more than fifty percent (50%) of Shares
entitled to vote. In addition, notwithstanding any other provision to the
contrary contained in this Declaration of Trust, the Trustees may amend this
Declaration of Trust without the vote or consent of shareholders (i) at any
time if the Trustees deem it necessary to conform this Declaration of Trust to
the requirements of applicable federal or state laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, or (ii) for any reason at any time before a registration
statement under the Securities Act of 1933, as amended, covering the first
public offering of securities of the Trust has become effective. Amendments
having the purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by shareholder vote. Copies of amendments shall be filed as
specified in Section 2 of this Article XIII.
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<PAGE> 20
IN WITNESS WHEREOF, the undersigned, being the Trustees of the Trust,
have executed this instrument as of the date first written above.
/s/ RICHARD J. FRANKE
--------------------------------------
Richard J. Franke, Trustee
333 West Wacker Drive
Chicago, IL 60606
/s/ DONALD E. SVEEN
--------------------------------------
Donald E. Sveen, Trustee
333 West Wacker Drive
Chicago, IL 60606
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
Then personally appeared the above-named Richard J. Franke and Donald
E. Sveen known to me to be the Trustees of the Trust, who each acknowledged the
foregoing instrument to be his free act and deed, before me this 20th day of
May, 1993.
["OFFICIAL SEAL"] /s/ BARBARA B. SCHROAT
--------------------------------------
Notary Public
My Commission Expires: 6/1/96
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<PAGE> 21
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
Incumbency Certificate
In accordance with Article V, Section 2 of the Declaration of Trust of
Nuveen Insured Premium Income Municipal Fund 2 (the "Trust"), the size of the
Trust's Board of Trustees has been increased to six (6) in number, effective
April 1, 1993, and the following persons constitute all of the Trustees of the
Trust pursuant to resolutions adopted by unanimous written consent of the
Trustees of the Trust dated May 26, 1993.
Richard J. Franke
333 West Wacker Drive
Chicago, Illinois 60606
John E. O'Toole
666 Third Avenue
New York, New York 10017
Margaret K. Rosenheim
969 East 60th Street
Chicago, Illinois 60637
Peter R. Sawers
22 The Landmark
Northfield, Illinois 60093
Donald E. Sveen
333 West Wacker Drive
Chicago, Illinois 60606
Frank P. Wendt
Box 63
363 Pequot Avenue
Southport, Connecticut 06490
NUVEEN INSURED PREMIUM
INCOME MUNICIPAL FUND 2
/s/ Richard J. Franke
-----------------------
By: Richard J. Franke
Title: Trustee
/s/ Donald E. Sveen
-----------------------
By: Donald E. Sveen
Title: Trustee
<PAGE> 22
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
INCUMBENCY CERTIFICATE
The Board of Trustees of Nuveen Insured Premium Income Municipal Fund 2 has
been set at seven (7) members as of July 27, 1994, and the following persons
constitute all of the Trustees of the Fund as of that date:
Richard J. Franke
333 West Wacker Drive
Chicago, Illinois 60606
John E. O'Toole
666 Third Avenue
New York, New York 10017
Margaret K. Rosenheim
969 East 60th Street
Chicago, Illinois 60637
Peter R. Sawers
222 The Landmark
Northfield, Illinois 60093
Lawrence H. Brown
201 Michigan Avenue
Highwood, Illinois 60040
Anne E. Impellizzeri
Blanton-Peale Institutes of Religion and Health
3 West 29th Street
New York, New York 10001
Timothy R. Schwertfeger
333 West Wacker Drive
Chicago, Illinois 60606
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
/s/ James J. Wesolowski
------------------------------
By: James J. Wesolowski
Title: Vice President & Secretary
<PAGE> 23
NUVEEN INSURED PREMIUM
INCOME MUNICIPAL FUND 2
STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED SHARES ("MUNIPREFERRED(R)")
1
<PAGE> 24
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
TABLE OF CONTENTS
PAGE
----
DEFINITIONS
"AA" Composite Commercial Paper Rate
Accountant's Confirmation
Affiliate
Agent Member
Anticipation Notes
Applicable Rate
Auction
Auction Agency Agreement
Auction Agent
Auction Date
Auction Procedures
Available MuniPreferred
Benchmark Rate
Beneficial Owner
Bid and Bids
Bidder and Bidders
Board of Trustees
Broker-Dealer
Broker-Dealer Agreement
Business Day
Code
Commercial Paper Dealers
Common Shares
Cure Date
Date of Original Issue
Declaration
Deposit Securities
Discounted Value
Dividend Coverage Amount
Dividend Coverage Assets
Dividend Payment Date
Dividend Period
Existing Holder
Failure to Deposit
Federal Tax Rate Increase
Fund
Gross-Up Payment
Holder
Hold Order and Hold Orders
Independent Accountant
Initial Rate Period
Interest Equivalent
Issue Type Category
Kenny Index
Late Charge
Liquidation Preference
Market Value
Maximum Potential Gross-Up Payment Liability
Maximum Rate
Minimum Liquidity Level
Minimum Rate Period
Moody's
Moody's Discount Factor
Moody's Eligible Asset
Moody's Exposure Period
Moody's Volatility Factor
MuniPreferred
MuniPreferred Basic Maintenance Amount
MuniPreferred Basic Maintenance Cure Date
MuniPreferred Basic Maintenance Report
2
<PAGE> 25
PAGE
----
Municipal Obligations
1940 Act
1940 Act Cure Date
1940 Act MuniPreferred Asset Coverage
Notice of Redemption
Notice of Special Rate Period
Order and Orders
Original Issue Insurance
Other Issues
Outstanding
Permanent Insurance
Person
Portfolio Insurance
Potential Beneficial Owner
Potential Holder
Preferred Shares
Quarterly Valuation Date
Rate Multiple
Rate Period
Rate Period Days
Receivables for Municipal Obligations Sold
Redemption Price
Reference Rate
Registration Statement
S&P
S&P Discount Factor
S&P Eligible Asset
S&P Exposure Period
S&P Volatility Factor
Secondary Market Insurance
Securities Depository
Sell Order and Sell Orders
Special Rate Period
Special Redemption Provisions
Submission Deadline
Submitted Bid and Submitted Bids
Submitted Hold Order and Submitted Hold Orders
Submitted Order and Submitted Orders
Submitted Sell Order and Submitted Sell Orders
Subsequent Rate Period
Substitute Commercial Paper Dealer
Substitute U.S. Government Securities Dealer
Sufficient Clearing Bids
Taxable Allocation
Taxable Income
Taxable Equivalent of the Short-Term Municipal Bond Rate
Treasury Bill
Treasury Bill Rate
Treasury Note
Treasury Note Rate
U.S. Government Securities Dealer
Valuation Date
Volatility Factor
Voting Period
Winning Bid Rate
3
<PAGE> 26
PAGE
----
PART I
1. Number of Authorized Shares
2. Dividends
(a) Ranking
(b) Cumulative Cash Dividends
(c) Dividends Cumulative From Date of Original Issue
(d) Dividend Payment Dates and Adjustment Thereof
(e) Dividend Rates and Calculation of Dividends
(e)(i) Dividend Rates
(e)(ii) Calculation of Dividends
(f) Curing a Failure to Deposit
(g) Dividend Payments by Fund to Auction Agent
(h) Auction Agent as Trustee of Dividend Payments by Fund
(i) Dividends Paid to Holders
(j) Dividends Credited Against Earliest Accumulated But
Unpaid Dividends
(k) Dividends Designated as Exempt-Interest Dividends
3. Gross-Up Payments
(a) Minimum Rate Periods and Special Rate Periods of 28 Rate
Period Days or Fewer
(b) Special Rate Periods of More Than 28 Rate Period Days
(c) No Gross-up Payments In the Event of a Reallocation
4. Designation of Special Rate Periods
(a) Length of and Preconditions for Special Rate Period
(b) Adjustment of Length of Special Rate Period
(c) Notice of Proposed Special Rate Period
(d) Notice of Special Rate Period
(e) Failure to Deliver Notice of Special Rate Period
5. Voting Rights
(a) One Vote Per Share of MuniPreferred
(b) Voting For Additional Trustees
(b)(i) Voting Period
(b)(ii) Notice of Special Meeting
(b)(iii) Terms of Office of Existing Trustees
(b)(iv) Terms of Office of Certain Trustees to Terminate Upon
Termination of Voting Period
(c) Holders of MuniPreferred to Vote on Certain Other Matters
(c)(i) Increases in Capitalization
(c)(ii) 1940 Act Matters
(d) Board May Take Certain Actions Without Shareholder Approval
(e) Voting Rights Set Forth Herein Are Sole Voting Rights
(f) No Preemptive Rights or Cumulative Voting
(g) Voting for Trustees Sole Remedy for Fund's Failure to
Pay Dividends
(h) Holders Entitled to Vote
6. 1940 Act MuniPreferred Asset Coverage
7. MuniPreferred Basic Maintenance Amount
8. Minimum Liquidity Level
9. Restrictions on Dividends and Other Distributions
(a) Dividends on Preferred Shares Other Than MuniPreferred
(b) Dividends and Other Distributions With Respect to
Common Shares Under the 1940 Act
(c) Other Restrictions on Dividends and Other Distributions
10. Rating Agency Restrictions
4
<PAGE> 27
PAGE
----
11. Redemption
(a) Optional Redemption
(b) Mandatory Redemption
(c) Notice of Redemption
(d) No Redemption Under Certain Circumstances
(e) Absence of Funds Available for Redemption
(f) Auction Agent as Trustee of Redemption Payments by Fund
(g) Shares for Which Notice of Redemption Has Been Given
Are No Longer Outstanding
(h) Compliance With Applicable Law
(i) Only Whole Shares of MuniPreferred May Be Redeemed
12. Liquidation Rights
(a) Ranking
(b) Distributions Upon Liquidation
(c) Pro Rata Distributions
(d) Rights of Junior Shares
(e) Certain Events Not Constituting Liquidation
13. Miscellaneous
(a) Amendment of Appendix A to Add Additional Series
(b) Appendix A Incorporated by Reference
(c) No Fractional Shares
(d) Status of Shares of MuniPreferred Redeemed, Exchanged
or Otherwise Acquired by the Fund
(e) Board May Resolve Ambiguities
(f) Headings Not Determinative
(g) Notices
PART II
1. Orders
2. Submission of Orders by Broker-Dealers to Auction Agent
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate
4. Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares
5. Notification of Allocations
6. Auction Agent
7. Transfer of Shares of MuniPreferred
8. Global Certificate
APPENDIX A
1. Designation As To Series
2. Number of Authorized Shares Per Series
3. Exceptions to Certain Definitions
4. Certain Definitions
5. Initial Rate Periods
6. Date for Purposes of Paragraph (yyy) Contained Under the Heading
"Definitions" in this Statement
7. Party Named for Purposes of the Definition of "Rate Multiple" in
this Statement
8. Additional Definitions
9. Dividend Payment Dates
10. Amount for Purposes of Subparagraph (c)(i) of Section 5 of
Part I of the Statement
11. Redemption Provisions Applicable to Initial Rate Periods.
12. Applicable Rate for Purposes of Subparagraph (b)(iii) of
Section 3 of Part II of this Statement
5
<PAGE> 28
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2, a Massachusetts business
trust (the "Fund"), certifies that:
First: Pursuant to authority expressly vested in the Board of Trustees of
the Fund by Article IV of the Fund's Declaration of Trust, as amended (which,
as hereafter restated or amended from time to time is, together with this
Statement, herein called the "Declaration"), the Board of Trustees has, by
resolution, authorized the issuance of shares of the Fund's authorized
Preferred Shares, liquidation preference $50,000 per share, having such
designation or designations as to series as is set forth in Section 1 of
APPENDIX A hereto and such number of shares per such series as is set forth in
Section 2 of APPENDIX A hereto.
Second: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the
shares of each series of MuniPreferred described in Section 1 of APPENDIX A
hereto are as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN SECTION 3 OF APPENDIX A
hereto, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) ""AA' COMPOSITE COMMERCIAL PAPER RATE," on any date for any
Rate Period of shares of a series of MuniPreferred, shall mean (i) (A) in
the case of any Minimum Rate Period or any Special Rate Period of fewer
than 49 Rate Period Days, the interest equivalent of the 30-day rate;
PROVIDED, HOWEVER, that if such Rate Period is a Minimum Rate Period and
the "AA" Composite Commercial Paper Rate is being used to determine the
Applicable Rate for shares of such series when all of the Outstanding
shares of such series are subject to Submitted Hold Orders, then the
interest equivalent of the seven-day rate, and (B) in the case of any
Special Rate Period of (1) 49 or more but fewer than 70 Rate Period Days,
the interest equivalent of the 60-day rate; (2) 70 or more but fewer than
85 Rate Period Days, the arithmetic average of the interest equivalent of
the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate Period
Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer
than 141 Rate Period Days, the interest equivalent of the 120-day rate;
(6) 141 or more but fewer than 162 Rate Period Days, the arithmetic
average of the 120-day and 180-day rates; and (7) 162 or more but fewer
than 183 Rate Period Days, the interest equivalent of the 180-day rate,
in each case on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P or the equivalent of such rating by
S&P or another rating agency, as made available on a discount basis or
otherwise by the Federal Reserve Bank of New York for the Business Day
next preceding such date; or (ii) in the event that the Federal Reserve
Bank of New York does not make available any such rate, then the
arithmetic average of such rates, as quoted on a discount basis or
otherwise, by the Commercial Paper Dealers to the Auction Agent for the
close of business on the Business Day next preceding such date. If any
Commercial Paper Dealer does not quote a rate required to determine the
"AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper
Rate shall be determined on the basis of the quotation or quotations
furnished by the remaining Commercial Paper Dealer or Commercial Paper
Dealers and any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Fund to provide such rate or
rates not being supplied by any Commercial Paper Dealer or Commercial
Paper Dealers, as the case may be, or, if the Fund does not select any
such Substitute Commercial Paper Dealer or Substitute Commercial Paper
Dealers, by the remaining Commercial Paper Dealer or Commercial Paper
Dealers. For purposes of this definition, the "interest equivalent" of a
rate stated on a discount basis (a "discount rate") for commercial paper
of a given days' maturity shall be equal to the quotient (rounded upwards
to the next higher one-thousandth (.001) of 1%) of (A) the discount rate
divided by (B) the difference between (x) 1.00 and (y) a fraction the
numerator of which shall be the product of the discount rate times the
number of days in which such commercial paper matures and the denominator
of which shall be 360.
6
<PAGE> 29
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by,
in control of or under common control with the Fund; PROVIDED, HOWEVER,
that no Broker-Dealer controlled by, in control of or under common
control with the Fund shall be deemed to be an Affiliate nor shall any
corporation or any Person controlled by, in control of or under common
control with such corporation one of the trustees, directors or executive
officers of which is a trustee of the Fund be deemed to be an Affiliate
solely because such trustee, director or executive officer is also a
trustee of the Fund.
(d) "AGENT MEMBER" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder.
(e) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs),
Revenue Anticipation Notes (RANs), Tax and Revenue Anticipation Notes
(TRANs), Grant Anticipation Notes (GANs) that are rated by S&P and Bond
Anticipation Notes (BANs) that are rated by S&P.
(f) "APPLICABLE RATE" shall have the meaning specified in
subparagraph (e)(i) of Section 2 of Part I of this Statement.
(g) "AUCTION" shall mean each periodic implementation of the
Auction Procedures.
(h) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the
Fund and the Auction Agent which provides, among other things, that the
Auction Agent will follow the Auction Procedures for purposes of
determining the Applicable Rate for shares of a series of MuniPreferred
so long as the Applicable Rate for shares of such series is to be based
on the results of an Auction.
(i) "AUCTION AGENT" shall mean the entity appointed as such by a
resolution of the Board of Trustees in accordance with Section 6 of Part
II of this Statement.
(j) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(k) "AUCTION PROCEDURES" shall mean the procedures for conducting
Auctions set forth in Part II of this Statement.
(l) "AVAILABLE MUNIPREFERRED" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(m) "BENCHMARK RATE" shall have the meaning specified in Section 12
of APPENDIX A hereto.
(n) "BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of such series.
(o) "BID" and "BIDS" shall have the respective meanings specified
in paragraph (a) of Section 1 of Part II of this Statement.
(p) "BIDDER" and "BIDDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement;
PROVIDED, HOWEVER, that neither the Fund nor any affiliate thereof shall
be permitted to be a Bidder in an Auction, except that any Broker-Dealer
that is an affiliate of the Fund may be a Bidder in an Auction, but only
if the Orders placed by such Broker-Dealer are not for its own account.
(q) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the
Fund or any duly authorized committee thereof.
7
<PAGE> 30
(r) "BROKER-DEALER" shall mean any broker-dealer, commercial bank
or other entity permitted by law to perform the functions required of a
Broker-Dealer in Part II of this Statement, that is a member of, or a
participant in, the Securities Depository or is an affiliate of such
member or participant, has been selected by the Fund and has entered into
a Broker-Dealer Agreement that remains effective.
(s) "BROKER-DEALER AGREEMENT" shall mean an agreement among the
Fund, the Auction Agent and a Broker-Dealer pursuant to which such
Broker-Dealer agrees to follow the procedures specified in Part II of
this Statement.
(t) "BUSINESS DAY" shall mean a day on which the New York Stock
Exchange is open for trading and which is neither a Saturday, Sunday nor
any other day on which banks in The City of New York, New York, are
authorized by law to close.
(u) "CODE" means the Internal Revenue Code of 1986, as amended.
(v) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated or, in lieu of any thereof, their respective
affiliates or successors, if such entity is a commercial paper dealer.
(w) "COMMON SHARES" shall mean the common shares of beneficial
interest, par value $.01 per share, of the Fund.
(x) "CURE DATE" shall mean the MuniPreferred Basic Maintenance Cure
Date or the 1940 Act Cure Date, as the case may be.
(y) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued
such shares.
(z) "DECLARATION" shall have the meaning specified on the first
page of this Statement.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations
rated at least A-1+ or SP-1+ by S&P, except that, for purposes of
subparagraph (a)(v) of Section 11 of Part I of this Statement, such
Municipal Obligations shall be considered "Deposit Securities" only if
they are also rated P-1, MIG-1 or VMIG-1 by Moody's.
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i)
with respect to an S&P Eligible Asset, the quotient of the Market Value
thereof divided by the applicable S&P Discount Factor and (ii) (a) with
respect to a Moody's Eligible Asset that is not currently callable as of
such Valuation Date at the option of the issuer thereof, the quotient of
the Market Value thereof divided by the applicable Moody's Discount
Factor, or (b) with respect to a Moody's Eligible Asset that is currently
callable as of such Valuation Date at the option of the issuer thereof,
the quotient of (1) the lesser of the Market Value or call price thereof,
including any call premium, divided by (2) the applicable Moody's
Discount Factor.
(cc) "DIVIDEND COVERAGE AMOUNT," as of any Valuation Date, shall
mean, with respect to each share of MuniPreferred, (i) the aggregate
amount of dividends that will accumulate on such share of MuniPreferred
to (but not including) the first Dividend Payment Date for such share
that follows such Valuation Date, less (ii) the combined value of Deposit
Securities irrevocably deposited for the payment of dividends on such
share of MuniPreferred.
(dd) "DIVIDEND COVERAGE ASSETS," as of any Valuation Date, shall
mean, with respect to each share of MuniPreferred, Deposit Securities
with maturity or tender dates not later than the day preceding the first
Dividend Payment Date for such share that follows such Valuation Date and
having a value not less than the Dividend Coverage Amount with respect to
such share.
(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on
shares of such series pursuant to the provisions of paragraph (d) of
Section 2 of Part I of this Statement.
8
<PAGE> 31
(ff) "DIVIDEND PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of
Original Issue of shares of such series to but excluding the initial
Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to
but excluding the next succeeding Dividend Payment Date for shares of such
series.
(gg) "EXISTING HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other Person as
may be permitted by the Fund) that is listed on the records of the
Auction Agent as a holder of shares of such series.
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction
Agent, not later than 12:00 noon, New York City time, (A) on the Business
Day next preceding any Dividend Payment Date for shares of such series,
in funds available on such Dividend Payment Date in The City of New York,
New York, the full amount of any dividend (whether or not earned or
declared) to be paid on such Dividend Payment Date on any share of such
series or (B) on the Business Day next preceding any redemption date in
funds available on such redemption date for shares of such series in The
City of New York, New York, the Redemption Price to be paid on such
redemption date for any share of such series after notice of redemption
is mailed pursuant to paragraph (c) of Section 11 of Part I of this
Statement; PROVIDED, HOWEVER, that the foregoing clause (B) shall not
apply to the Fund's failure to pay the Redemption Price in respect of
shares of MuniPreferred when the related Notice of Redemption provides
that redemption of such shares is subject to one or more conditions
precedent and any such condition precedent shall not have been satisfied
at the time or times and in the manner specified in such Notice of
Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified
in the definition of "Moody's Volatility Factor."
(jj) "FUND" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.
(kk) "GROSS-UP PAYMENT" shall have the meaning specified in Section
4 of APPENDIX A hereto.
(ll) "HOLDER," with respect to shares of a series of MuniPreferred,
shall mean the registered holder of such shares as the same appears on
the record books of the Fund.
(mm) "HOLD ORDER" and "HOLD ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(nn) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants
under the Securities Act of 1933, as amended from time to time.
(oo) "INITIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of
such series in Section 5 of APPENDIX A hereto.
(pp) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a
discount basis security which is equal to the yield on an equivalent
interest-bearing security.
(qq) "ISSUE TYPE CATEGORY," if defined in Section 4 of APPENDIX A
hereto, shall have the meaning specified in that section.
(rr) "KENNY INDEX" shall have the meaning specified in the
definition of "Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "LATE CHARGE" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.
9
<PAGE> 32
(tt) "LIQUIDATION PREFERENCE," with respect to a given number of
shares of MuniPreferred, means $50,000 times that number.
(uu) "MARKET VALUE" of any asset of the Fund shall mean the market
value thereof determined by the pricing service designated from time to
time by the Board of Trustees. Market Value of any asset shall include
any interest accrued thereon. The pricing service values portfolio
securities at the mean between the quoted bid and asked price or the
yield equivalent when quotations are readily available. Securities for
which quotations are not readily available are valued at fair value as
determined by the pricing service using methods which include
consideration of: yields or prices of municipal bonds of comparable
quality, type of issue, coupon, maturity and rating; indications as to
value from dealers; and general market conditions. The pricing service
may employ electronic data processing techniques or a matrix system, or
both, to determine valuations.
(vv) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any
Valuation Date, shall mean the aggregate amount of Gross-up Payments that
would be due if the Fund were to make Taxable Allocations, with respect
to any taxable year, estimated based upon dividends paid and the amount
of undistributed realized net capital gains and other taxable income
earned by the Fund, as of the end of the calendar month immediately
preceding such Valuation Date, and assuming such Gross-up Payments are
fully taxable.
(ww) "MAXIMUM RATE," for shares of a series of MuniPreferred on any
Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction
Date immediately prior to the first day of any proposed Special
Rate Period designated by the Fund pursuant to Section 4 of Part I
of this Statement, the product of (A) the Reference Rate on such
Auction Date for the next Rate Period of shares of such series and
(B) the Rate Multiple on such Auction Date, unless shares of such
series have or had a Special Rate Period (other than a Special Rate
Period of 28 Rate Period Days or fewer) and an Auction at which
Sufficient Clearing Bids existed has not yet occurred for a Minimum
Rate Period of shares of such series after such Special Rate
Period, in which case the higher of:
(A) the dividend rate on shares of such series for the
then-ending Rate Period; and
(B) the product of (1) the higher of (x) the Reference
Rate on such Auction Date for a Rate Period equal in length
to the then-ending Rate Period of shares of such series, if
such then-ending Rate Period was 364 Rate Period Days or
fewer, or the Treasury Note Rate on such Auction Date for a
Rate Period equal in length to the then-ending Rate Period of
shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, and (y) the Reference Rate on
such Auction Date for a Rate Period equal in length to such
Special Rate Period of shares of such series, if such Special
Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period
equal in length to such Special Rate Period, if such Special
Rate Period was more than 364 Rate Period Days and (2) the
Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction
Date immediately prior to the first day of any proposed Special
Rate Period designated by the Fund pursuant to Section 4 of Part I
of this Statement, the product of (A) the highest of (1) the
Reference Rate on such Auction Date for a Rate Period equal in
length to the then-ending Rate Period of shares of such series, if
such then-ending Rate Period was 364 Rate Period Days or fewer, or
the Treasury Note Rate on such Auction Date for a Rate Period equal
in length to the then-ending Rate Period of shares of such series,
if such then-ending Rate Period was more than 364 Rate Period Days,
(2) the Reference Rate on such Auction Date for the Special Rate
Period for which the Auction is being held if such Special Rate
Period is 364 Rate Period Days or fewer or the Treasury Note Rate
on such Auction Date for the Special Rate Period for which the
Auction is being held if such Special Rate Period is more than 364
Rate Period Days, and (3) the Reference Rate on such
10
<PAGE> 33
Auction Date for Minimum Rate Periods and (B) the Rate Multiple
on such Auction Date.
(xx) "MINIMUM LIQUIDITY LEVEL" shall have the meaning specified in
Section 8 of Part I of this Statement.
(yy) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of
7 Rate Period Days.
(zz) "MOODY'S" shall mean Moody's Investors Service, Inc., a
Delaware corporation, and its successors.
(aaa) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(bbb) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(ccc) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on
a given Valuation Date and ending 56 days thereafter.
(ddd) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation
Date, (i) in the case of any Minimum Rate Period, any Special Rate Period
of 28 Rate Period Days or fewer, or any Special Rate Period of 57 Rate
Period Days or more, a multiplicative factor equal to 275%, except as
otherwise provided in the last sentence of this definition; (ii) in the
case of any Special Rate Period of more than 28 but fewer than 36 Rate
Period Days, a multiplicative factor equal to 203%; (iii) in the case of
any Special Rate Period of more than 35 but fewer than 43 Rate Period
Days, a multiplicative factor equal to 217%; (iv) in the case of any
Special Rate Period of more than 42 but fewer than 50 Rate Period Days, a
multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a
multiplicative factor equal to 235%. If, as a result of the enactment of
changes to the Code, the greater of the maximum marginal Federal
individual income tax rate applicable to ordinary income and the maximum
marginal Federal corporate income tax rate applicable to ordinary income
will increase, such increase being rounded up to the next five percentage
points (the "Federal Tax Rate Increase"), until the effective date of
such increase, the Moody's Volatility Factor in the case of any Rate
Period described in (i) above in this definition instead shall be
determined by reference to the following table:
<TABLE>
<CAPTION>
FEDERAL VOLATILITY
TAX RATE INCREASE FACTOR
----------------- ----------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
</TABLE>
(eee) "MUNIPREFERRED" shall have the meaning set forth on the first
page of this Statement.
(fff) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i)(A) the product
of the number of shares of MuniPreferred outstanding on such date
multiplied by $50,000 (plus the product of the number of shares of any
other series of Preferred Shares outstanding on such date multiplied by
the liquidation preference of such shares), plus any redemption premium
applicable to shares of MuniPreferred (or other Preferred Shares) then
subject to redemption; (B) the aggregate amount of dividends that will
have accumulated at the respective Applicable Rates (whether or not
earned or declared) to (but not including) the first respective Dividend
Payment Dates for shares of MuniPreferred outstanding that follow such
Valuation Date (plus the aggregate amount of dividends, whether or not
earned or declared, that will have accumulated in respect of other
outstanding Preferred Shares to, but not including,
11
<PAGE> 34
the first respective dividend payment dates for such other shares that
follow such Valuation Date); (C) the aggregate amount of dividends that
would accumulate on shares of each series of MuniPreferred outstanding
from such first respective Dividend Payment Date therefor through the
56th day after such Valuation Date, at the Maximum Rate (calculated as if
such Valuation Date were the Auction Date for the Rate Period commencing
on such Dividend Payment Date) for a Minimum Rate Period of shares of
such series to commence on such Dividend Payment Date, assuming, solely
for purposes of the foregoing, that if on such Valuation Date the Fund
shall have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to Section 4(d)(i) of this Part I with respect to shares of such
series, such Maximum Rate shall be the higher of (a) the Maximum Rate for
the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period
of shares of such series to commence on such Dividend Payment Date,
multiplied by the Volatility Factor applicable to a Minimum Rate Period,
or, in the event the Fund shall have delivered a Notice of Special Rate
Period to the Auction Agent pursuant to Section 4(d)(i) of this Part I
with respect to shares of such series designating a Special Rate Period
consisting of 56 Rate Period Days or more, the Volatility Factor
applicable to a Special Rate Period of that length (plus the aggregate
amount of dividends that would accumulate at the maximum dividend rate or
rates on any other Preferred Shares outstanding from such respective
dividend payment dates through the 56th day after such Valuation Date, as
established by or pursuant to the respective statements establishing and
fixing the rights and preferences of such other Preferred Shares) (except
that (1) if such Valuation Date occurs at a time when a Failure to
Deposit (or, in the case of Preferred Shares other than MuniPreferred, a
failure similar to a Failure to Deposit) has occurred that has not been
cured, the dividend for purposes of calculation would accumulate at the
current dividend rate then applicable to the shares in respect of which
such failure has occurred and (2) for those days during the period
described in this subparagraph (C) in respect of which the Applicable
Rate in effect immediately prior to such Dividend Payment Date will
remain in effect (or, in the case of Preferred Shares other than
MuniPreferred, in respect of which the dividend rate or rates in effect
immediately prior to such respective dividend payment dates will remain
in effect), the dividend for purposes of calculation would accumulate at
such Applicable Rate (or other rate or rates, as the case may be) in
respect of those days); (D) the amount of anticipated expenses of the
Fund for the 90 days subsequent to such Valuation Date; (E) the amount of
the Fund's Maximum Potential Gross-up Payment Liability in respect of
shares of MuniPreferred (and similar amounts payable in respect of other
Preferred Shares pursuant to provisions similar to those contained in
Section 3 of Part I of this Statement) as of such Valuation Date; and (F)
any current liabilities as of such Valuation Date to the extent not
reflected in any of (i)(A) through (i)(E) (including, without limitation,
any payables for Municipal Obligations purchased as of such Valuation
Date and any liabilities incurred for the purpose of clearing securities
transactions) less (ii) the value (i.e., for purposes of current Moody's
guidelines, the face value of cash, short-term Municipal Obligations
rated MIG-1, VMIG-1 or P-1, and short-term securities that are the direct
obligation of the U.S. government, provided in each case that such
securities mature on or prior to the date upon which any of (i)(A)
through (i)(F) become payable, otherwise the Moody's Discounted Value) of
any of the Fund's assets irrevocably deposited by the Fund for the
payment of any of (i)(A) through (i)(F).
(ggg) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to
the failure by the Fund to satisfy the MuniPreferred Basic Maintenance
Amount (as required by paragraph (a) of Section 7 of Part I of this
Statement) as of a given Valuation Date, shall mean the seventh Business
Day following such Valuation Date.
(hhh) "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report
signed by the President, Treasurer or any Senior Vice President or Vice
President of the Fund which sets forth, as of the related Valuation Date,
the assets of the Fund, the Market Value and the Discounted Value thereof
(seriatim and in aggregate), and the MuniPreferred Basic Maintenance
Amount.
(iii) "MUNICIPAL OBLIGATIONS" shall mean "Municipal Obligations" as
defined in the Fund's registration statement on Form N-2 on file with the
Securities and Exchange Commission, as such registration statement may be
amended from time to time (the "Registration Statement").
(jjj) "1940 ACT" shall mean the Investment Company Act of 1940, as
amended from time to time.
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<PAGE> 35
(kkk) "1940 ACT CURE DATE," with respect to the failure by the Fund
to maintain the 1940 Act MuniPreferred Asset Coverage (as required by
Section 6 of Part I of this Statement) as of the last Business Day of
each month, shall mean the last Business Day of the following month.
(lll) "1940 ACT MUNIPREFERRED ASSET COVERAGE" shall mean asset
coverage, as defined in Section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Fund which are
shares of beneficial interest, including all outstanding shares of
MuniPreferred (or such other asset coverage as may in the future be
specified in or under the 1940 Act as the minimum asset coverage for
senior securities which are shares or stock of a closed-end investment
company as a condition of declaring dividends on its common shares or
stock).
(mmm) "NOTICE OF REDEMPTION" shall mean any notice with respect to
the redemption of shares of MuniPreferred pursuant to paragraph (c) of
Section 11 of Part I of this Statement.
(nnn) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with
respect to a Special Rate Period of shares of MuniPreferred pursuant to
subparagraph (d)(i) of Section 4 of Part I of this Statement.
(ooo) "ORDER" and "ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(ppp) "ORIGINAL ISSUE INSURANCE," if defined in Section 4 of
APPENDIX A hereto, shall have the meaning specified in that section.
(qqq) "OTHER ISSUES," if defined in Section 4 of APPENDIX A hereto,
shall have the meaning specified in that section.
(rrr) "OUTSTANDING" shall mean, as of any Auction Date with respect
to shares of a series of MuniPreferred, the number of shares of such
series theretofore issued by the Fund except, without duplication, (i)
any shares of such series theretofore cancelled or delivered to the
Auction Agent for cancellation or redeemed by the Fund, (ii) any shares
of such series as to which the Fund or any Affiliate thereof shall be an
Existing Holder and (iii) any shares of such series represented by any
certificate in lieu of which a new certificate has been executed and
delivered by the Fund.
(sss) "PERMANENT INSURANCE," if defined in Section 4 of APPENDIX A
hereto, shall have the meaning specified in that section.
(ttt) "PERSON" shall mean and include an individual, a partnership,
a corporation, a trust, an unincorporated association, a joint venture or
other entity or a government or any agency or political subdivision
thereof.
(uuu) "PORTFOLIO INSURANCE," if defined in Section 4 of APPENDIX A
hereto, shall have the meaning specified in that section.
(vvv) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a
series of MuniPreferred, shall mean a customer of a Broker-Dealer that is
not a Beneficial Owner of shares of such series but that wishes to
purchase shares of such series, or that is a Beneficial Owner of shares
of such series that wishes to purchase additional shares of such series.
(www) "POTENTIAL HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other person as
may be permitted by the Fund) that is not an Existing Holder of shares of
such series or that is an Existing Holder of shares of such series that
wishes to become the Existing Holder of additional shares of such series.
(xxx) "PREFERRED SHARES" shall mean the preferred shares of the
Fund, and includes the shares of MuniPreferred.
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<PAGE> 36
(yyy) "QUARTERLY VALUATION DATE" shall mean the last Business Day
of each February, May, August and November of each year, commencing on
the date set forth in Section 6 of APPENDIX A hereto.
(zzz) "RATE MULTIPLE" shall have the meaning specified in Section 4
of APPENDIX A hereto.
(aaaa) "RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the Initial Rate Period of shares of such
series and any Subsequent Rate Period, including any Special Rate Period,
of shares of such series.
(bbbb) "RATE PERIOD DAYS," for any Rate Period or Dividend Period,
means the number of days that would constitute such Rate Period or
Dividend Period but for the application of paragraph (d) of Section 2 of
Part I of this Statement or paragraph (b) of Section 4 of Part I of this
Statement.
(cccc) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A)
for purposes of calculation of Moody's Eligible Assets as of any
Valuation Date, no more than the aggregate of the following: (i) the book
value of receivables for Municipal Obligations sold as of or prior to
such Valuation Date if such receivables are due within five business days
of such Valuation Date, and if the trades which generated such
receivables are (x) settled through clearing house firms with respect to
which the Fund has received prior written authorization from Moody's or
(y) with counterparties having a Moody's long-term debt rating of at
least Baa3; and (ii) the Moody's Discounted Value of Municipal
Obligations sold as of or prior to such Valuation Date which generated
receivables, if such receivables are due within five business days of
such Valuation Date but do not comply with either of the conditions
specified in (i) above, and (B) for purposes of calculation of S&P
Eligible Assets as of any Valuation Date, the book value of receivables
for Municipal Obligations sold as of or prior to such Valuation Date if
such receivables are due within five business days of such Valuation
Date.
(dddd) "REDEMPTION PRICE" shall mean the applicable redemption
price specified in paragraph (a) or (b) of Section 11 of Part I of this
Statement.
(eeee) "REFERENCE RATE" shall mean (i) the higher of the Taxable
Equivalent of the Short-Term Municipal Bond Rate and the "AA" Composite
Commercial Paper Rate in the case of Minimum Rate Periods and Special
Rate Periods of 28 Rate Period Days or fewer; (ii) the "AA" Composite
Commercial Paper Rate in the case of Special Rate Periods of more than 28
Rate Period Days but fewer than 183 Rate Period Days; and (iii) the
Treasury Bill Rate in the case of Special Rate Periods of more than 182
Rate Period Days but fewer than 365 Rate Period Days.
(ffff) "REGISTRATION STATEMENT" has the meaning specified in the
definition of "Municipal Obligations."
(gggg) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(hhhh) "S&P DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(iiii) "S&P ELIGIBLE ASSET" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(jjjj) "S&P EXPOSURE PERIOD" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure
any failure to maintain, as of such Valuation Date, the Discounted Value
for its portfolio at least equal to the MuniPreferred Basic Maintenance
Amount (as described in paragraph (a) of Section 7 of Part I of this
Statement).
(kkkk) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation
Date, a multiplicative factor equal to (i) 305% in the case of any
Minimum Rate Period or any Special Rate Period of 28 Rate Period Days or
fewer; (ii) 268% in the case of any Special Rate Period of more than 28
Rate Period Days but fewer than 183 Rate Period Days; and (iii) 204% in
the case of any Special Rate Period of more than 182 Rate Period Days.
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<PAGE> 37
(llll) "SECONDARY MARKET INSURANCE," if defined in Section 4 of
APPENDIX A hereto, shall have the meaning specified in that section.
(mmmm) "SECURITIES DEPOSITORY" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the Fund which agrees to follow the procedures required to be
followed by such securities depository in connection with shares of
MuniPreferred.
(nnnn) "SELL ORDER" and "SELL ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(oooo) "SPECIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of
Section 4 of Part I of this Statement.
(pppp) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning
specified in subparagraph (a)(i) of Section 11 of Part I of this
Statement.
(qqqq) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City
time, on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as
specified by the Auction Agent from time to time.
(rrrr) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(ssss) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall
have the respective meanings specified in paragraph (a) of Section 3 of
Part II of this Statement.
(tttt) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(uuuu) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall
have the respective meanings specified in paragraph (a) of Section 3 of
Part II of this Statement.
(vvvv) "SUBSEQUENT RATE PERIOD," with respect to shares of a series
of MuniPreferred, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but
excluding the next Dividend Payment Date for shares of such series and
any period thereafter from and including one Dividend Payment Date for
shares of such series to but excluding the next succeeding Dividend
Payment Date for shares of such series; PROVIDED, HOWEVER, that if any
Subsequent Rate Period is also a Special Rate Period, such term shall
mean the period commencing on the first day of such Special Rate Period
and ending on the last day of the last Dividend Period thereof.
(wwww) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First
Boston Company or Morgan Stanley & Co. Incorporated or their respective
affiliates or successors, if such entity is a commercial paper dealer;
PROVIDED, HOWEVER, that none of such entities shall be a Commercial Paper
Dealer.
(xxxx) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean
The First Boston Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated or their respective affiliates or successors, if such entity
is a U.S. Government securities dealer; PROVIDED, HOWEVER, that none of
such entities shall be a U.S. Government Securities Dealer.
(yyyy) "SUFFICIENT CLEARING BIDS" shall have the meaning specified
in paragraph (a) of Section 3 of Part II of this Statement.
(zzzz) "TAXABLE ALLOCATION" shall have the meaning specified in
Section 3 of Part I of this Statement.
(aaaaa) "TAXABLE INCOME" shall have the meaning specified in
Section 12 of APPENDIX A hereto.
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<PAGE> 38
(bbbbb) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE,"
on any date for any Minimum Rate Period or Special Rate Period of 28 Rate
Period Days or fewer, shall mean 90% of the quotient of (A) the per annum
rate expressed on an interest equivalent basis equal to the Kenny S&P 30
day High Grade Index or any successor index (the "Kenny Index")(PROVIDED,
HOWEVER, that any such successor index must be approved by Moody's (if
Moody's is then rating the shares of MuniPreferred) and S&P (if S&P is
then rating the shares of MuniPreferred)), made available for the
Business Day immediately preceding such date but in any event not later
than 8:30 A.M., New York City time, on such date by Kenny S&P Evaluation
Services or any successor thereto, based upon 30-day yield evaluations at
par of short-term bonds the interest on which is excludable for regular
Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny S&P Evaluation Services or any such successor
from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but
shall exclude any bonds the interest on which constitutes an item of tax
preference under Section 57(a)(5) of the Code, or successor provisions,
for purposes of the "alternative minimum tax," divided by (B) 1.00 minus
the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or the maximum marginal regular Federal
corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater; PROVIDED, HOWEVER, that if
the Kenny Index is not made so available by 8:30 A.M., New York City
time, on such date by Kenny S&P Evaluation Services or any successor, the
Taxable Equivalent of the Short-Term Municipal Bond Rate shall mean the
quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any
preceding Business Day, divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income
or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income (in each case expressed as a decimal),
whichever is greater.
(ccccc) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(ddddd) "TREASURY BILL RATE," on any date for any Rate Period,
shall mean (i) the bond equivalent yield, calculated in accordance with
prevailing industry convention, of the rate on the most recently
auctioned Treasury Bill with a remaining maturity closest to the length
of such Rate Period, as quoted in The Wall Street Journal on such date
for the Business Day next preceding such date; or (ii) in the event that
any such rate is not published in The Wall Street Journal, then the bond
equivalent yield, calculated in accordance with prevailing industry
convention, as calculated by reference to the arithmetic average of the
bid price quotations of the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the
Business Day immediately preceding such date obtained from the U.S.
Government Securities Dealers to the Auction Agent.
(eeeee) "TREASURY NOTE" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of five years or
less but more than 364 days.
(fffff) "TREASURY NOTE RATE," on any date for any Rate Period,
shall mean (i) the yield on the most recently auctioned Treasury Note
with a remaining maturity closest to the length of such Rate Period, as
quoted in The Wall Street Journal on such date for the Business Day next
preceding such date; or (ii) in the event that any such rate is not
published in The Wall Street Journal, then the yield as calculated by
reference to the arithmetic average of the bid price quotations of the
most recently auctioned Treasury Note with a remaining maturity closest
to the length of such Rate Period, as determined by bid price quotations
as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the
Auction Agent. If any U.S. Government Securities Dealer does not quote a
rate required to determine the Treasury Bill Rate or the Treasury Note
Rate, the Treasury Bill Rate or the Treasury Note Rate shall be
determined on the basis of the quotation or quotations furnished by the
remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers and any Substitute U.S. Government Securities Dealers selected by
the Fund to provide such rate or rates not being supplied by any U.S.
Government Securities Dealer or U.S. Government Securities Dealers, as
the case may be, or, if the Fund does not select any such Substitute U.S.
Government Securities Dealer
16
<PAGE> 39
or Substitute U.S. Government Securities Dealers, by the remaining U.S.
Government Securities Dealer or U.S. Government Securities Dealers.
(ggggg) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman
Government Securities Incorporated, Goldman, Sachs & Co., Salomon
Brothers Inc and Morgan Guaranty Trust Company of New York or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer.
(hhhhh) "VALUATION DATE" shall mean, for purposes of determining
whether the Fund is maintaining the MuniPreferred Basic Maintenance
Amount and the Minimum Liquidity Level, each Business Day.
(iiiii) "VOLATILITY FACTOR" shall mean, as of any Valuation Date,
the greater of the Moody's Volatility Factor and the S&P Volatility
Factor.
(jjjjj) "VOTING PERIOD" shall have the meaning specified in
paragraph (b) of Section 5 of Part I of this Statement.
(kkkkk) "WINNING BID RATE" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 8 of APPENDIX
A hereto shall be incorporated herein and made part hereof by reference
thereto.
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<PAGE> 40
PART I
1. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares constituting a series of MuniPreferred
shall be as set forth with respect to such series in Section 2 of APPENDIX A
hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a
parity with each other, with shares of any other series of MuniPreferred and
with shares of any other series of Preferred Shares as to the payment of
dividends by the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of MuniPreferred of
any series shall be entitled to receive, when, as and if declared by the Board
of Trustees, out of funds legally available therefor in accordance with the
Declaration and applicable law, cumulative cash dividends at the Applicable
Rate for shares of such series, determined as set forth in paragraph (e) of
this Section 2, and no more (except to the extent set forth in Section 3 of
this Part I), payable on the Dividend Payment Dates with respect to shares of
such series determined pursuant to paragraph (d) of this Section 2. Holders of
shares of MuniPreferred shall not be entitled to any dividend, whether payable
in cash, property or shares, in excess of full cumulative dividends, as herein
provided, on shares of MuniPreferred. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
shares of MuniPreferred which may be in arrears, and, except to the extent set
forth in subparagraph (e)(i) of this Section 2, no additional sum of money
shall be payable in respect of any such arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on
shares of MuniPreferred of any series shall accumulate at the Applicable Rate
for shares of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment
Dates with respect to shares of a series of MuniPreferred shall be as set forth
with respect to shares of such series in Section 9 of APPENDIX A hereto;
PROVIDED, HOWEVER, that:
(i) (A) in the case of a series of MuniPreferred designated as
"Series F MuniPreferred" or "Series M MuniPreferred" in Section 1 of
APPENDIX A hereto, if the Monday or Tuesday, as the case may be, on which
dividends would otherwise be payable on shares of such series is not a
Business Day, then such dividends shall be payable on such shares on the
first Business Day that falls after such Monday or Tuesday, as the case
may be, and (B) in the case of a series of MuniPreferred designated as
"Series T MuniPreferred," "Series W MuniPreferred" or "Series TH
MuniPreferred" in Section 1 of APPENDIX A hereto, if the Wednesday,
Thursday or Friday, as the case may be, on which dividends would
otherwise be payable on shares of such series is not a Business Day, then
such dividends shall be payable on such shares on the first Business Day
that falls prior to such Wednesday, Thursday or Friday, as the case may
be; and
(ii) notwithstanding Section 9 of APPENDIX A hereto, the Fund in
its discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of MuniPreferred consisting of
more than 28 Rate Period Days; PROVIDED, HOWEVER, that such dates shall
be set forth in the Notice of Special Rate Period relating to such
Special Rate Period, as delivered to the Auction Agent, which Notice of
Special Rate Period shall be filed with the Secretary of the Fund; and
further provided that (1) any such Dividend Payment Date shall be a
Business Day and (2) the last Dividend Payment Date in respect of such
Special Rate Period shall be the Business Day immediately following the
last day thereof, as such last day is determined in accordance with
paragraph (b) of Section 4 of this Part I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS. (i) DIVIDEND RATES.
The dividend rate on shares of MuniPreferred of any series during the period
from and after the Date of Original Issue of shares of such series to and
including the last day of the Initial Rate Period of shares of such series
shall be equal to the rate per annum set forth with respect to shares of such
series under "Designation" in Section 1 of APPENDIX A hereto. For each
Subsequent Rate Period of shares of such series thereafter, the dividend rate
on shares of such series shall be equal to the rate per annum that results
18
<PAGE> 41
from an Auction for shares of such series on the Auction Date next preceding
such Subsequent Rate Period; PROVIDED, HOWEVER, that if:
(A) an Auction for any such Subsequent Rate Period is not held for
any reason other than as described below, the dividend rate on shares of
such series for such Subsequent Rate Period will be the Maximum Rate for
shares of such series on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with respect to
shares of such series during any Rate Period thereof (other than any
Special Rate Period consisting of more than 364 Rate Period Days or any
Rate Period succeeding any Special Rate Period consisting of more than
364 Rate Period Days during which a Failure to Deposit occurred that has
not been cured), but, prior to 12:00 Noon, New York City time, on the
third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall have been cured in
accordance with paragraph (f) of this Section 2 and the Fund shall have
paid to the Auction Agent a late charge ("Late Charge") equal to the sum
of (1) if such Failure to Deposit consisted of the failure timely to pay
to the Auction Agent the full amount of dividends with respect to any
Dividend Period of the shares of such series, an amount computed by
multiplying (x) 200% of the Reference Rate for the Rate Period during
which such Failure to Deposit occurs on the Dividend Payment Date for
such Dividend Period by (y) a fraction, the numerator of which shall be
the number of days for which such Failure to Deposit has not been cured
in accordance with paragraph (f) of this Section 2 (including the day
such Failure to Deposit occurs and excluding the day such Failure to
Deposit is cured) and the denominator of which shall be 360, and applying
the rate obtained against the aggregate Liquidation Preference of the
outstanding shares of such series and (2) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the
Redemption Price of the shares, if any, of such series for which Notice
of Redemption has been mailed by the Fund pursuant to paragraph (c) of
Section 11 of this Part I, an amount computed by multiplying (x) 200% of
the Reference Rate for the Rate Period during which such Failure to
Deposit occurs on the redemption date by (y) a fraction, the numerator of
which shall be the number of days for which such Failure to Deposit is
not cured in accordance with paragraph (f) of this Section 2 (including
the day such Failure to Deposit occurs and excluding the day such Failure
to Deposit is cured) and the denominator of which shall be 360, and
applying the rate obtained against the aggregate Liquidation Preference
of the outstanding shares of such series to be redeemed, no Auction will
be held in respect of shares of such series for the Subsequent Rate
Period thereof and the dividend rate for shares of such series for such
Subsequent Rate Period will be the Maximum Rate for shares of such series
on the Auction Date for such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with respect to
shares of such series during any Rate Period thereof (other than any
Special Rate Period consisting of more than 364 Rate Period Days or any
Rate Period succeeding any Special Rate Period consisting of more than
364 Rate Period Days during which a Failure to Deposit occurred that has
not been cured), and, prior to 12:00 Noon, New York City time, on the
third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall not have been cured in
accordance with paragraph (f) of this Section 2 or the Fund shall not
have paid the applicable Late Charge to the Auction Agent, no Auction
will be held in respect of shares of such series for the first Subsequent
Rate Period thereof thereafter (or for any Rate Period thereof thereafter
to and including the Rate Period during which (1) such Failure to Deposit
is cured in accordance with paragraph (f) of this Section 2 and (2) the
Fund pays the applicable Late Charge to the Auction Agent (the condition
set forth in this clause (2) to apply only in the event Moody's is rating
such shares at the time the Fund cures such Failure to Deposit), in each
case no later than 12:00 Noon, New York City time, on the fourth Business
Day prior to the end of such Rate Period), and the dividend rate for
shares of such series for each such Subsequent Rate Period shall be a
rate per annum equal to the Maximum Rate for shares of such series on the
Auction Date for such Subsequent Rate Period (but with the prevailing
rating for shares of such series, for purposes of determining such
Maximum Rate, being deemed to be "Below "ba3'/BB-"); or
(D) any Failure to Deposit shall have occurred with respect to
shares of such series during a Special Rate Period thereof consisting of
more than 364 Rate Period Days, or during any Rate Period thereof
succeeding any Special Rate Period consisting of more than 364 Rate
Period Days during which a Failure to Deposit
19
<PAGE> 42
occurred that has not been cured, and, prior to 12:00 Noon, New York City
time, on the fourth Business Day preceding the Auction Date for the Rate
Period subsequent to such Rate Period, such Failure to Deposit shall not
have been cured in accordance with paragraph (f) of this Section 2 or, in
the event Moody's is then rating such shares, the Fund shall not have
paid the applicable Late Charge to the Auction Agent (such Late Charge,
for purposes of this subparagraph (D), to be calculated by using, as the
Reference Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days but fewer than 365 Rate
Period Days and (y) commencing on the date on which the Rate Period
during which Failure to Deposit occurs commenced), no Auction will be
held in respect of shares of such series for such Subsequent Rate Period
(or for any Rate Period thereof thereafter to and including the Rate
Period during which (1) such Failure to Deposit is cured in accordance
with paragraph (f) of this Section 2 and (2) the Fund pays the applicable
Late Charge to the Auction Agent (the condition set forth in this clause
(2) to apply only in the event Moody's is rating such shares at the time
the Fund cures such Failure to Deposit), in each case no later than 12:00
Noon, New York City time, on the fourth Business Day prior to the end of
such Rate Period), and the dividend rate for shares of such series for
each such Subsequent Rate Period shall be a rate per annum equal to the
Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period (but with the prevailing rating for shares of such
series, for purposes of determining such Maximum Rate, being deemed to be
"Below `ba3'/BB-") (the rate per annum at which dividends are payable on
shares of a series of MuniPreferred for any Rate Period thereof being
herein referred to as the "Applicable Rate" for shares of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share payable
on shares of a series of MuniPreferred on any date on which dividends shall be
payable on shares of such series shall be computed by multiplying the
Applicable Rate for shares of such series in effect for such Dividend Period or
Dividend Periods or part thereof for which dividends have not been paid by a
fraction, the numerator of which shall be the number of days in such Dividend
Period or Dividend Periods or part thereof and the denominator of which shall
be 365 if such Dividend Period consists of 7 Rate Period Days and 360 for all
other Dividend Periods, and applying the rate obtained against $50,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of MuniPreferred shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Fund to make the
required payment to the Auction Agent) with respect to any Rate Period of
shares of such series if, within the respective time periods described in
subparagraph (e)(i) of this Section 2, the Fund shall have paid to the Auction
Agent (A) all accumulated and unpaid dividends on shares of such series and (B)
without duplication, the Redemption Price for shares, if any, of such series
for which Notice of Redemption has been mailed by the Fund pursuant to
paragraph (c) of Section 11 of Part I of this Statement; PROVIDED, HOWEVER,
that the foregoing clause (B) shall not apply to the Fund's failure to pay the
Redemption Price in respect of shares of MuniPreferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall pay to
the Auction Agent, not later than 12:00 Noon, New York City time, on the
Business Day next preceding each Dividend Payment Date for shares of a series
of MuniPreferred, an aggregate amount of funds available on the next Business
Day in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All moneys
paid to the Auction Agent for the payment of dividends (or for the payment of
any Late Charge) shall be held in trust for the payment of such dividends (and
any such Late Charge) by the Auction Agent for the benefit of the Holders
specified in paragraph (i) of this Section 2. Any moneys paid to the Auction
Agent in accordance with the foregoing but not applied by the Auction Agent to
the payment of dividends (and any such Late Charge) will, to the extent
permitted by law, be repaid to the Fund at the end of 90 days from the date on
which such moneys were so to have been applied.
20
<PAGE> 43
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of MuniPreferred
shall be paid on the Dividend Payment Date therefor to the Holders thereof as
their names appear on the record books of the Fund on the Business Day next
preceding such Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS.
Any dividend payment made on shares of MuniPreferred shall first be credited
against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to
the Holders as their names appear on the record books of the Fund on such date,
not exceeding 15 days preceding the payment date thereof, as may be fixed by
the Board of Trustees.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on
shares of MuniPreferred shall be designated as exempt-interest dividends up to
the amount of tax-exempt income of the Fund, to the extent permitted by, and
for purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of shares of MuniPreferred shall be entitled to receive, when, as
and if declared by the Board of Trustees, out of funds legally available
therefor in accordance with the Declaration and applicable law, dividends in an
amount equal to the aggregate Gross-up Payments as follows:
(a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE PERIOD
DAYS OR FEWER. If, in the case of any Minimum Rate Period or any Special
Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net
capital gains or other income taxable for Federal income tax purposes to
a dividend paid on shares of MuniPreferred without having given advance
notice thereof to the Auction Agent as provided in Section 5 of Part II
of this Statement (such allocation being referred to herein as a "Taxable
Allocation") solely by reason of the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of MuniPreferred or the liquidation of the Fund, the
Fund shall, prior to the end of the calendar year in which such dividend
was paid, provide notice thereof to the Auction Agent and direct the
Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of such shares that was entitled to such dividend
payment during such calendar year at such Holder's address as the same
appears or last appeared on the record books of the Fund.
(b) SPECIAL RATE PERIODS OF MORE THAN 28 RATE PERIOD DAYS. If, in
the case of any Special Rate Period of more than 28 Rate Period Days, the
Fund makes a Taxable Allocation to a dividend paid on shares of
MuniPreferred, the Fund shall, prior to the end of the calendar year in
which such dividend was paid, provide notice thereof to the Auction Agent
and direct the Fund's dividend disbursing agent to send such notice with
a Gross-up Payment to each Holder of shares that was entitled to such
dividend payment during such calendar year at such Holder's address as
the same appears or last appeared on the record books of the Fund.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Fund
shall not be required to make Gross-up Payments with respect to any net
capital gains or other taxable income determined by the Internal Revenue
Service to be allocable in a manner different from that allocated by the
Fund.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Fund, at
its option, may designate any succeeding Subsequent Rate Period of shares of a
series of MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Fund pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such
21
<PAGE> 44
series, the Redemption Price with respect to such shares shall have been
deposited with the Auction Agent. In the event the Fund wishes to designate
any succeeding Subsequent Rate Period for shares of a series of MuniPreferred
as a Special Rate Period consisting of more than 28 Rate Period Days, the Fund
shall notify S&P (if S&P is then rating such series) and Moody's (if Moody's is
then rating such series) in advance of the commencement of such Subsequent Rate
Period that the Fund wishes to designate such Subsequent Rate Period as a
Special Rate Period and shall provide S&P (if S&P is then rating such series)
and Moody's (if Moody's is then rating such series) with such documents as
either may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Fund
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special Rate Period
is not (a) a Tuesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series M MuniPreferred" in Section 1 of APPENDIX A
hereto, (b) a Wednesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series T MuniPreferred" in Section 1 of APPENDIX A
hereto, (c) a Thursday that is a Business Day in the case of a series of
MuniPreferred designated as "Series W MuniPreferred" in Section 1 of APPENDIX A
hereto, (d) a Friday that is a Business Day in the case of a series of
MuniPreferred designated as "Series TH MuniPreferred" in Section 1 of APPENDIX
A hereto, (e) a Monday that is a Business Day in the case of a series of
MuniPreferred designated as "Series F MuniPreferred" in Section 1 of APPENDIX A
hereto, then the Fund shall designate such Subsequent Rate Period as a Special
Rate Period consisting of the period commencing on the first day following the
end of the immediately preceding Rate Period and ending (a) on the first Monday
that is followed by a Tuesday that is a Business Day preceding what would
otherwise be such last day, in the case of Series M MuniPreferred, (b) on the
first Tuesday that is followed by a Wednesday that is a Business Day preceding
what would otherwise be such last day, in the case of Series T MuniPreferred,
(c) on the first Wednesday that is followed by a Thursday that is a Business
Day preceding what would otherwise be such last day, in the case of Series W
MuniPreferred, (d) on the first Thursday that is followed by a Friday that is a
Business Day preceding what would otherwise be such last day, in the case of
Series TH MuniPreferred, and (e) on the first Sunday that is followed by a
Monday that is a Business Day preceding what would otherwise be such last day,
in the case of Series F MuniPreferred.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period pursuant to paragraph (a) of this
Section 4, not less than 20 (or such lesser number of days as may be agreed to
from time to time by the Auction Agent) nor more than 30 days prior to the date
the Fund proposes to designate as the first day of such Special Rate Period
(which shall be such day that would otherwise be the first day of a Minimum
Rate Period), notice shall be (i) published or caused to be published by the
Fund in a newspaper of general circulation to the financial community in The
City of New York, New York, which carries financial news, and (ii) mailed by
the Fund by first-class mail, postage prepaid, to the Holders of shares of such
series. Each such notice shall state (A) that the Fund may exercise its option
to designate a succeeding Subsequent Rate Period of shares of such series as a
Special Rate Period, specifying the first day thereof and (B) that the Fund
will, by 11:00 A.M., New York City time, on the second Business Day next
preceding such date (or by such later time or date, or both, as may be agreed
to by the Auction Agent) notify the Auction Agent of either (x) its
determination, subject to certain conditions, to exercise such option, in which
case the Fund shall specify the Special Rate Period designated, or (y) its
determination not to exercise such option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York
City time, on the second Business Day next preceding the first day of any
proposed Special Rate Period of shares of a series of MuniPreferred as to which
notice has been given as set forth in paragraph (c) of this Section 4 (or such
later time or date, or both, as may be agreed to by the Auction Agent), the
Fund shall deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the
Fund has determined to designate the next succeeding Rate Period of
shares of such series as a Special Rate Period, specifying the same and
the first day thereof, (B) the Auction Date immediately prior to the
first day of such Special Rate Period, (C) that such Special Rate Period
shall not commence if (1) an Auction for shares of such series shall not
be held on such Auction Date for any reason or (2) an Auction for shares
of such series shall be held on such Auction Date but Sufficient Clearing
Bids for shares of such series shall not exist in such Auction, (D) the
scheduled Dividend Payment Dates for shares of such series during such
Special Rate Period and (E) the Special Redemption Provisions, if any,
applicable to shares of
22
<PAGE> 45
such series in respect of such Special Rate Period; such notice to be
accompanied by a MuniPreferred Basic Maintenance Report showing that, as
of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is then rating such series)
and S&P Eligible Assets (if S&P is then rating such series) each have an
aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that (a) the Maximum Rate is the Maximum Rate on
such Business Day as if such Business Day were the Auction Date for the
proposed Special Rate Period, and (b) the Moody's Discount Factors
applicable to Moody's Eligible Assets are determined by reference to the
first Exposure Period longer than the Exposure Period then applicable to
the Fund, as described in the definition of Moody's Discount Factor
herein); or
(ii) a notice stating that the Fund has determined not to exercise
its option to designate a Special Rate Period of shares of such series
and that the next succeeding Rate Period of shares of such series shall
be a Minimum Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Fund fails
to deliver either of the notices described in subparagraphs (d)(i) or (d)(ii)
of this Section 4 (and, in the case of the notice described in subparagraph
(d)(i) of this Section 4, a MuniPreferred Basic Maintenance Report to the
effect set forth in such subparagraph (if either Moody's or S&P is then rating
the series in question)) with respect to any designation of any proposed
Special Rate Period to the Auction Agent by 11:00 A.M., New York City time, on
the second Business Day next preceding the first day of such proposed Special
Rate Period (or by such later time or date, or both, as may be agreed to by the
Auction Agent), the Fund shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Rate Period to the effect set forth
in subparagraph (d)(ii) of this Section 4. In the event the Fund delivers to
the Auction Agent a notice described in subparagraph (d)(i) of this Section 4,
it shall file a copy of such notice with the Secretary of the Fund, and the
contents of such notice shall be binding on the Fund. In the event the Fund
delivers to the Auction Agent a notice described in subparagraph (d)(ii) of
this Section 4, the Fund will provide Moody's (if Moody's is then rating the
series in question) and S&P (if S&P is then rating the series in question) a
copy of such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF MUNIPREFERRED. Except as otherwise provided in
the Declaration or as otherwise required by law, (i) each Holder of shares of
MuniPreferred shall be entitled to one vote for each share of MuniPreferred
held by such Holder on each matter submitted to a vote of shareholders of the
Fund, and (ii) the holders of outstanding Preferred Shares, including each
share of MuniPreferred, and of Common Shares shall vote together as a single
class; PROVIDED, HOWEVER, that, at any meeting of the shareholders of the Fund
held for the election of trustees, the holders of outstanding Preferred Shares,
including MuniPreferred, represented in person or by proxy at said meeting,
shall be entitled, as a class, to the exclusion of the holders of all other
securities and classes of shares of beneficial interest of the Fund, to elect
two trustees of the Fund, each Preferred Share, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding Common Shares and Preferred
Shares, including MuniPreferred, voting together as a single class, shall
elect the balance of the trustees.
(b) VOTING FOR ADDITIONAL TRUSTEES. (i) VOTING PERIOD. During any
period in which any one or more of the conditions described in subparagraphs
(A) or (B) of this subparagraph (b)(i) shall exist (such period being referred
to herein as a "Voting Period"), the number of trustees constituting the Board
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 shares of MuniPreferred, would constitute a majority of the
Board of Trustees as so increased by such smallest number; and the holders of
Preferred Shares, including MuniPreferred, shall be entitled, voting as a class
on a one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of shares of beneficial interest of the Fund), 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:
(A) if at the close of business on any dividend payment date
accumulated dividends (whether or not earned or declared) on any
outstanding Preferred Share, including MuniPreferred, equal to at least
two full years' dividends shall be due
23
<PAGE> 46
and unpaid and sufficient cash or specified securities shall not have
been deposited with the Auction Agent for the payment of such accumulated
dividends; or
(B) if at any time holders of Preferred Shares are entitled under
the 1940 Act to elect a majority of the trustees of the Fund.
Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the accrual
of any right of the holders of Preferred Shares to elect additional trustees as
described in subparagraph (b)(i) of this Section 5, the Fund shall notify the
Auction Agent and the Auction Agent shall call a special meeting of such
holders, by mailing a notice of such special meeting to such holders, such
meeting to be held not less than 10 nor more than 20 days after the date of
mailing of such notice. If the Fund fails to send such notice to the Auction
Agent or if the Auction Agent does not call such a special meeting, it may be
called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders
of Preferred Shares held during a Voting Period at which trustees are to be
elected, such holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of shares of beneficial interest of
the Fund), shall be entitled to elect the number of trustees prescribed in
subparagraph (b)(i) of this Section 5 on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING TRUSTEES. The terms of office of all
persons who are trustees of the Fund at the time of a special meeting of
Holders and holders of other Preferred Shares to elect trustees shall continue,
notwithstanding the election at such meeting by the Holders and such other
holders of the number of trustees that they are entitled to elect, and the
persons so elected by the Holders and such other holders, together with the two
incumbent trustees elected by the Holders 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 Fund.
(iv) TERMS OF OFFICE OF CERTAIN TRUSTEES TO TERMINATE UPON TERMINATION OF
VOTING PERIOD. Simultaneously with the termination of a Voting Period, the
terms of office of the additional trustees elected by the Holders and holders
of other Preferred Shares pursuant to subparagraph (b)(i) of this Section 5
shall terminate, the remaining trustees shall constitute the trustees of the
Fund and the voting rights of the Holders and such other holders to elect
additional trustees pursuant to subparagraph (b)(i) of this Section 5 shall
cease, subject to the provisions of the last sentence of subparagraph (b)(i) of
this Section 5.
(c) HOLDERS OF MUNIPREFERRED TO VOTE ON CERTAIN OTHER MATTERS. (I)
INCREASES IN CAPITALIZATION. So long as any shares of MuniPreferred are
outstanding, the Fund shall not, without the affirmative vote or consent of the
Holders of at least a majority of the shares of MuniPreferred outstanding at
the time, in person or by proxy, either in writing or at a meeting, voting as a
separate class: (a) authorize, create or issue any class or series of shares
ranking prior to or on a parity with shares of MuniPreferred with respect to
the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, or authorize, create or
issue additional shares of any series of MuniPreferred (except that,
notwithstanding the foregoing, but subject to the provisions of paragraph (c)
of Section 10 of this Part I, the Board of Trustees, without the vote or
consent of the Holders of MuniPreferred, may from time to time authorize and
create, and the Fund may from time to time issue, additional shares of any
series of MuniPreferred or classes or series of Preferred Shares ranking on a
parity with shares of MuniPreferred with respect to the payment of dividends
and the distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Fund; PROVIDED, HOWEVER, that if Moody's or S&P is not then
rating the shares of MuniPreferred, the aggregate liquidation preference of all
Preferred Shares of the Fund outstanding after any such issuance, exclusive of
accumulated and unpaid dividends, may not exceed the amount set forth in
Section 10 of APPENDIX A hereto) or (b) amend, alter or repeal the provisions
of the Declaration, or this Statement, whether by merger, consolidation or
otherwise, so as to affect any preference, right or power of such shares of
MuniPreferred or the Holders thereof; PROVIDED, HOWEVER, that (i) none of the
actions permitted by the exception to (a) above will be deemed to affect such
preferences, rights or powers, (ii) a
24
<PAGE> 47
division of a share of MuniPreferred will be deemed to affect such preferences,
rights or powers only if the terms of such division adversely affect the
Holders of shares of MuniPreferred and (iii) the authorization, creation and
issuance of classes or series of shares ranking junior to shares of
MuniPreferred with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund,
will be deemed to affect such preferences, rights or powers only if Moody's or
S&P is then rating shares of MuniPreferred and such issuance would, at the time
thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred Asset
Coverage or the MuniPreferred Basic Maintenance Amount. So long as any shares
of MuniPreferred are outstanding, the Fund shall not, without the affirmative
vote or consent of the Holders of at least 66 2/3% of the shares of
MuniPreferred outstanding at the time, in person or by proxy, either in writing
or at a meeting, voting as a separate class, file a voluntary application for
relief under Federal bankruptcy law or any similar application under state law
for so long as the Fund is solvent and does not foresee becoming insolvent. If
any action set forth above would adversely affect the rights of one or more
series (the "Affected Series") of MuniPreferred in a manner different from any
other series of MuniPreferred, the Fund will not approve any such action
without the affirmative vote or consent of the Holders of at least a majority
of the shares of each such Affected Series outstanding at the time, in person
or by proxy, either in writing or at a meeting (each such Affected Series
voting as a separate class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in the
Declaration, (A) the affirmative vote of the Holders of at least a majority of
the Preferred Shares, including MuniPreferred, outstanding at the time, voting
as a separate class, shall be required to approve any conversion of the Fund
from a closed-end to an open-end investment company and (B) the affirmative
vote of the Holders of a "majority of the outstanding Preferred Shares,"
including MuniPreferred, voting as a separate class, shall be required to
approve any plan of reorganization (as such term is used in the 1940 Act)
adversely affecting such shares. The affirmative vote of the Holders of a
"majority of the outstanding Preferred Shares," including MuniPreferred, voting
as a separate class, shall be required to approve any action not described in
the first sentence of this Section 5(c)(ii) requiring a vote of security
holders of the Fund under Section 13(a) of the 1940 Act. For purposes of the
foregoing, "majority of the outstanding Preferred Shares" means (i) 67% or more
of such shares present at a meeting, if the Holders of more than 50% of such
shares are present or represented by proxy, or (ii) more than 50% of such
shares, whichever is less. In the event a vote of Holders of MuniPreferred is
required pursuant to the provisions of Section 13(a) of the 1940 Act, the Fund
shall, not later than ten Business Days prior to the date on which such vote is
to be taken, notify Moody's (if Moody's is then rating the shares of
MuniPreferred) and S&P (if S&P is then rating the shares of MuniPreferred) that
such vote is to be taken and the nature of the action with respect to which
such vote is to be taken. The Fund shall, not later than ten Business Days
after the date on which such vote is taken, notify Moody's (if Moody's is then
rating the shares of MuniPreferred) of the results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The
Board of Trustees, without the vote or consent of the shareholders of the Fund,
may from time to time amend, alter or repeal any or all of the definitions of
the terms listed below, or any provision of this Statement viewed by Moody's or
S&P as a predicate for any such definition, and any such amendment, alteration
or repeal will not be deemed to affect the preferences, rights or powers of
shares of MuniPreferred or the Holders thereof; PROVIDED, HOWEVER, that the
Board of Trustees receives written confirmation from Moody's (such confirmation
being required to be obtained only in the event Moody's is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Deposit Securities, Discounted Value, Receivables for
Municipal Obligations Sold, Issue Type Category and Other Issues as such terms
apply to S&P Eligible Assets, (y) Dividend Coverage Amount, Dividend Coverage
Assets, Minimum Liquidity Level, S&P Discount Factor, S&P Eligible Asset, S&P
Exposure Period and S&P Volatility Factor and (z) Valuation Date as such term
applies to the definitions of Dividend Coverage Amount, Dividend Coverage
Assets and Minimum Liquidity Level) and S&P (such confirmation being required
to be obtained only in the event S&P is rating the shares of MuniPreferred and
in no event being required to be obtained in the case of the definitions of (x)
Discounted Value, Receivables for Municipal Obligations Sold, Issue Type
Category and Other Issues as such terms apply to Moody's Eligible Assets, and
(y) Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure Period
and Moody's Volatility Factor) that any such amendment, alteration or repeal
would not impair the ratings then assigned by Moody's or S&P, as the case may
be, to shares of MuniPreferred:
Deposit Securities Moody's Exposure Period
Discounted Value Moody's Volatility Factor
25
<PAGE> 48
Dividend Coverage Amount 1940 Act Cure Date
Dividend Coverage Assets 1940 Act MuniPreferred Asset Coverage
Issue Type Category Other Issues
Market Value Quarterly Valuation Date
Maximum Potential Gross-up Receivables for Municipal
Payment Liability Obligations Sold
Minimum Liquidity Level S&P Discount Factor
MuniPreferred Basic Maintenance Amount S&P Eligible Asset
MuniPreferred Basic Maintenance Cure Date S&P Exposure Period
MuniPreferred Basic Maintenance Report S&P Volatility Factor
Moody's Discount Factor Valuation Date
Moody's Eligible Asset Volatility Factor
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the Holders of shares of MuniPreferred shall not
have any relative rights or preferences or other special rights other than
those specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of
MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR TRUSTEES SOLE REMEDY FOR FUND'S FAILURE TO PAY DIVIDENDS.
In the event that the Fund fails to pay any dividends on the shares of
MuniPreferred, the exclusive remedy of the Holders shall be the right to vote
for trustees pursuant to the provisions of this Section 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of
the Holders to vote on any matter, whether such right is created by this
Statement, by the other provisions of the Declaration, by statute or otherwise,
no Holder shall be entitled to vote any share of MuniPreferred and no share of
MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum if, prior to
or concurrently with the time of determination of shares entitled to vote or
shares deemed outstanding for quorum purposes, as the case may be, the
requisite Notice of Redemption with respect to such shares shall have been
mailed as provided in paragraph (c) of Section 11 of this Part I and the
Redemption Price for the redemption of such shares shall have been deposited in
trust with the Auction Agent for that purpose. No share of MuniPreferred held
by the Fund or any affiliate of the Fund (except for shares held by a
Broker-Dealer that is an affiliate of the Fund for the account of its
customers) shall have any voting rights or be deemed to be outstanding for
voting or other purposes.
6. 1940 ACT MUNIPREFERRED ASSET COVERAGE.
The Fund shall maintain, as of the last Business Day of each month in
which any share of MuniPreferred is outstanding, the 1940 Act MuniPreferred
Asset Coverage.
7. MUNIPREFERRED BASIC MAINTENANCE AMOUNT.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall
maintain, on each Valuation Date, and shall verify to its satisfaction that it
is maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the MuniPreferred Basic
Maintenance Amount (if S&P is then rating the shares of MuniPreferred) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or
greater than the MuniPreferred Basic Maintenance Amount (if Moody's is then
rating the shares of MuniPreferred).
(b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Fund fails to satisfy the MuniPreferred
Basic Maintenance Amount, and on the third Business Day after the MuniPreferred
Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) a MuniPreferred Basic Maintenance Report as of the date of such
failure or such MuniPreferred Basic Maintenance Cure Date, as the case may be,
which will be deemed to have been delivered to the Auction Agent if the Auction
Agent receives a copy or telecopy, telex or other electronic transcription
thereof and on the same day the Fund mails to the Auction Agent for delivery on
the next Business Day the full MuniPreferred Basic Maintenance Report. The
Fund shall also deliver a MuniPreferred Basic Maintenance Report to (i) the
Auction Agent (if either Moody's or S&P is then rating the shares of
MuniPreferred) as of (A) the fifteenth day of each month (or, if such day is
not a
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<PAGE> 49
Business Day, the next succeeding Business Day) and (B) the last Business Day
of each month, (ii) Moody's (if Moody's is then rating the shares of
MuniPreferred) and S&P (if S&P is then rating the shares of MuniPreferred) as
of any Quarterly Valuation Date, in each case on or before the third Business
Day after such day, and (iii) S&P, if and when requested for any Valuation
Date, on or before the third Business Day after such request. A failure by the
Fund to deliver a MuniPreferred Basic Maintenance Report pursuant to the
preceding sentence shall be deemed to be delivery of a MuniPreferred Basic
Maintenance Report indicating the Discounted Value for all assets of the Fund
is less than the MuniPreferred Basic Maintenance Amount, as of the relevant
Valuation Date.
(c) Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to a Quarterly Valuation Date, the Fund shall cause the
Independent Accountant to confirm in writing to S&P (if S&P is then rating the
shares of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) (i) the mathematical accuracy of the calculations
reflected in such Report (and in any other MuniPreferred Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Fund during the quarter ending on such Quarterly Valuation Date) and (ii)
that, in such Report (and in such randomly selected Report), the Fund
determined in accordance with this Statement whether the Fund had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly-selected Report), S&P Eligible Assets (if S&P is then rating the
shares of MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount and Moody's Eligible Assets (if Moody's
is then rating the shares of MuniPreferred) of an aggregate Discounted Value at
least equal to the MuniPreferred Basic Maintenance Amount (such confirmation
being herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to any Valuation Date on which the Fund failed to satisfy
the MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred
Basic Maintenance Cure Date with respect to such failure to satisfy the
MuniPreferred Basic Maintenance Amount, the Fund shall cause the Independent
Accountant to provide to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) an Accountant's Confirmation as to such MuniPreferred Basic
Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c)
or (d) of this Section 7 shows that an error was made in the MuniPreferred
Basic Maintenance Report for a particular Valuation Date for which such
Accountant's Confirmation was required to be delivered, or shows that a lower
aggregate Discounted Value for the aggregate of all S&P Eligible Assets (if S&P
is then rating the shares of MuniPreferred) or Moody's Eligible Assets (if
Moody's is then rating the shares of MuniPreferred), as the case may be, of the
Fund was determined by the Independent Accountant, the calculation or
determination made by such Independent Accountant shall be final and conclusive
and shall be binding on the Fund, and the Fund shall accordingly amend and
deliver the MuniPreferred Basic Maintenance Report to S&P (if S&P is then
rating the shares of MuniPreferred), Moody's (if Moody's is then rating the
shares of MuniPreferred) and the Auction Agent (if either S&P or Moody's is
then rating the shares of MuniPreferred) promptly following receipt by the Fund
of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any shares of MuniPreferred, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred)
and Moody's (if Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the close of business on such Date
of Original Issue. Within five Business Days of such Date of Original Issue,
the Fund shall cause the Independent Accountant to confirm in writing to S&P
(if S&P is then rating the shares of MuniPreferred) (i) the mathematical
accuracy of the calculations reflected in such Report and (ii) that the
Discounted Value of S&P Eligible Assets reflected thereon equals or exceeds the
MuniPreferred Basic Maintenance Amount reflected thereon.
(g) On or before 5:00 p.m., New York City time, on the third Business Day
after either (i) the Fund shall have redeemed Common Shares or (ii) the ratio
of the Discounted Value of S&P Eligible Assets or the Discounted Value of
Moody's Eligible Assets to the MuniPreferred Basic Maintenance Amount is less
than or equal to 105%, the Fund shall complete and deliver to S&P (if S&P is
then rating the shares of MuniPreferred) or Moody's
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<PAGE> 50
(if Moody's is then rating the shares of MuniPreferred), as the case may be, a
MuniPreferred Basic Maintenance Report as of the date of either such event.
8. MINIMUM LIQUIDITY LEVEL.
So long as S&P is rating the shares of MuniPreferred, the Fund shall have,
as of each Valuation Date, Dividend Coverage Assets, with respect to each then
outstanding share of MuniPreferred, having a value not less than the Dividend
Coverage Amount with respect to such share (the "Minimum Liquidity Level").
If, as of each Valuation Date, the Fund does not have the required Dividend
Coverage Assets, the Fund shall, as soon as practicable, adjust its portfolio
in order to meet the Minimum Liquidity Level, but only if S&P is then rating
the shares of MuniPreferred.
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON PREFERRED SHARES OTHER THAN MUNIPREFERRED. Except as
set forth in the next sentence, no dividends shall be declared or paid or set
apart for payment on the shares of any class or series of shares of beneficial
interest of the Fund ranking, as to the payment of dividends, on a parity with
shares of MuniPreferred for any period unless full cumulative dividends have
been or contemporaneously are declared and paid on the shares of each series of
MuniPreferred through its most recent Dividend Payment Date. When dividends
are not paid in full upon the shares of each series of MuniPreferred through
its most recent Dividend Payment Date or upon the shares of any other class or
series of shares of beneficial interest of the Fund ranking on a parity as to
the payment of dividends with shares of MuniPreferred through their most recent
respective dividend payment dates, all dividends declared upon shares of
MuniPreferred and any other such class or series of shares of beneficial
interest ranking on a parity as to the payment of dividends with shares of
MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of MuniPreferred and such other class or series of
shares of beneficial interest shall in all cases bear to each other the same
ratio that accumulated dividends per share on the shares of MuniPreferred and
such other class or series of shares of beneficial interest bear to each other
(for purposes of this sentence, the amount of dividends declared per share of
MuniPreferred shall be based on the Applicable Rate for such share for the
Dividend Periods during which dividends were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES UNDER
THE 1940 ACT. The Board of Trustees shall not declare any dividend (except a
dividend payable in Common Shares), or declare any other distribution, upon the
Common Shares, or purchase Common Shares, unless in every such case the
Preferred Shares have, at the time of any such declaration or purchase, an
asset coverage (as defined in and determined pursuant to the 1940 Act) of at
least 200% (or such other asset coverage as may in the future be specified in
or under the 1940 Act as the minimum asset coverage for senior securities which
are shares or stock of a closed-end investment company as a condition of
declaring dividends on its common shares or stock) after deducting the amount
of such dividend, distribution or purchase price, as the case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long
as any share of MuniPreferred is outstanding, and except as set forth in
paragraph (a) of this Section 9 and paragraph (c) of Section 12 of this Part I,
(A) the Fund shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
in options, warrants or rights to subscribe for or purchase, Common Shares or
other shares, if any, ranking junior to the shares of MuniPreferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of the Common Shares or any other shares
of the Fund ranking junior to or on a parity with the shares of MuniPreferred
as to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or
otherwise acquire for consideration any Common Shares or any other such junior
shares (except by conversion into or exchange for shares of the Fund ranking
junior to the shares of MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), or any
such parity shares (except by conversion into or exchange for shares of the
Fund ranking junior to or on a parity with MuniPreferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), unless (i) full cumulative dividends on shares of each series of
MuniPreferred through its most recently ended Dividend Period shall have been
paid or shall have been declared and sufficient funds for the payment thereof
deposited with the Auction Agent and (ii) the Fund has redeemed the full number
of shares of MuniPreferred required to be redeemed by any provision for
mandatory redemption pertaining thereto, and (B) the Fund shall not
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<PAGE> 51
declare, pay or set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in shares of, or in options, warrants or
rights to subscribe for or purchase, Common Shares or other shares, if any,
ranking junior to shares of MuniPreferred as to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up) in
respect of Common Shares or any other shares of the Fund ranking junior to
shares of MuniPreferred as to the payment of dividends or the distribution of
assets upon dissolution, liquidation or winding up, or call for redemption,
redeem, purchase or otherwise acquire for consideration any Common Shares or
any other such junior shares (except by conversion into or exchange for shares
of the Fund ranking junior to shares of MuniPreferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), unless immediately after such transaction the Discounted Value of
Moody's Eligible Assets (if Moody's is then rating the shares of MuniPreferred)
and S&P Eligible Assets (if S&P is then rating the shares of MuniPreferred)
would each at least equal the MuniPreferred Basic Maintenance Amount.
10. RATING AGENCY RESTRICTIONS.
For so long as any shares of MuniPreferred are outstanding and Moody's or
S&P, or both, are rating such shares, the Fund will not, unless it has received
written confirmation from Moody's or S&P, or both, as appropriate, that any
such action would not impair the ratings then assigned by such rating agency to
such shares, engage in any one or more of the following transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Fund may, without obtaining the
written confirmation described above, borrow money for the purpose of
clearing securities transactions if (i) the MuniPreferred Basic
Maintenance Amount would continue to be satisfied after giving effect to
such borrowing and (ii) such borrowing (A) is privately arranged with a
bank or other person and is evidenced by a promissory note or other
evidence of indebtedness that is not intended to be publicly distributed
or (B) is for "temporary purposes," is evidenced by a promissory note or
other evidence of indebtedness and is in an amount not exceeding 5 per
centum of the value of the total assets of the Fund at the time of the
borrowing; for purposes of the foregoing, "temporary purpose" means that
the borrowing is to be repaid within sixty days and is not to be extended
or renewed;
(c) issue additional shares of any series of MuniPreferred or any
class or series of shares ranking prior to or on a parity with shares of
MuniPreferred with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the
Fund, or reissue any shares of MuniPreferred previously purchased or
redeemed by the Fund;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any corporation;
(g) change the pricing service (currently J.J. Kenny) referred to
in the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION. (i) Subject to the provisions of subparagraph
(v) of this paragraph (a), shares of MuniPreferred of any series may be
redeemed, at the option of the Fund, as a whole or from time to time in part,
on the second Business Day preceding any Dividend Payment Date for shares of
such series, out of funds legally available therefor, at a redemption price per
share equal to the sum of $50,000 plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption; PROVIDED, HOWEVER, that (1) shares of
a series of MuniPreferred may not be redeemed in part if after such partial
redemption fewer than 250 shares of such series remain outstanding; (2) unless
otherwise provided in Section 11 of APPENDIX A hereto, shares of a series of
MuniPreferred are redeemable by the Fund during the Initial Rate Period thereof
only on the second Business Day next preceding the last Dividend Payment Date
for such Initial Rate Period; and (3) subject
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<PAGE> 52
to subparagraph (ii) of this paragraph (a), the Notice of Special Rate Period
relating to a Special Rate Period of shares of a series of MuniPreferred, as
delivered to the Auction Agent and filed with the Secretary of the Fund, may
provide that shares of such series shall not be redeemable during the whole or
any part of such Special Rate Period (except as provided in subparagraph (iv)
of this paragraph (a)) or shall be redeemable during the whole or any part of
such Special Rate Period only upon payment of such redemption premium or
premiums as shall be specified therein ("Special Redemption Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of
MuniPreferred for a Special Rate Period thereof may contain Special Redemption
Provisions only if the Fund's Board of Trustees, after consultation with the
Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such
series, determines that such Special Redemption Provisions are in the best
interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to subparagraph (i) of this paragraph
(a), the number of shares of such series to be redeemed shall be determined by
the Board of Trustees, and such shares shall be redeemed pro rata from the
Holders of shares of such series in proportion to the number of shares of such
series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a),
shares of any series of MuniPreferred may be redeemed, at the option of the
Fund, as a whole but not in part, out of funds legally available therefor, on
the first day following any Dividend Period thereof included in a Rate Period
consisting of more than 364 Rate Period Days if, on the date of determination
of the Applicable Rate for shares of such series for such Rate Period, such
Applicable Rate equalled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price per share equal to the
sum of $50,000 plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed for
redemption.
(v) The Fund may not on any date mail a Notice of Redemption pursuant to
paragraph (c) of this Section 11 in respect of a redemption contemplated to be
effected pursuant to this paragraph (a) unless on such date (a) the Fund has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount (including any applicable premium) due to Holders of shares of
MuniPreferred by reason of the redemption of such shares on such redemption
date and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is
then rating the shares of MuniPreferred) and the Discounted Value of S&P
Eligible Assets (if S&P is then rating the shares of MuniPreferred) each at
least equal the MuniPreferred Basic Maintenance Amount, and would at least
equal the MuniPreferred Basic Maintenance Amount immediately subsequent to such
redemption if such redemption were to occur on such date. For purposes of
determining in clause (b) of the preceding sentence whether the Discounted
Value of Moody's Eligible Assets at least equals the MuniPreferred Basic
Maintenance Amount, the Moody's Discount Factors applicable to Moody's Eligible
Assets shall be determined by reference to the first Exposure Period longer
than the Exposure Period then applicable to the Fund, as described in the
definition of Moody's Discount Factor herein.
(b) MANDATORY REDEMPTION. The Fund shall redeem, at a redemption price
equal to $50,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by
the Board of Trustees for redemption, certain of the shares of MuniPreferred,
if the Fund fails to have either Moody's Eligible Assets with a Discounted
Value or S&P Eligible Assets with a Discounted Value greater than or equal to
the MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act
MuniPreferred Asset Coverage, in accordance with the requirements of the rating
agency or agencies then rating the shares of MuniPreferred, and such failure is
not cured on or before the MuniPreferred Basic Maintenance Cure Date or the
1940 Act Cure Date, as the case may be. The number of shares of MuniPreferred
to be redeemed shall be equal to the lesser of (i) the minimum number of shares
of MuniPreferred, together with all other Preferred Shares subject to
redemption or retirement, the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the Cure Date, would have
resulted in the Fund's having both Moody's Eligible Assets with a Discounted
Value and S&P Eligible Assets with a Discounted Value greater than or equal to
the MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act
MuniPreferred Asset Coverage, as the case may be, on such Cure Date (PROVIDED,
HOWEVER, that if there is no such minimum number of shares of MuniPreferred and
other Preferred Shares the redemption or retirement of which would have had
such result, all shares of MuniPreferred and
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<PAGE> 53
Preferred Shares then outstanding shall be redeemed), and (ii) the maximum
number of shares of MuniPreferred, together with all other Preferred Shares
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor in accordance with the Declaration and
applicable law. In determining the shares of MuniPreferred required to be
redeemed in accordance with the foregoing, the Fund shall allocate the number
required to be redeemed to satisfy the MuniPreferred Basic Maintenance Amount
or the 1940 Act MuniPreferred Asset Coverage, as the case may be, pro rata
among shares of MuniPreferred and other Preferred Shares (and, then, pro rata
among each series of MuniPreferred) subject to redemption or retirement. The
Fund shall effect such redemption on the date fixed by the Fund therefor, which
date shall not be earlier than 20 days nor later than 40 days after such Cure
Date, except that if the Fund does not have funds legally available for the
redemption of all of the required number of shares of MuniPreferred and other
Preferred Shares which are subject to redemption or retirement or the Fund
otherwise is unable to effect such redemption on or prior to 40 days after such
Cure Date, the Fund shall redeem those shares of MuniPreferred and other
Preferred Shares which it was unable to redeem on the earliest practicable date
on which it is able to effect such redemption. If fewer than all of the
outstanding shares of a series of MuniPreferred are to be redeemed pursuant to
this paragraph (b), the number of shares of such series to be redeemed shall be
redeemed pro rata from the Holders of shares of such series in proportion to
the number of shares of such series held by such Holders.
(c) NOTICE OF REDEMPTION. If the Fund shall determine or be required to
redeem shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of
this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares
of such series to be redeemed, at such Holder's address as the same appears on
the record books of the Fund on the record date established by the Board of
Trustees. Such Notice of Redemption shall be so mailed not less than 20 nor
more than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of shares of
MuniPreferred to be redeemed and the series thereof; (iii) the CUSIP number for
shares of such series; (iv) the Redemption Price; (v) the place or places where
the certificate(s) for such shares (properly endorsed or assigned for transfer,
if the Board of Trustees shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of MuniPreferred held
by any Holder are to be redeemed, the Notice of Redemption mailed to such
Holder shall also specify the number of shares of such series to be redeemed
from such Holder. The Fund may provide in any Notice of Redemption relating to
a redemption contemplated to be effected pursuant to paragraph (a) of this
Section 11 that such redemption is subject to one or more conditions precedent
and that the Fund shall not be required to effect such redemption unless each
such condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of MuniPreferred (whether or not earned or declared) are in
arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Fund shall not
purchase or otherwise acquire any shares of such series; PROVIDED, HOWEVER,
that the foregoing shall not prevent the purchase or acquisition of all
outstanding shares of such series pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the
Declaration and applicable law, such redemption shall be made as soon as
practicable to the extent such funds become available. Failure to redeem
shares of MuniPreferred shall be deemed to exist at any time after the date
specified for redemption in a Notice of Redemption when the Fund shall have
failed, for any reason whatsoever, to deposit in trust with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed; PROVIDED, HOWEVER, that the foregoing shall not
apply in the case of the Fund's failure to deposit in trust with the Auction
Agent the Redemption Price with respect to any shares where (1) the Notice of
Redemption relating to such redemption provided that such redemption was
subject to one or more conditions precedent and (2) any such condition
precedent shall not have been satisfied at the time or times and in the manner
specified in such Notice of Redemption. Notwithstanding the fact that the Fund
may not have redeemed shares of MuniPreferred for which a Notice of Redemption
has been mailed,
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<PAGE> 54
dividends may be declared and paid on shares of MuniPreferred and shall include
those shares of MuniPreferred for which a Notice of Redemption has been mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND. All moneys
paid to the Auction Agent for payment of the Redemption Price of shares of
MuniPreferred called for redemption shall be held in trust by the Auction Agent
for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares
shall no longer be deemed to be outstanding for any purpose, and all rights of
the Holders of the shares so called for redemption shall cease and terminate,
except the right of such Holders to receive the Redemption Price, but without
any interest or other additional amount, except as provided in subparagraph
(e)(i) of Section 2 of this Part I and in Section 3 of this Part I. Upon
surrender in accordance with the Notice of Redemption of the certificates for
any shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Trustees shall so require and the Notice of Redemption shall so
state), the Redemption Price shall be paid by the Auction Agent to the Holders
of shares of MuniPreferred subject to redemption. In the case that fewer than
all of the shares represented by any such certificate are redeemed, a new
certificate shall be issued, representing the unredeemed shares, without cost
to the Holder thereof. The Fund shall be entitled to receive from the Auction
Agent, promptly after the date fixed for redemption, any cash deposited with
the Auction Agent in excess of (i) the aggregate Redemption Price of the shares
of MuniPreferred called for redemption on such date and (ii) all other amounts
to which Holders of shares of MuniPreferred called for redemption may be
entitled. Any funds so deposited that are unclaimed at the end of 90 days from
such redemption date shall, to the extent permitted by law, be repaid to the
Fund, after which time the Holders of shares of MuniPreferred so called for
redemption may look only to the Fund for payment of the Redemption Price and
all other amounts to which they may be entitled. The Fund shall be entitled to
receive, from time to time after the date fixed for redemption, any interest on
the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant
to this Section 11, the Fund shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the 1940 Act
and any applicable Massachusetts law, but shall effect no redemption except in
accordance with the 1940 Act and any applicable Massachusetts law.
(i) ONLY WHOLE SHARES OF MUNIPREFERRED MAY BE REDEEMED. In the case of
any redemption pursuant to this Section 11, only whole shares of MuniPreferred
shall be redeemed, and in the event that any provision of the Declaration would
require redemption of a fractional share, the Auction Agent shall be authorized
to round up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a
parity with each other, with shares of any other series of MuniPreferred and
with shares of any other series of Preferred Shares as to the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund.
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(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or
winding up of the affairs of the Fund, whether voluntary or involuntary, the
Holders of shares of MuniPreferred then outstanding shall be entitled to
receive and to be paid out of the assets of the Fund available for distribution
to its shareholders, before any payment or distribution shall be made on the
Common Shares or on any other class of shares of the Fund ranking junior to the
MuniPreferred upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Preference with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but
unpaid to (but not including) the date of final distribution in same-day funds,
together with any payments required to be made pursuant to Section 3 of this
Part I in connection with the liquidation of the Fund. After the payment to
the Holders of the shares of MuniPreferred of the full preferential amounts
provided for in this paragraph (b), the Holders of MuniPreferred as such shall
have no right or claim to any of the remaining assets of the Fund.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Fund
available for distribution to the Holders of shares of MuniPreferred upon any
dissolution, liquidation, or winding up of the affairs of the Fund, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to paragraph (b) of this Section 12,
no such distribution shall be made on account of any shares of any other class
or series of Preferred Shares ranking on a parity with the shares of
MuniPreferred with respect to the distribution of assets upon such dissolution,
liquidation or winding up unless proportionate distributive amounts shall be
paid on account of the shares of MuniPreferred, ratably, in proportion to the
full distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of
shares of any series or class or classes of shares ranking on a parity with the
shares of MuniPreferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, after
payment shall have been made in full to the Holders of the shares of
MuniPreferred as provided in paragraph (b) of this Section 12, but not prior
thereto, any other series or class or classes of shares ranking junior to the
shares of MuniPreferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the Holders of the shares of MuniPreferred shall not be entitled to share
therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all
or substantially all the property or business of the Fund, nor the merger or
consolidation of the Fund into or with any Massachusetts business trust or
corporation nor the merger or consolidation of any Massachusetts business trust
or corporation into or with the Fund shall be a dissolution, liquidation or
winding up, whether voluntary or involuntary, for the purposes of this Section
12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADD ADDITIONAL SERIES. Subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of Trustees
may, by resolution duly adopted, without shareholder approval (except as
otherwise provided by this Statement or required by applicable law), amend
APPENDIX A hereto to (1) reflect any amendments hereto which the Board of
Trustees is entitled to adopt pursuant to the terms of this Statement without
shareholder approval or (2) add additional series of MuniPreferred or
additional shares of a series of MuniPreferred (and terms relating thereto) to
the series and shares of MuniPreferred theretofore described thereon. Each
such additional series and all such additional shares shall be governed by the
terms of this Statement.
(b) APPENDIX A INCORPORATED BY REFERENCE. APPENDIX A hereto is
incorporated in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of MuniPreferred shall be
issued.
(d) STATUS OF SHARES OF MUNIPREFERRED REDEEMED, EXCHANGED OR OTHERWISE
ACQUIRED BY THE FUND. Shares of MuniPreferred which are redeemed, exchanged or
otherwise acquired by the Fund shall return to the status of authorized and
unissued Preferred Shares without designation as to series.
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(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable
law, the Board of Trustees may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of
MuniPreferred prior to the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified
in the By-Laws of the Fund or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
PART II
1. ORDERS. (a) Prior to the Submission Deadline on each Auction Date
for shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to
its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner desires
to continue to hold without regard to the Applicable Rate for
shares of such series for the next succeeding Rate Period of such
shares;
(B) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner offers to
sell if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall be less than
the rate per annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner offers to
sell without regard to the Applicable Rate for shares of such
series for the next succeeding Rate Period of shares of such
series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if
any, of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall not be less than
the rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of
this paragraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information referred to
in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a
"Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to
as a "Sell Order" and collectively as "Sell Orders."
(b)(i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
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(A) the number of Outstanding shares of such series specified in
such Bid if the Applicable Rate for shares of such series determined on
such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such
series to be determined as set forth in clause (iv) of paragraph (a) of
Section 4 of this Part II if the Applicable Rate for shares of such
series determined on such Auction Date shall be equal to the rate
specified therein; or
(C) the number of Outstanding shares of such series specified in
such Bid if the rate specified therein shall be higher than the Maximum
Rate for shares of such series, or such number or a lesser number of
Outstanding shares of such series to be determined as set forth in clause
(iii) of paragraph (b) of Section 4 of this Part II if the rate specified
therein shall be higher than the Maximum Rate for shares of such series
and Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares
of a series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in
such Sell Order; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (iii) of paragraph (b) of Section 4 of this
Part II if Sufficient Clearing Bids for shares of such series do not
exist;
PROVIDED, HOWEVER, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of MuniPreferred shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso
to paragraph (c) of Section 2 of this Part II if (1) such shares were
transferred by the Beneficial Owner thereof without compliance by such
Beneficial Owner or its transferee Broker-Dealer (or other transferee person,
if permitted by the Fund) with the provisions of Section 7 of this Part II or
(2) such Broker-Dealer has informed the Auction Agent pursuant to the terms of
its Broker-Dealer Agreement that, according to such Broker-Dealer's records,
such Broker-Dealer believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of
shares of a series of MuniPreferred subject to an Auction on any Auction Date
shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in
such Bid if the Applicable Rate for shares of such series determined on
such Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (v) of paragraph (a) of Section 4 of this
Part II if the Applicable Rate for shares of such series determined on
such Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other than whole
shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of MuniPreferred
of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as
an Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
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(ii) the aggregate number of shares of such series that are the
subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
shares of such series:
(A) the number of shares, if any, of such series subject to any
Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid
of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any
Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of
such series, the rate and number of shares of such series specified in
such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; PROVIDED,
HOWEVER, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall
deem a Sell Order to have been submitted by or on behalf of such Existing
Holder covering the number of outstanding shares of such series held by such
Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
shares of MuniPreferred of a series subject to an Auction held by such Existing
Holder, such Orders shall be considered valid in the following order of
priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if
the number of shares of such series subject to such Hold Orders exceeds
the number of Outstanding shares of such series held by such Existing
Holder, the number of shares subject to each such Hold Order shall be
reduced pro rata to cover the number of Outstanding shares of such series
held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares
of such series held by such Existing Holder over the number of shares of
such series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of such series subject to such Bids is greater than such
excess, such Bids shall be considered valid up to and including the
amount of such excess, and the number of shares of such series
subject to each Bid with the same rate shall be reduced pro rata to
cover the number of shares of such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid
of an Existing Holder for shares of such series is submitted to the
Auction Agent with different rates, such Bids shall be considered
valid in the ascending order of their respective rates up to and
including the amount of such excess; and
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<PAGE> 59
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of Bids
considered not valid in whole or in part under this clause (ii)
shall be treated as the subject of a Bid for shares of such series
by or on behalf of a Potential Holder at the rate therein
specified; and
(iii) all Sell Orders for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares
of such series held by such Existing Holder over the sum of shares of
such series subject to valid Hold Orders referred to in clause (i) above
and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
MuniPreferred is submitted to the Auction Agent by or on behalf of any
Potential Holder, each such Bid submitted shall be a separate Bid with the rate
and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior
to the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE. (a) Not earlier than the Submission Deadline on each Auction
Date for shares of a series of MuniPreferred, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series
over the number of Outstanding shares of such series subject to Submitted
Hold Orders (such excess being hereinafter referred to as the "Available
MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject
to Submitted Bids of Potential Holders specifying one or more rates
equal to or lower than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject
to Submitted Bids of Existing Holders specifying one or more rates
higher than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject
to Submitted Sell Orders
(in the event such excess or such equality exists (other than because the
number of shares of such series in subclauses (B) and (C) above is zero
because all of the Outstanding shares of such series are subject to
Submitted Hold Orders), such Submitted Bids in subclause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist,
the lowest rate specified in such Submitted Bids (the "Winning Bid Rate"
for shares of such series) which if:
(A)(I) each such Submitted Bid of Existing Holders specifying
such lowest rate and (II) all other such Submitted Bids of Existing
Holders specifying lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of such series that
are subject to such Submitted Bids; and
(B)(I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted Bids
of Potential Holders specifying lower rates were accepted;
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would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in subclause
(B) above, would equal not less than the Available MuniPreferred of such
series.
(b) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of
the Maximum Rate for shares of the series of MuniPreferred for which an Auction
is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist,
that the Applicable Rate for all shares of such series for the next
succeeding Rate Period thereof shall be equal to the Winning Bid Rate for
shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not
exist (other than because all of the Outstanding shares of such series
are subject to Submitted Hold Orders), that the Applicable Rate for all
shares of such series for the next succeeding Rate Period thereof shall
be equal to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject
to Submitted Hold Orders, that the Applicable Rate for all shares of such
series for the next succeeding Rate Period thereof shall be as set forth
in Section 12 of APPENDIX A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS
AND ALLOCATION OF SHARES. Existing Holders shall continue to hold the shares
of MuniPreferred that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 3 of this Part II, the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the
Auction Agent and the Auction Agent shall take such other action as set forth
below:
(a) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have been made, all Submitted Sell Orders with respect to shares of such series
shall be accepted and, subject to the provisions of paragraphs (d) and (e) of
this Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all
other Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares
of such series shall be accepted, thus requiring each such Existing
Holder to sell the shares of MuniPreferred subject to such Submitted
Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder
to continue to hold the shares of MuniPreferred subject to such Submitted
Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be rejected, thus entitling such Existing Holder to
continue to hold the shares of MuniPreferred subject to such Submitted
Bid, unless the number of Outstanding shares of MuniPreferred subject to
all such Submitted Bids shall be greater than the number of shares of
MuniPreferred ("remaining shares") in the excess of the Available
MuniPreferred of such series over the number of shares of MuniPreferred
subject to Submitted Bids described in clauses (ii) and (iii) of this
paragraph (a), in which event such Submitted Bid of such Existing Holder
shall be rejected in part, and such Existing Holder shall be entitled to
continue to hold shares of MuniPreferred subject to such Submitted Bid,
but only in an amount equal to the number of shares of MuniPreferred of
such series obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the
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number of Outstanding shares of MuniPreferred held by such Existing
Holder subject to such Submitted Bid and the denominator of which shall
be the aggregate number of Outstanding shares of MuniPreferred subject to
such Submitted Bids made by all such Existing Holders that specified a
rate equal to the Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be accepted but only in an amount equal to the number
of shares of such series obtained by multiplying the number of shares in
the excess of the Available MuniPreferred of such series over the number
of shares of MuniPreferred subject to Submitted Bids described in clauses
(ii) through (iv) of this paragraph (a) by a fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred subject
to such Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding shares of MuniPreferred subject to such Submitted
Bids made by all such Potential Holders that specified a rate equal to
the Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such
series specifying any rate that is higher than the Maximum Rate for
shares of such series and the Submitted Sell Orders for shares of such
series of each Existing Holder shall be accepted, thus entitling each
Existing Holder that submitted or on whose behalf was submitted any such
Submitted Bid or Submitted Sell Order to sell the shares of such series
subject to such Submitted Bid or Submitted Sell Order, but in both cases
only in an amount equal to the number of shares of such series obtained
by multiplying the number of shares of such series subject to Submitted
Bids described in clause (ii) of this paragraph (b) by a fraction, the
numerator of which shall be the number of Outstanding shares of such
series held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and the denominator of which shall be the aggregate
number of Outstanding shares of such series subject to all such Submitted
Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to Submitted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as
it shall determine in its sole discretion, round up or down the number of
shares of MuniPreferred of such series to be purchased or sold by any Existing
Holder or Potential Holder on such Auction Date as a result of such procedures
so that the number of shares so purchased or sold by each Existing Holder or
Potential Holder on such Auction Date shall be whole shares of MuniPreferred.
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<PAGE> 62
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this Section 4, any Potential Holder would be entitled or
required to purchase less than a whole share of a series of MuniPreferred on
any Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, allocate shares of MuniPreferred of such series for
purchase among Potential Holders so that only whole shares of MuniPreferred of
such series are purchased on such Auction Date as a result of such procedures
by any Potential Holder, even if such allocation results in one or more
Potential Holders not purchasing shares of MuniPreferred of such series on such
Auction Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of shares
of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect
to each Potential Holder and Existing Holder, to the extent that such aggregate
number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, shares of MuniPreferred of such series.
Notwithstanding any provision of the Auction Procedures or the Settlement
Procedures to the contrary, in the event an Existing Holder or Beneficial Owner
of shares of a series of MuniPreferred with respect to whom a Broker-Dealer
submitted a Bid to the Auction Agent for such shares that was accepted in whole
or in part, or submitted or is deemed to have submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent
Member to deliver such shares against payment therefor, partial deliveries of
shares of MuniPreferred that have been made in respect of Potential Holders' or
Potential Beneficial Owners' Submitted Bids for shares of such series that have
been accepted in whole or in part shall constitute good delivery to such
Potential Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver shares of MuniPreferred of any
series or to pay for shares of MuniPreferred of any series sold or purchased
pursuant to the Auction Procedures or otherwise.
5. NOTIFICATION OF ALLOCATIONS. Whenever the Fund intends to include any
net capital gains or other income taxable for Federal income tax purposes in
any dividend on shares of MuniPreferred, the Fund shall, in the case of a
Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, notify the Auction Agent
of the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the Fund,
it will be required in turn to notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its Beneficial Owners and Potential Beneficial Owners of
shares of MuniPreferred believed by it to be interested in submitting an Order
in the Auction to be held on such Auction Date.
6. AUCTION AGENT. For so long as any shares of MuniPreferred are
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Fund and its affiliates (which however, may engage or have
engaged in business transactions with the Fund or its affiliates) and at no
time shall the Fund or any of its affiliates act as the Auction Agent in
connection with the Auction Procedures. If the Auction Agent resigns or for
any reason its appointment is terminated during any period that any shares of
MuniPreferred are outstanding, the Board of Trustees shall use its best efforts
promptly thereafter to appoint another qualified commercial bank, trust company
or financial institution to act as the Auction Agent. The Auction Agent's
registry of Existing Holders of shares of a series of MuniPreferred shall be
conclusive and binding on the Broker-Dealers. A Broker-Dealer may inquire of
the Auction Agent between 3:00 p.m. on the Business Day preceding an Auction
for shares of a series of MuniPreferred and 9:30 a.m. on the Auction Date for
such Auction to ascertain the number of shares of such series in respect of
which the Auction Agent has determined such Broker-Dealer to be an Existing
Holder. If such Broker-Dealer believes it is the Existing Holder of fewer
shares of such series than specified by the Auction Agent in response to such
Broker-Dealer's inquiry, such Broker-Dealer may so inform the Auction Agent of
that belief. Such Broker-Dealer shall not, in its capacity as Existing Holder
of shares of such series,
40
<PAGE> 63
submit Orders in such Auction in respect of shares of such series covering in
the aggregate more than the number of shares of such series specified by the
Auction Agent in response to such Broker-Dealer's inquiry.
7. TRANSFER OF SHARES OF MUNIPREFERRED. Unless otherwise permitted by
the Fund, a Beneficial Owner or an Existing Holder may sell, transfer or
otherwise dispose of shares of MuniPreferred only in whole shares and only
pursuant to a Bid or Sell Order placed with the Auction Agent in accordance
with the procedures described in this Part II or to a Broker-Dealer; PROVIDED,
HOWEVER, that (a) a sale, transfer or other disposition of shares of
MuniPreferred from a customer of a Broker-Dealer who is listed on the records
of that Broker-Dealer as the holder of such shares to that Broker-Dealer or
another customer of that Broker-Dealer shall not be deemed to be a sale,
transfer or other disposition for purposes of this Section 7 if such
Broker-Dealer remains the Existing Holder of the shares so sold, transferred or
disposed of immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
other Person, if permitted by the Fund) to whom such transfer is made shall
advise the Auction Agent of such transfer.
8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period, (i)
all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the name of the
Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of MuniPreferred shall be made on the books of the Fund to
any Person other than the Securities Depository or its nominee.
IN WITNESS WHEREOF, NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2, has
caused these presents to be signed on , 199 in its name and on its behalf by
its Vice President and attested by its Assistant Secretary. The Fund's
Declaration of Trust is on file with the Secretary of State of the Commonwealth
of Massachusetts, and the said officers of the Fund have executed this
Statement as officers and not individually, and the obligations and rights set
forth in this Statement are not binding upon any such officers, or the trustees
or shareholders of the Fund, individually, but are binding only upon the assets
and property of the Fund.
NUVEEN INSURED PREMIUM INCOME
MUNICIPAL FUND 2
By
James J. Wesolowski
Vice President and Secretary
ATTEST:
Scott Craven Jones
Assistant Secretary
41
<PAGE> 64
NUVEEN INSURED
PREMIUM INCOME
MUNICIPAL FUND 2
APPENDIX A
SECTION 1. DESIGNATION AS TO SERIES.
SERIES M: A series of 1,040 Preferred Shares, liquidation preference
$50,000 per share, is hereby designated "Municipal Auction Rate Cumulative
Preferred Shares, Series M." Each share of Series M MuniPreferred shall be
issued on November 10, 1993; have an Applicable Rate for its Initial Rate
Period equal to 2.35% per annum; have an initial Dividend Payment Date of
November 23, 1993; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Declaration applicable to Preferred Shares of the Fund, as set forth in
Part I and Part II of this Statement. The Series M MuniPreferred shall
constitute a separate series of Preferred Shares of the Fund, and each share of
Series M MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
SERIES W: A series of 1,040 Preferred Shares, liquidation preference
$50,000 per share, is hereby designated "Municipal Auction Rate Cumulative
Preferred Shares, Series W." Each share of Series W MuniPreferred shall be
issued on November 10, 1993; have an Applicable Rate for its Initial Rate
Period equal to 2.35% per annum; have an initial Dividend Payment Date of
November 18, 1993; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Declaration applicable to Preferred Shares of the Fund, as set forth in
Part I and Part II of this Statement. The Series W MuniPreferred shall
constitute a separate series of Preferred Shares of the Fund, and each share of
Series W MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
SERIES F: A series of 1,098 Preferred Shares, liquidation preference
$50,000 per share, is hereby designated "Municipal Auction Rate Cumulative
Preferred Shares, Series F." Each share of Series F MuniPreferred shall be
issued on November 10, 1993; have an Applicable Rate for its Initial Rate
Period equal to 2.35% per annum; have an initial Dividend Payment Date of
November 22, 1993; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Declaration applicable to Preferred Shares of the Fund, as set forth in
Part I and Part II of this Statement. The Series F MuniPreferred shall
constitute a separate series of Preferred Shares of the Fund, and each share of
Series F MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES.
The number of authorized shares constituting Series M MuniPreferred is
1,040; Series W MuniPreferred is 1,040; and Series F MuniPreferred is 1,098.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS.
Notwithstanding the definitions contained under the heading "Definitions"
in this Statement, the following terms shall have the following meanings for
purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS.
For purposes of this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), except where the context
otherwise requires:
"GROSS-UP PAYMENT" means payment to a Holder of shares of
MuniPreferred of an amount which, when taken together with the aggregate
amount of Taxable Allocations made to such Holder to which such Gross-up
Payment relates, would cause such Holder's dividends in dollars (after
Federal income tax consequences) from the aggregate of such Taxable
Allocations and the related Gross-up Payment to be equal to the dollar
amount of the dividends which would have been received by such Holder if
the amount of such aggregate Taxable Allocations would have been
excludable from the gross income of such Holder. Such Gross-up Payment
shall be calculated (i) without consideration being given to the time
value of money; (ii) assuming
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<PAGE> 65
that no Holder of shares of MuniPreferred is subject to the Federal
alternative minimum tax with respect to dividends received from the Fund;
and (iii) assuming that each Taxable Allocation and each Gross-up Payment
(except to the extent such Gross-up Payment is designated as an
exempt-interest dividend under Section 852(b)(5) of the Code or successor
provisions) would be taxable in the hands of each Holder of shares of
MuniPreferred at the maximum marginal regular Federal individual income
tax rate applicable to ordinary income or net capital gains, as
applicable, or the maximum marginal regular Federal corporate income tax
rate applicable to ordinary income or net capital gains, as applicable,
whichever is greater, in effect at the time such Gross-up Payment is
made.
"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining
the Discounted Value of any Moody's Eligible Asset, the percentage
determined by reference to (i) (A) in the event such Municipal Obligation
is covered by an Original Issue Insurance policy or a Portfolio Insurance
policy which does not provide the Fund with the option to obtain
Permanent Insurance with respect to such Municipal Obligation, or is not
covered by bond insurance, the Moody's or S&P rating on such Municipal
Obligation, (B) in the event such Municipal Obligation is covered by a
Secondary Market Insurance Policy, the Moody's insurance claims-paying
ability rating of the issuer of the policy, or (C) in the event such
Municipal Obligation is covered by a Portfolio Insurance policy which
provides the Fund with the option to obtain Permanent Insurance with
respect to such Municipal Obligation, at the Fund's option, the Moody's
or S&P rating on such Municipal Obligation or the Moody's insurance
claims-paying ability rating of the issuer of the Portfolio Insurance
policy and (ii) the shortest Exposure Period set forth opposite such
rating that is the same length as or is longer than the Moody's Exposure
Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
RATING CATEGORY
---------------
(V)
EXPOSURE PERIOD AAA* AA* A* BAA* OTHER** MIG-1*** SP-1+***
------------------- ---- ---- ---- ---- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than seven
weeks 154 164 173 205 235 137 149
9 weeks or less but
greater than eight
weeks 158 169 179 209 242 138 150
</TABLE>
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
If the Moody's Discount Factor used to discount a particular Municipal
Obligation is determined by reference to the insurance claims-paying ability
rating of the insurer of such Municipal Obligation, such Moody's Discount
Factor will be increased by an amount equal to 50% of the difference between
(i) the percentage set forth in the above table under the applicable rating
category, and (ii) the percentage set forth in the above table under the rating
category that is one rating category below the applicable rating
category. Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% as long as
such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash, (ii)
is publicly rated Baa or higher by Moody's or, if not rated by Moody's but
rated by S&P, is rated at least BBB by S&P (provided, however, that for
purposes of determining the Moody's Discount Factor applicable to any such
S&P-rated Municipal Obligation, such Municipal Obligation (excluding any
short-term Municipal Obligation) shall be deemed to have a Moody's rating
43
<PAGE> 66
which is one full rating category lower than its S&P rating), (iii) does not
have its Moody's rating suspended by Moody's, and (iv) is part of an issue of
Municipal Obligations of at least $10,000,000. Municipal Obligations issued by
any one issuer and rated BBB by S&P may comprise no more than 4% of total
Moody's Eligible Assets; such BBB-rated Municipal Obligations, if any, together
with any Municipal Obligations issued by the same issuer and rated Baa by
Moody's or A by S&P, may comprise no more than 6% of total Moody's Eligible
Assets; such BBB, Baa and A-rated Municipal Obligations, if any, together with
any Municipal Obligations issued by the same issuer and rated A by Moody's or
AA by S&P, may comprise no more than 10% of total Moody's Eligible Assets; and
such BBB, Baa, A and AA-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by the same issuer and rated Aa by Moody's or AAA
by S&P, may comprise no more than 20% of total Moody's Eligible Assets. For
purposes of the foregoing sentence, any Municipal Obligation backed by the
guaranty, letter of credit or insurance issued by a third party shall be deemed
to be issued by such third party if the issuance of such third party credit is
the sole determinant of the rating on such Municipal Obligation. Municipal
Obligations issued by issuers located within a single state or territory and
rated BBB by S&P may comprise no more than 12% of total Moody's Eligible
Assets; such BBB-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by issuers located within the same state or
territory and rated Baa by Moody's or A by S&P, may comprise no more than 20%
of total Moody's Eligible Assets; such BBB, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by issuers
located within the state or territory and rated A by Moody's or AA by S&P, may
comprise no more than 40% of total Moody's Eligible Assets; and such BBB, Baa,
A and AA-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by issuers located within the same state or territory and
rated Aa by Moody's or AAA by S&P, may comprise no more than 60% of total
Moody's Eligible Assets. For purposes of applying the foregoing requirements,
a Municipal Obligation shall be deemed to be rated BBB by S&P if rated BBB-,
BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated without
including cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1 or, if not
rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered to have
a long-term rating of A. When the Fund sells a Municipal Obligation and agrees
to repurchase such Municipal Obligation at a future date, such Municipal
Obligation shall be valued at its Discounted Value for purposes of determining
Moody's Eligible Assets, and the amount of the repurchase price of such
Municipal Obligation shall be included as a liability for purposes of
calculating the MuniPreferred Basic Maintenance Amount. When the Fund
purchases a Moody's Eligible Asset and agrees to sell it at a future date, such
Eligible Asset shall be valued at the amount of cash to be received by the Fund
upon such future date, provided that the counterparty to the transaction has a
long-term debt rating of at least A2 from Moody's and the transaction has a
term of no more than 30 days, otherwise such Eligible Asset shall be valued at
the Discounted Value of such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent it is (i) subject to any material lien, mortgage,
pledge, security interest or security agreement of any kind (collectively,
"Liens"), except for (a) Liens which are being contested in good faith by
appropriate proceedings and which Moody's has indicated to the Fund will not
affect the status of such asset as a Moody's Eligible Asset, (b) Liens for
taxes that are not then due and payable or that can be paid thereafter without
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Fund by Nuveen Advisory Corp., United States Trust Company of New York or
the Auction Agent and (d) Liens by virtue of any repurchase agreement; or (ii)
deposited irrevocably for the payment of any liabilities for purposes of
determining the MuniPreferred Basic Maintenance Amount.
For purposes of determining as of any Valuation Date whether the Fund has
Moody's Eligible Assets with an aggregate Discounted Value at least equal to
the MuniPreferred Basic Maintenance Amount, the Fund shall include as a
liability in the calculation of the MuniPreferred Basic Maintenance Amount an
amount calculated semi-annually equal to 150% of the estimated cost of
obtaining Permanent Insurance with respect to Moody's Eligible Assets that are
(i) covered by Portfolio Insurance policies which provide the Fund with the
option to obtain such Permanent Insurance and (ii) discounted by a Moody's
Discount Factor determined by reference to the insurance claims-paying ability
rating of the issuer of such Portfolio Insurance policy.
"ORIGINAL ISSUE INSURANCE" shall mean "Original Issue Insurance" as
defined in the Fund's Registration Statement.
"PERMANENT INSURANCE" shall mean "Permanent Insurance" as defined in the
Fund's Registration Statement.
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<PAGE> 67
"PORTFOLIO INSURANCE" shall mean "Portfolio Insurance" as defined in the
Fund's Registration Statement.
"RATE MULTIPLE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean the percentage, determined as set
forth below, based on the prevailing rating of shares of such series in effect
at the close of business on the Business Day next preceding such Auction Date:
<TABLE>
<CAPTION>
PREVAILING RATING PERCENTAGE
- ------------------- ----------
<S> <C>
"aa3"/AA- or higher 110%
"a3"/A- 125%
"baa3"/BBB- 150%
"ba3"/BB- 200%
Below "ba3"/BB- 250%
</TABLE>
PROVIDED, HOWEVER, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for Federal income tax purposes to shares
of such series prior to the Auction establishing the Applicable Rate for shares
of such series, the applicable percentage in the foregoing table shall be
divided by the quantity 1 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income, whichever is
greater.
For purposes of this definition, the "prevailing rating" of shares of a
series of MuniPreferred shall be (i) "aa3"/AA- or higher if such shares have a
rating of "aa3" or better by Moody's and AA- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not "aa3"/AA- or higher,
then "a3"/A- if such shares have a rating of "a3" or better by Moody's and A-
or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such
shares have a rating of "baa3" or better by Moody's and BBB- or better by S&P
or the equivalent of such ratings by such agencies or a substitute rating
agency or substitute rating agencies selected as provided below, (iv) if not
"aa3"/AA- or higher, "a3"/A- or "baa3"/BBB-, then "ba3"/BB- if such shares have
a rating of "ba3" or better by Moody's and BB- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, and (v) if not "aa3"/AA-
or higher, "a3"/A-, "baa3"/BBB-, or "ba3"/BB-, then Below "ba3"/BB-; PROVIDED,
HOWEVER, that if such shares are rated by only one rating agency, the
prevailing rating will be determined without reference to the rating of any
other rating agency. The Fund shall take all reasonable action necessary to
enable either S&P or Moody's to provide a rating for shares of MuniPreferred.
If neither S&P nor Moody's shall make such a rating available, the party set
forth in Section 7 of Appendix A or its successor shall select at least one
nationally recognized statistical rating organization (as that term is used in
the rules and regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended from time to time) to act as a
substitute rating agency in respect of shares of the series of MuniPreferred
set forth opposite such party's name in Section 7 of APPENDIX A and the Fund
shall take all reasonable action to enable such rating agency to provide a
rating for such shares.
"S&P DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to (i)(A) in the event such Municipal Obligation is covered by an
Original Issue Insurance policy or a Portfolio Insurance policy which does not
provide the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation, or is not covered by bond insurance, the S&P or
Moody's rating on such Municipal Obligation, (B) in the event such Municipal
Obligation is covered by a Secondary Market Insurance policy, the S&P insurance
claims-paying ability rating of the issuer of the policy, or (C) in the event
such Municipal Obligation is covered by a Portfolio Insurance policy which
provides the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation, at the Fund's option, the S&P or Moody's rating on
such Municipal Obligation or the S&P insurance claims-paying ability rating of
the issuer of the Portfolio Insurance policy and (ii) the shortest Exposure
Period set forth opposite such rating that is the same length as or is longer
than the S&P Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
---------------
45
<PAGE> 68
<TABLE>
<CAPTION>
EXPOSURE PERIOD AAA* AA* A* BBB*
- ---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
40 Business Days 190% 195% 210% 250%
22 Business Days 170 175 190 230
10 Business Days 155 160 175 215
7 Business Days 150 155 170 210
3 Business Days 130 135 150 190
</TABLE>
*S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
within 30 days or less, or 125% if such Municipal Obligations are not rated by
S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; PROVIDED, HOWEVER, that any
such Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-1+ from S&P; and FURTHER PROVIDED that such
Moody's-rated short-term Municipal Obligations may comprise no more than 50% of
short-term Municipal Obligations that qualify as S&P Eligible Assets and (ii)
no S&P Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold. For purposes of the foregoing, Anticipation Notes rated
SP-1+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not
mature or have a demand feature at par exercisable in 30 days and which do not
have a long-term rating, shall be considered to be short-term Municipal
Obligations.
"S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars; (iii) is publicly rated BBB or higher
by S&P or, if not rated by S&P but rated by Moody's, is rated at least A by
Moody's (PROVIDED, HOWEVER, that such Moody's-rated Municipal Obligations will
be included in S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 50% of the aggregate Market Value of S&P
Eligible Assets; and FURTHER PROVIDED that, for purposes of determining the S&P
Discount Factor applicable to any such Moody's-rated Municipal Obligation, such
Municipal Obligation will be deemed to have an S&P rating which is one full
rating category lower than its Moody's rating); (iv) is not part of a private
placement of Municipal Obligations; and (v) is part of an issue of Municipal
Obligations with an original issue size of at least $20 million or, if of an
issue with an original issue size below $20 million (but in no event below $10
million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Solely for purposes of this definition, the term
"Municipal Obligation" means any obligation the interest on which is exempt from
regular Federal income taxation and which is issued by any of the fifty United
States, the District of Columbia or any of the territories of the United States,
their subdivisions, counties, cities, towns, villages, school districts and
agencies (including authorities and special districts created by the states),
and federally sponsored agencies such as local housing authorities.
Notwithstanding the foregoing limitations:
(1) Municipal Obligations of any one issuer or guarantor (excluding
bond insurers) shall be considered S&P Eligible Assets only to the extent
the Market Value of such Municipal Obligations does not exceed 10% of the
aggregate Market Value of S&P Eligible Assets, provided that 2% is added
to the applicable S&P Discount Factor for every 1% by which the Market
Value of such Municipal Obligations exceeds 5% of the aggregate Market
Value of S&P Eligible Assets; and
(2) Long-term Municipal Obligations shall be considered S&P
Eligible Assets only to the extent that the Market Value of such
Municipal Obligations does not exceed 20% of the aggregate Market Value
of S&P Eligible Assets.
For purposes of determining as of any Valuation Date whether the Fund has
S&P Eligible Assets with an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount, the Fund shall include as a liability
in the calculation of the MuniPreferred Basic Maintenance Amount an amount
calculated semi-annually equal to 150% of the estimated cost of obtaining
Permanent Insurance with respect to S&P Eligible Assets that are (i) covered by
Portfolio Insurance policies which provide the Fund with the option to obtain
such Permanent Insurance and (ii) discounted by an S&P Discount Factor
46
<PAGE> 69
determined by reference to the insurance claims-paying ability rating of the
issuer of such Portfolio Insurance policy.
"SECONDARY MARKET INSURANCE" shall mean "Secondary Market Insurance" as
defined in the Fund's Registration Statement.
SECTION 5. INITIAL RATE PERIODS.
The Initial Rate Period for shares of Series M MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
November 23, 1993.
The Initial Rate Period for shares of Series W MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
November 18, 1993.
The Initial Rate Period for shares of Series F MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
November 22, 1993.
SECTION 6. DATE FOR PURPOSES OF PARAGRAPH (YYY) CONTAINED UNDER THE HEADING
"DEFINITIONS" IN THIS STATEMENT.
November 30, 1993.
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN
THIS STATEMENT.
Party: Series of MuniPreferred: [fm]
Kidder, Peabody & Co. Incorporated Series M
Smith Barney Shearson Inc. Series W
Merrill Lynch, Pierce, Fenner & Smith
Incorporated Series F
SECTION 8. ADDITIONAL DEFINITIONS.
Not applicable.
SECTION 9. DIVIDEND PAYMENT DATES.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of
this Statement, dividends shall be payable on shares of:
Series M MuniPreferred on Tuesday, November 23, 1993, and on each Tuesday
thereafter.
Series W MuniPreferred on Thursday, November 18, 1993, and on each
Thursday thereafter.
Series F MuniPreferred on Monday, November 22, 1993, and on each Monday
thereafter.
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (C)(I) OF SECTION 5 OF PART I
OF THE STATEMENT.
$158,900,000.
SECTION 11. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.
SECTION 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (B)(III) OF SECTION 3
OF PART II OF THIS STATEMENT.
For purposes of subparagraph (b)(iii) of Section 3 of Part II of this
Statement, the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall be equal to the lesser of
the Kenny Index (if such Rate Period consists of fewer than 183 Rate Period
Days) or the product of (A) (I) the "AA" Composite Commercial Paper Rate on
such Auction Date for such Rate Period, if such Rate Period consists of fewer
than 183 Rate Period Days; (II) the Treasury Bill Rate on such Auction Date for
such Rate Period, if such Rate Period consists of more than 182 but fewer than
365 Rate Period Days; or (III) the Treasury Note Rate on such Auction Date for
such Rate Period, if such Rate Period is more than 364 Rate Period Days (the
rate described in the
47
<PAGE> 70
foregoing clause (A)(I), (II) or (III), as applicable, being referred to herein
as the "Benchmark Rate") and (B) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum
marginal regular Federal corporate income tax rate applicable to ordinary
income, whichever is greater; PROVIDED, HOWEVER, that if the Fund has notified
the Auction Agent of its intent to allocate to shares of such series in such
Rate Period any net capital gains or other income taxable for Federal income
tax purposes ("Taxable Income"), the Applicable Rate for shares of such series
for such Rate Period will be (i) if the Taxable Yield Rate (as defined below)
is greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the
Taxable Yield Rate is less than or equal to the Benchmark Rate, then the rate
equal to the sum of (x) the lesser of the Kenny Index (if such Rate Period
consists of fewer than 183 Rate Period Days) or the product of the Benchmark
Rate multiplied by the factor set forth in the preceding clause (B) and (y) the
product of the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or the maximum marginal regular Federal corporate
income tax applicable to ordinary income, whichever is greater, multiplied by
the Taxable Yield Rate. For purposes of the foregoing, Taxable Yield Rate
means the rate determined by (a) dividing the amount of Taxable Income
available for distribution per such share of MuniPreferred by the number of
days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360
(in the case of any other Dividend Period), and (c) dividing the amount
determined in (b) above by $50,000.
48
<PAGE> 1
EXHIBIT 99.1.2
CERTIFICATE OF AMENDMENT TO STATEMENT
ESTABLISHING AND FIXING THE RIGHTS AND
PREFERENCES OF MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED SHARES OF
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
The undersigned, a Vice President and Assistant Secretary of Nuveen Insured
Premium Income Municipal Fund 2, a Massachusetts business trust (the "Trust"),
hereby certifies as follows:
1. The Board of Trustees of the Trust, in accordance with the Trust's
Statement Establishing and Fixing the Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Shares (the "Statement"), and the Trust's
Declaration of Trust, adopted a resolution on April 23, 1996, to amend the
Statement.
2. Such amendment shall be effective as of the close of business on September
9, 1996.
3. The following portions of the Statement are hereby set forth in their
amended form as follows:
a. Appendix A, Section 1 shall include the following paragraph after the
first paragraph of the Section:
"SERIES T: a series of 2,200 Preferred Shares, liquidation
preference $25,000 per share, is hereby designated "Municipal Auction
Rate Cumulative Preferred Shares, Series T." Each share of Series T
MuniPreferred shall be issued at the close of business on September 9,
1996 and, for purposes hereof, be deemed to have a Date of Original
Issue of September 10, 1996; have an Applicable Rate for its Initial
Dividend Period equal to __% per annum; have an initial Dividend
Payment Date of Wednesday, September 11, 1996; and have such other
preferences limitations and relative voting rights, in addition to
those required by applicable law or set forth in the Declaration
applicable to Preferred Shares of the Fund, as set forth in Part I and
Part II of this Statement. The Series T MuniPreferred shall constitute
a separate series of Preferred Shares of the Fund, and each share of
Series T MuniPreferred shall be identical except as provided in
Section 11 of Part I of this Statement."
b. Appendix A, Section 1 shall include the following paragraph after
the second paragraph of the Section:
"SERIES TH: a series of 2,200 Preferred Shares, liquidation
preference $25,000 per share, is hereby designated "Municipal Auction
Rate Cumulative Preferred Shares, Series TH." Each share of Series TH
MuniPreferred shall be issued at the close of business on September 9,
1996 and, for purposes hereof, be deemed to have a Date of Original
Issue of September 10, 1996; have an Applicable Rate for its Initial
Dividend Period equal to % per annum; have an initial Dividend
<PAGE> 2
Payment Date of Friday, September 13, 1996; and have such other
preferences limitations and relative voting rights, in addition to
those required by applicable law or set forth in the Declaration
applicable to Preferred Shares of the Fund, as set forth in Part I and
Part II of this Statement. The Series TH MuniPreferred shall
constitute a separate series of Preferred Shares of the Fund, and each
share of Series TH MuniPreferred shall be identical except as
provided in Section 11 of Part I of this Statement."
c. Appendix A, Section 2 shall read in its entirety as follows:
"The number of authorized shares constituting Series M
MuniPreferred is 2,080; Series T MuniPreferred is 2,200; Series W
MuniPreferred is 2,080; Series TH MuniPreferred is 2,200; and Series F
MuniPreferred is 2,196."
d. Appendix A, Section 5 shall read in its entirety as follows:
"The Initial Rate Period for shares of Series M MuniPreferred
shall be the period from and including the Date of Original Issue
thereof to but excluding November 23, 1993.
The Initial Rate Period for the shares of Series T MuniPreferred
shall be the period from and including the Date of Original Issue
thereof to but excluding September 11, 1996.
The Initial Rate Period for shares of Series W MuniPreferred
shall be the period from and including the Date of Original Issue
thereof to but excluding November 18, 1993.
The Initial Rate Period for the shares of Series TH
MuniPreferred shall be the period from and including the Date of
Original Issue thereof to but excluding September 13, 1996.
The Initial Rate Period for the shares of Series MuniPreferred
shall be the period from and including the Date of Original Issue
thereof to but excluding November 22, 1993."
e. Appendix A, Section 6 shall read in its entirety:
"November 30, 1993 for Series M MuniPreferred, Series W
MuniPreferred and Series F MuniPreferred and November 30, 1996 for
Series T MuniPreferred and Series TH MuniPreferred."
f. Appendix A, Section 7 shall read in its entirety:
<PAGE> 3
SERIES OF
PARTY MUNIPREFERRED
Kidder, Peabody & Co. Incorporated Series M
Merrill, Lynch, Pierce, Fenner &
Smith Incorporated Series T
Smith Barney Shearson Inc. Series W
Smith Barney Shearson Inc. Series TH
Merrill, Lynch, Pierce, Fenner &
Smith Incorporated Series F
g. Appendix A, Section 9 shall read in its entirety as follows:
"Except as otherwise provided in paragraph (d) of Section 2 of
Part I of this Statement, dividends shall be payable on shares of:
Series M MuniPreferred on Tuesday, November 23, 1993, and on each
Tuesday thereafter;
Series T MuniPreferred on Wednesday, September 11, 1996, and on
each Wednesday, thereafter;
Series W MuniPreferred on Thursday, November 18, 1993, and on
each Thursday thereafter;
Series TH MuniPreferred on Friday, September 13, 1996, and on
each Friday thereafter; and
Series F MuniPreferred on Monday, November 22, 1993, and on each
Monday thereafter."
h. Appendix A, Section 10 shall provide that the amount for purposes of
subparagraph (c)(i) of Section 5 of Part I of this Statement is
$268,900,000.
IN WITNESS WHEREOF, the undersigned, being a Vice President and Assistant
Secretary of the Trust, has executed this instrument as of this 6th day of
September, 1996.
___________________________
Assistant Secretary
<PAGE> 4
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
CERTIFIED COPY OF CORPORATE RESOLUTION
The undersigned, James J. Wesolowski, Secretary of Nuveen Insured Premium
Income Municipal Fund 2, a Massachusetts business trust, (the "Fund") does
hereby certify:
1. That he is the duly elected, qualified and acting Secretary of the Fund,
has custody of the corporate records and is a proper officer to make this
certification.
2. That at a meeting of the Board of Trustees of the Fund held on Tuesday,
April 26, 1994, at which a quorum was present and voted throughout, the
following resolution was duly adopted by said Board and said resolution has
not been amended, altered or repealed and remains in full force and effect
on the date hereof:
WHEREAS, Standard & Poor's Corporation ("S&P") has indicated that it
no longer requires leveraged closed-end municipal bond funds to
maintain a minimum liquidity level as a condition to assigning a AAA
rating to preferred shares issued by such funds;
WHEREAS, pursuant to express authority granted in the Statement, the
Board may from time to time, without vote or consent of shareholders,
amend, alter or repeal certain definitions in the Statement,
including the definition of "Minimum Liquidity Level", provided the
Board receives written confirmation from S&P that such action would
not impair the rating then assigned by S&P to the Fund's shares of
MuniPreferred, MMP or MPS, as the case may be; and
WHEREAS, in light of S&P's elimination of the minimum liquidity
requirement, the Board believes it to be in the best interest of the
Fund to amend the Statement to repeal the definition of Minimum
Liquidity Level;
NOW, THEREFORE, BE IT RESOLVED, that the Fund's Statement be, and
hereby is, amended as follows:
(a) the definition of Minimum Liquidity Level shall be, and
hereby is, repealed in its entirety, subject to the Fund's
receipt of the written confirmation from S&P described above;
and
(b) the definitions of "Dividend Coverage Assets", "Valuation
Date" and "Dividend Coverage Amount" shall be, and hereby are,
repealed to the extent such definitions pertain to the
definition of "Minimum Liquidity Level", subject to the Fund's
receipt of the written confirmation from S&P described above.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed
this 16th day of June, 1994.
/s/ James J. Wesolowski
---------------------------------------
James J. Wesolowski, Secretary
<PAGE> 5
CERTIFICATE OF AMENDMENT TO
STATEMENT ESTABLISHING AND FIXING THE
RIGHTS AND PREFERENCES OF MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED SHARES, SERIES M, W AND F, OF
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
The undersigned, a Vice President and Assistant Secretary of Nuveen
Insured Premium Municipal Fund 2, a Massachusetts business trust (the "Trust"),
hereby certifies as follows:
1. The Board of Trustees of the Trust, in accordance with the Trust's
Statement Establishing and Fixing the Rights and Preferences of
Municipal Auction Rate Cumulative Preferred Shares, Series M, W and F
(the "Statement"), and the Trust's Declaration of Trust, adopted a
resolution on October 19, 1993, to amend the Statement.
2. Such amendment shall be effective as of the close of business on
January 6, 1994.
3. The following portions of the Statement are hereby set forth in their
amended form as follows:
a. Paragraph FIRST, Line 5 of the Statement shall read in its entirety
as follows: "authorized the issuance of shares of the Fund's
authorized Preferred Shares liquidation preference $25,000"
b. Definitions, Paragraph (tt) of the Statement shall read in its
entirety as follows: "(tt) "LIQUIDATION PREFERENCE," with respect
to a given number of shares of MuniPreferred, means $25,000 times
that number."
c. Definitions, Paragraph (fff), Line 3 of the Statement shall read in
its entirety as follows: "such date multiplied by $25,000 (plus the
product of the number of shares of any other series of Preferred"
d. Part I, Section 2, Subparagraph (e)(ii), Line 7 of the Statement
shall read in its entirety as follows: "and applying the rate
obtained against $25,000."
e. Part I, Section 11, Subparagraph (a)(i), Line 4 of the Statement
shall read in its entirety as follows: "of funds legally available
therefor, at a redemption price per share equal to the sum of
$25,000 plus an amount"
f. Part I, Section 11, Subparagraph (a)(i), Line 7 of the Statement
shall read in its entirety as follows: "not be redeemed in part if
after such partial redemption fewer than 500 shares of such series
remain"
<PAGE> 6
g. Part I, Section 11, Subparagraph (a)(iv), Line 6 of the
Statement shall read in its entirety as follows: "Treasury
Note Rate for such Rate Period, at a redemption price per
share equal to the sum of $25,000 plus an"
h. Part I, Section 11, Subparagraph (b), Line 1 of the Statement
shall read in its entirety as follows: "(b) MANDATORY
REDEMPTION. The Fund shall redeem, at a redemption price
equal to $25,000 per share"
i. Appendix A, Section 1, Series M, Line 1 of the Statement
shall read in its entirety as follows: "SERIES M: A series of
2,080 Preferred Shares, liquidation preference $25,000 per
share, is hereby"
j. Appendix A, Section 1, Series W, Line 1 of the Statement
shall read in its entirety as follows: "SERIES W: A series of
2,080 Preferred Shares, liquidation preference $25,000 per
share, is hereby"
k. Appendix A, Section 1, Series F, Line 1 of the Statement
shall read in its entirety as follows: "SERIES F: A series of
2,196 Preferred Shares, liquidation preference $25,000 per
share, is hereby"
l. Appendix A, Section 2 of the Statement shall read in its
entirety as follows: "The number of authorized shares
constituting Series M MuniPreferred is 2,080; Series W
MuniPreferred is 2,080; and Series F MuniPreferred is 2,196."
m. Appendix A, Section 4, Page A-6, Line 14 of the Statement
shall read in its entirety as follows: "(2) Long-term
Municipal Obligations issued by issuers in any one state or
territory shall be considered S&P Eligible Assets only to
the"
n. Appendix A, Section 12, Line 25 of the Statement shall read
in its entirety as follows: "of any other Dividend Period),
and (c) dividing the amount determined in (b) above by
$25,000."
IN WITNESS WHEREOF, the undersigned, being a Vice President and
Assistant Secretary of the Trust, has executed this instrument as of the 3rd day
of January, 1994.
NUVEEN INSURED PREMIUM INCOME
MUNICIPAL FUND 2
By: /s/ Larry W. Martin
-------------------------------------
Larry W. Martin,
Vice President and Assistant Secretary
-2-
<PAGE> 7
NUVEEN INSURED PREMIUM
INCOME MUNICIPAL FUND 2
STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED SHARES ("MUNIPREFERRED(R)")
1
<PAGE> 8
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
TABLE OF CONTENTS
PAGE
----
DEFINITIONS
"AA" Composite Commercial Paper Rate
Accountant's Confirmation
Affiliate
Agent Member
Anticipation Notes
Applicable Rate
Auction
Auction Agency Agreement
Auction Agent
Auction Date
Auction Procedures
Available MuniPreferred
Benchmark Rate
Beneficial Owner
Bid and Bids
Bidder and Bidders
Board of Trustees
Broker-Dealer
Broker-Dealer Agreement
Business Day
Code
Commercial Paper Dealers
Common Shares
Cure Date
Date of Original Issue
Declaration
Deposit Securities
Discounted Value
Dividend Coverage Amount
Dividend Coverage Assets
Dividend Payment Date
Dividend Period
Existing Holder
Failure to Deposit
Federal Tax Rate Increase
Fund
Gross-Up Payment
Holder
Hold Order and Hold Orders
Independent Accountant
Initial Rate Period
Interest Equivalent
Issue Type Category
Kenny Index
Late Charge
Liquidation Preference
Market Value
Maximum Potential Gross-Up Payment Liability
Maximum Rate
Minimum Liquidity Level
Minimum Rate Period
Moody's
Moody's Discount Factor
Moody's Eligible Asset
Moody's Exposure Period
Moody's Volatility Factor
MuniPreferred
MuniPreferred Basic Maintenance Amount
MuniPreferred Basic Maintenance Cure Date
MuniPreferred Basic Maintenance Report
2
<PAGE> 9
PAGE
----
Municipal Obligations
1940 Act
1940 Act Cure Date
1940 Act MuniPreferred Asset Coverage
Notice of Redemption
Notice of Special Rate Period
Order and Orders
Original Issue Insurance
Other Issues
Outstanding
Permanent Insurance
Person
Portfolio Insurance
Potential Beneficial Owner
Potential Holder
Preferred Shares
Quarterly Valuation Date
Rate Multiple
Rate Period
Rate Period Days
Receivables for Municipal Obligations Sold
Redemption Price
Reference Rate
Registration Statement
S&P
S&P Discount Factor
S&P Eligible Asset
S&P Exposure Period
S&P Volatility Factor
Secondary Market Insurance
Securities Depository
Sell Order and Sell Orders
Special Rate Period
Special Redemption Provisions
Submission Deadline
Submitted Bid and Submitted Bids
Submitted Hold Order and Submitted Hold Orders
Submitted Order and Submitted Orders
Submitted Sell Order and Submitted Sell Orders
Subsequent Rate Period
Substitute Commercial Paper Dealer
Substitute U.S. Government Securities Dealer
Sufficient Clearing Bids
Taxable Allocation
Taxable Income
Taxable Equivalent of the Short-Term Municipal Bond Rate
Treasury Bill
Treasury Bill Rate
Treasury Note
Treasury Note Rate
U.S. Government Securities Dealer
Valuation Date
Volatility Factor
Voting Period
Winning Bid Rate
3
<PAGE> 10
PAGE
----
PART I
1. Number of Authorized Shares
2. Dividends
(a) Ranking
(b) Cumulative Cash Dividends
(c) Dividends Cumulative From Date of Original Issue
(d) Dividend Payment Dates and Adjustment Thereof
(e) Dividend Rates and Calculation of Dividends
(e)(i) Dividend Rates
(e)(ii) Calculation of Dividends
(f) Curing a Failure to Deposit
(g) Dividend Payments by Fund to Auction Agent
(h) Auction Agent as Trustee of Dividend Payments by Fund
(i) Dividends Paid to Holders
(j) Dividends Credited Against Earliest Accumulated But
Unpaid Dividends
(k) Dividends Designated as Exempt-Interest Dividends
3. Gross-Up Payments
(a) Minimum Rate Periods and Special Rate Periods of 28 Rate
Period Days or Fewer
(b) Special Rate Periods of More Than 28 Rate Period Days
(c) No Gross-up Payments In the Event of a Reallocation
4. Designation of Special Rate Periods
(a) Length of and Preconditions for Special Rate Period
(b) Adjustment of Length of Special Rate Period
(c) Notice of Proposed Special Rate Period
(d) Notice of Special Rate Period
(e) Failure to Deliver Notice of Special Rate Period
5. Voting Rights
(a) One Vote Per Share of MuniPreferred
(b) Voting For Additional Trustees
(b)(i) Voting Period
(b)(ii) Notice of Special Meeting
(b)(iii) Terms of Office of Existing Trustees
(b)(iv) Terms of Office of Certain Trustees to Terminate Upon
Termination of Voting Period
(c) Holders of MuniPreferred to Vote on Certain Other Matters
(c)(i) Increases in Capitalization
(c)(ii) 1940 Act Matters
(d) Board May Take Certain Actions Without Shareholder Approval
(e) Voting Rights Set Forth Herein Are Sole Voting Rights
(f) No Preemptive Rights or Cumulative Voting
(g) Voting for Trustees Sole Remedy for Fund's Failure to
Pay Dividends
(h) Holders Entitled to Vote
6. 1940 Act MuniPreferred Asset Coverage
7. MuniPreferred Basic Maintenance Amount
8. Minimum Liquidity Level
9. Restrictions on Dividends and Other Distributions
(a) Dividends on Preferred Shares Other Than MuniPreferred
(b) Dividends and Other Distributions With Respect to
Common Shares Under the 1940 Act
(c) Other Restrictions on Dividends and Other Distributions
10. Rating Agency Restrictions
4
<PAGE> 11
PAGE
----
11. Redemption
(a) Optional Redemption
(b) Mandatory Redemption
(c) Notice of Redemption
(d) No Redemption Under Certain Circumstances
(e) Absence of Funds Available for Redemption
(f) Auction Agent as Trustee of Redemption Payments by Fund
(g) Shares for Which Notice of Redemption Has Been Given
Are No Longer Outstanding
(h) Compliance With Applicable Law
(i) Only Whole Shares of MuniPreferred May Be Redeemed
12. Liquidation Rights
(a) Ranking
(b) Distributions Upon Liquidation
(c) Pro Rata Distributions
(d) Rights of Junior Shares
(e) Certain Events Not Constituting Liquidation
13. Miscellaneous
(a) Amendment of Appendix A to Add Additional Series
(b) Appendix A Incorporated by Reference
(c) No Fractional Shares
(d) Status of Shares of MuniPreferred Redeemed, Exchanged
or Otherwise Acquired by the Fund
(e) Board May Resolve Ambiguities
(f) Headings Not Determinative
(g) Notices
PART II
1. Orders
2. Submission of Orders by Broker-Dealers to Auction Agent
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate
4. Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares
5. Notification of Allocations
6. Auction Agent
7. Transfer of Shares of MuniPreferred
8. Global Certificate
APPENDIX A
1. Designation As To Series
2. Number of Authorized Shares Per Series
3. Exceptions to Certain Definitions
4. Certain Definitions
5. Initial Rate Periods
6. Date for Purposes of Paragraph (yyy) Contained Under the Heading
"Definitions" in this Statement
7. Party Named for Purposes of the Definition of "Rate Multiple" in
this Statement
8. Additional Definitions
9. Dividend Payment Dates
10. Amount for Purposes of Subparagraph (c)(i) of Section 5 of
Part I of the Statement
11. Redemption Provisions Applicable to Initial Rate Periods.
12. Applicable Rate for Purposes of Subparagraph (b)(iii) of
Section 3 of Part II of this Statement
5
<PAGE> 12
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2, a Massachusetts business
trust (the "Fund"), certifies that:
First: Pursuant to authority expressly vested in the Board of Trustees of
the Fund by Article IV of the Fund's Declaration of Trust, as amended (which,
as hereafter restated or amended from time to time is, together with this
Statement, herein called the "Declaration"), the Board of Trustees has, by
resolution, authorized the issuance of shares of the Fund's authorized
Preferred Shares, liquidation preference $50,000 per share, having such
designation or designations as to series as is set forth in Section 1 of
APPENDIX A hereto and such number of shares per such series as is set forth in
Section 2 of APPENDIX A hereto.
Second: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the
shares of each series of MuniPreferred described in Section 1 of APPENDIX A
hereto are as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN SECTION 3 OF APPENDIX A
hereto, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) ""AA' COMPOSITE COMMERCIAL PAPER RATE," on any date for any
Rate Period of shares of a series of MuniPreferred, shall mean (i) (A) in
the case of any Minimum Rate Period or any Special Rate Period of fewer
than 49 Rate Period Days, the interest equivalent of the 30-day rate;
PROVIDED, HOWEVER, that if such Rate Period is a Minimum Rate Period and
the "AA" Composite Commercial Paper Rate is being used to determine the
Applicable Rate for shares of such series when all of the Outstanding
shares of such series are subject to Submitted Hold Orders, then the
interest equivalent of the seven-day rate, and (B) in the case of any
Special Rate Period of (1) 49 or more but fewer than 70 Rate Period Days,
the interest equivalent of the 60-day rate; (2) 70 or more but fewer than
85 Rate Period Days, the arithmetic average of the interest equivalent of
the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate Period
Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer
than 141 Rate Period Days, the interest equivalent of the 120-day rate;
(6) 141 or more but fewer than 162 Rate Period Days, the arithmetic
average of the 120-day and 180-day rates; and (7) 162 or more but fewer
than 183 Rate Period Days, the interest equivalent of the 180-day rate,
in each case on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P or the equivalent of such rating by
S&P or another rating agency, as made available on a discount basis or
otherwise by the Federal Reserve Bank of New York for the Business Day
next preceding such date; or (ii) in the event that the Federal Reserve
Bank of New York does not make available any such rate, then the
arithmetic average of such rates, as quoted on a discount basis or
otherwise, by the Commercial Paper Dealers to the Auction Agent for the
close of business on the Business Day next preceding such date. If any
Commercial Paper Dealer does not quote a rate required to determine the
"AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper
Rate shall be determined on the basis of the quotation or quotations
furnished by the remaining Commercial Paper Dealer or Commercial Paper
Dealers and any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Fund to provide such rate or
rates not being supplied by any Commercial Paper Dealer or Commercial
Paper Dealers, as the case may be, or, if the Fund does not select any
such Substitute Commercial Paper Dealer or Substitute Commercial Paper
Dealers, by the remaining Commercial Paper Dealer or Commercial Paper
Dealers. For purposes of this definition, the "interest equivalent" of a
rate stated on a discount basis (a "discount rate") for commercial paper
of a given days' maturity shall be equal to the quotient (rounded upwards
to the next higher one-thousandth (.001) of 1%) of (A) the discount rate
divided by (B) the difference between (x) 1.00 and (y) a fraction the
numerator of which shall be the product of the discount rate times the
number of days in which such commercial paper matures and the denominator
of which shall be 360.
6
<PAGE> 13
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by,
in control of or under common control with the Fund; PROVIDED, HOWEVER,
that no Broker-Dealer controlled by, in control of or under common
control with the Fund shall be deemed to be an Affiliate nor shall any
corporation or any Person controlled by, in control of or under common
control with such corporation one of the trustees, directors or executive
officers of which is a trustee of the Fund be deemed to be an Affiliate
solely because such trustee, director or executive officer is also a
trustee of the Fund.
(d) "AGENT MEMBER" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder.
(e) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs),
Revenue Anticipation Notes (RANs), Tax and Revenue Anticipation Notes
(TRANs), Grant Anticipation Notes (GANs) that are rated by S&P and Bond
Anticipation Notes (BANs) that are rated by S&P.
(f) "APPLICABLE RATE" shall have the meaning specified in
subparagraph (e)(i) of Section 2 of Part I of this Statement.
(g) "AUCTION" shall mean each periodic implementation of the
Auction Procedures.
(h) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the
Fund and the Auction Agent which provides, among other things, that the
Auction Agent will follow the Auction Procedures for purposes of
determining the Applicable Rate for shares of a series of MuniPreferred
so long as the Applicable Rate for shares of such series is to be based
on the results of an Auction.
(i) "AUCTION AGENT" shall mean the entity appointed as such by a
resolution of the Board of Trustees in accordance with Section 6 of Part
II of this Statement.
(j) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(k) "AUCTION PROCEDURES" shall mean the procedures for conducting
Auctions set forth in Part II of this Statement.
(l) "AVAILABLE MUNIPREFERRED" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(m) "BENCHMARK RATE" shall have the meaning specified in Section 12
of APPENDIX A hereto.
(n) "BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of such series.
(o) "BID" and "BIDS" shall have the respective meanings specified
in paragraph (a) of Section 1 of Part II of this Statement.
(p) "BIDDER" and "BIDDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement;
PROVIDED, HOWEVER, that neither the Fund nor any affiliate thereof shall
be permitted to be a Bidder in an Auction, except that any Broker-Dealer
that is an affiliate of the Fund may be a Bidder in an Auction, but only
if the Orders placed by such Broker-Dealer are not for its own account.
(q) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the
Fund or any duly authorized committee thereof.
7
<PAGE> 14
(r) "BROKER-DEALER" shall mean any broker-dealer, commercial bank
or other entity permitted by law to perform the functions required of a
Broker-Dealer in Part II of this Statement, that is a member of, or a
participant in, the Securities Depository or is an affiliate of such
member or participant, has been selected by the Fund and has entered into
a Broker-Dealer Agreement that remains effective.
(s) "BROKER-DEALER AGREEMENT" shall mean an agreement among the
Fund, the Auction Agent and a Broker-Dealer pursuant to which such
Broker-Dealer agrees to follow the procedures specified in Part II of
this Statement.
(t) "BUSINESS DAY" shall mean a day on which the New York Stock
Exchange is open for trading and which is neither a Saturday, Sunday nor
any other day on which banks in The City of New York, New York, are
authorized by law to close.
(u) "CODE" means the Internal Revenue Code of 1986, as amended.
(v) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated or, in lieu of any thereof, their respective
affiliates or successors, if such entity is a commercial paper dealer.
(w) "COMMON SHARES" shall mean the common shares of beneficial
interest, par value $.01 per share, of the Fund.
(x) "CURE DATE" shall mean the MuniPreferred Basic Maintenance Cure
Date or the 1940 Act Cure Date, as the case may be.
(y) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued
such shares.
(z) "DECLARATION" shall have the meaning specified on the first
page of this Statement.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations
rated at least A-1+ or SP-1+ by S&P, except that, for purposes of
subparagraph (a)(v) of Section 11 of Part I of this Statement, such
Municipal Obligations shall be considered "Deposit Securities" only if
they are also rated P-1, MIG-1 or VMIG-1 by Moody's.
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i)
with respect to an S&P Eligible Asset, the quotient of the Market Value
thereof divided by the applicable S&P Discount Factor and (ii) (a) with
respect to a Moody's Eligible Asset that is not currently callable as of
such Valuation Date at the option of the issuer thereof, the quotient of
the Market Value thereof divided by the applicable Moody's Discount
Factor, or (b) with respect to a Moody's Eligible Asset that is currently
callable as of such Valuation Date at the option of the issuer thereof,
the quotient of (1) the lesser of the Market Value or call price thereof,
including any call premium, divided by (2) the applicable Moody's
Discount Factor.
(cc) "DIVIDEND COVERAGE AMOUNT," as of any Valuation Date, shall
mean, with respect to each share of MuniPreferred, (i) the aggregate
amount of dividends that will accumulate on such share of MuniPreferred
to (but not including) the first Dividend Payment Date for such share
that follows such Valuation Date, less (ii) the combined value of Deposit
Securities irrevocably deposited for the payment of dividends on such
share of MuniPreferred.
(dd) "DIVIDEND COVERAGE ASSETS," as of any Valuation Date, shall
mean, with respect to each share of MuniPreferred, Deposit Securities
with maturity or tender dates not later than the day preceding the first
Dividend Payment Date for such share that follows such Valuation Date and
having a value not less than the Dividend Coverage Amount with respect to
such share.
(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on
shares of such series pursuant to the provisions of paragraph (d) of
Section 2 of Part I of this Statement.
8
<PAGE> 15
(ff) "DIVIDEND PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of
Original Issue of shares of such series to but excluding the initial
Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to
but excluding the next succeeding Dividend Payment Date for shares of such
series.
(gg) "EXISTING HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other Person as
may be permitted by the Fund) that is listed on the records of the
Auction Agent as a holder of shares of such series.
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction
Agent, not later than 12:00 noon, New York City time, (A) on the Business
Day next preceding any Dividend Payment Date for shares of such series,
in funds available on such Dividend Payment Date in The City of New York,
New York, the full amount of any dividend (whether or not earned or
declared) to be paid on such Dividend Payment Date on any share of such
series or (B) on the Business Day next preceding any redemption date in
funds available on such redemption date for shares of such series in The
City of New York, New York, the Redemption Price to be paid on such
redemption date for any share of such series after notice of redemption
is mailed pursuant to paragraph (c) of Section 11 of Part I of this
Statement; PROVIDED, HOWEVER, that the foregoing clause (B) shall not
apply to the Fund's failure to pay the Redemption Price in respect of
shares of MuniPreferred when the related Notice of Redemption provides
that redemption of such shares is subject to one or more conditions
precedent and any such condition precedent shall not have been satisfied
at the time or times and in the manner specified in such Notice of
Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified
in the definition of "Moody's Volatility Factor."
(jj) "FUND" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.
(kk) "GROSS-UP PAYMENT" shall have the meaning specified in Section
4 of APPENDIX A hereto.
(ll) "HOLDER," with respect to shares of a series of MuniPreferred,
shall mean the registered holder of such shares as the same appears on
the record books of the Fund.
(mm) "HOLD ORDER" and "HOLD ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(nn) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants
under the Securities Act of 1933, as amended from time to time.
(oo) "INITIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of
such series in Section 5 of APPENDIX A hereto.
(pp) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a
discount basis security which is equal to the yield on an equivalent
interest-bearing security.
(qq) "ISSUE TYPE CATEGORY," if defined in Section 4 of APPENDIX A
hereto, shall have the meaning specified in that section.
(rr) "KENNY INDEX" shall have the meaning specified in the
definition of "Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "LATE CHARGE" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.
9
<PAGE> 16
(tt) "LIQUIDATION PREFERENCE," with respect to a given number of
shares of MuniPreferred, means $50,000 times that number.
(uu) "MARKET VALUE" of any asset of the Fund shall mean the market
value thereof determined by the pricing service designated from time to
time by the Board of Trustees. Market Value of any asset shall include
any interest accrued thereon. The pricing service values portfolio
securities at the mean between the quoted bid and asked price or the
yield equivalent when quotations are readily available. Securities for
which quotations are not readily available are valued at fair value as
determined by the pricing service using methods which include
consideration of: yields or prices of municipal bonds of comparable
quality, type of issue, coupon, maturity and rating; indications as to
value from dealers; and general market conditions. The pricing service
may employ electronic data processing techniques or a matrix system, or
both, to determine valuations.
(vv) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any
Valuation Date, shall mean the aggregate amount of Gross-up Payments that
would be due if the Fund were to make Taxable Allocations, with respect
to any taxable year, estimated based upon dividends paid and the amount
of undistributed realized net capital gains and other taxable income
earned by the Fund, as of the end of the calendar month immediately
preceding such Valuation Date, and assuming such Gross-up Payments are
fully taxable.
(ww) "MAXIMUM RATE," for shares of a series of MuniPreferred on any
Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction
Date immediately prior to the first day of any proposed Special
Rate Period designated by the Fund pursuant to Section 4 of Part I
of this Statement, the product of (A) the Reference Rate on such
Auction Date for the next Rate Period of shares of such series and
(B) the Rate Multiple on such Auction Date, unless shares of such
series have or had a Special Rate Period (other than a Special Rate
Period of 28 Rate Period Days or fewer) and an Auction at which
Sufficient Clearing Bids existed has not yet occurred for a Minimum
Rate Period of shares of such series after such Special Rate
Period, in which case the higher of:
(A) the dividend rate on shares of such series for the
then-ending Rate Period; and
(B) the product of (1) the higher of (x) the Reference
Rate on such Auction Date for a Rate Period equal in length
to the then-ending Rate Period of shares of such series, if
such then-ending Rate Period was 364 Rate Period Days or
fewer, or the Treasury Note Rate on such Auction Date for a
Rate Period equal in length to the then-ending Rate Period of
shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, and (y) the Reference Rate on
such Auction Date for a Rate Period equal in length to such
Special Rate Period of shares of such series, if such Special
Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period
equal in length to such Special Rate Period, if such Special
Rate Period was more than 364 Rate Period Days and (2) the
Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction
Date immediately prior to the first day of any proposed Special
Rate Period designated by the Fund pursuant to Section 4 of Part I
of this Statement, the product of (A) the highest of (1) the
Reference Rate on such Auction Date for a Rate Period equal in
length to the then-ending Rate Period of shares of such series, if
such then-ending Rate Period was 364 Rate Period Days or fewer, or
the Treasury Note Rate on such Auction Date for a Rate Period equal
in length to the then-ending Rate Period of shares of such series,
if such then-ending Rate Period was more than 364 Rate Period Days,
(2) the Reference Rate on such Auction Date for the Special Rate
Period for which the Auction is being held if such Special Rate
Period is 364 Rate Period Days or fewer or the Treasury Note Rate
on such Auction Date for the Special Rate Period for which the
Auction is being held if such Special Rate Period is more than 364
Rate Period Days, and (3) the Reference Rate on such
10
<PAGE> 17
Auction Date for Minimum Rate Periods and (B) the Rate Multiple
on such Auction Date.
(xx) "MINIMUM LIQUIDITY LEVEL" shall have the meaning specified in
Section 8 of Part I of this Statement.
(yy) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of
7 Rate Period Days.
(zz) "MOODY'S" shall mean Moody's Investors Service, Inc., a
Delaware corporation, and its successors.
(aaa) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(bbb) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(ccc) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on
a given Valuation Date and ending 56 days thereafter.
(ddd) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation
Date, (i) in the case of any Minimum Rate Period, any Special Rate Period
of 28 Rate Period Days or fewer, or any Special Rate Period of 57 Rate
Period Days or more, a multiplicative factor equal to 275%, except as
otherwise provided in the last sentence of this definition; (ii) in the
case of any Special Rate Period of more than 28 but fewer than 36 Rate
Period Days, a multiplicative factor equal to 203%; (iii) in the case of
any Special Rate Period of more than 35 but fewer than 43 Rate Period
Days, a multiplicative factor equal to 217%; (iv) in the case of any
Special Rate Period of more than 42 but fewer than 50 Rate Period Days, a
multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a
multiplicative factor equal to 235%. If, as a result of the enactment of
changes to the Code, the greater of the maximum marginal Federal
individual income tax rate applicable to ordinary income and the maximum
marginal Federal corporate income tax rate applicable to ordinary income
will increase, such increase being rounded up to the next five percentage
points (the "Federal Tax Rate Increase"), until the effective date of
such increase, the Moody's Volatility Factor in the case of any Rate
Period described in (i) above in this definition instead shall be
determined by reference to the following table:
<TABLE>
<CAPTION>
FEDERAL VOLATILITY
TAX RATE INCREASE FACTOR
----------------- ----------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
</TABLE>
(eee) "MUNIPREFERRED" shall have the meaning set forth on the first
page of this Statement.
(fff) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i)(A) the product
of the number of shares of MuniPreferred outstanding on such date
multiplied by $50,000 (plus the product of the number of shares of any
other series of Preferred Shares outstanding on such date multiplied by
the liquidation preference of such shares), plus any redemption premium
applicable to shares of MuniPreferred (or other Preferred Shares) then
subject to redemption; (B) the aggregate amount of dividends that will
have accumulated at the respective Applicable Rates (whether or not
earned or declared) to (but not including) the first respective Dividend
Payment Dates for shares of MuniPreferred outstanding that follow such
Valuation Date (plus the aggregate amount of dividends, whether or not
earned or declared, that will have accumulated in respect of other
outstanding Preferred Shares to, but not including,
11
<PAGE> 18
the first respective dividend payment dates for such other shares that
follow such Valuation Date); (C) the aggregate amount of dividends that
would accumulate on shares of each series of MuniPreferred outstanding
from such first respective Dividend Payment Date therefor through the
56th day after such Valuation Date, at the Maximum Rate (calculated as if
such Valuation Date were the Auction Date for the Rate Period commencing
on such Dividend Payment Date) for a Minimum Rate Period of shares of
such series to commence on such Dividend Payment Date, assuming, solely
for purposes of the foregoing, that if on such Valuation Date the Fund
shall have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to Section 4(d)(i) of this Part I with respect to shares of such
series, such Maximum Rate shall be the higher of (a) the Maximum Rate for
the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period
of shares of such series to commence on such Dividend Payment Date,
multiplied by the Volatility Factor applicable to a Minimum Rate Period,
or, in the event the Fund shall have delivered a Notice of Special Rate
Period to the Auction Agent pursuant to Section 4(d)(i) of this Part I
with respect to shares of such series designating a Special Rate Period
consisting of 56 Rate Period Days or more, the Volatility Factor
applicable to a Special Rate Period of that length (plus the aggregate
amount of dividends that would accumulate at the maximum dividend rate or
rates on any other Preferred Shares outstanding from such respective
dividend payment dates through the 56th day after such Valuation Date, as
established by or pursuant to the respective statements establishing and
fixing the rights and preferences of such other Preferred Shares) (except
that (1) if such Valuation Date occurs at a time when a Failure to
Deposit (or, in the case of Preferred Shares other than MuniPreferred, a
failure similar to a Failure to Deposit) has occurred that has not been
cured, the dividend for purposes of calculation would accumulate at the
current dividend rate then applicable to the shares in respect of which
such failure has occurred and (2) for those days during the period
described in this subparagraph (C) in respect of which the Applicable
Rate in effect immediately prior to such Dividend Payment Date will
remain in effect (or, in the case of Preferred Shares other than
MuniPreferred, in respect of which the dividend rate or rates in effect
immediately prior to such respective dividend payment dates will remain
in effect), the dividend for purposes of calculation would accumulate at
such Applicable Rate (or other rate or rates, as the case may be) in
respect of those days); (D) the amount of anticipated expenses of the
Fund for the 90 days subsequent to such Valuation Date; (E) the amount of
the Fund's Maximum Potential Gross-up Payment Liability in respect of
shares of MuniPreferred (and similar amounts payable in respect of other
Preferred Shares pursuant to provisions similar to those contained in
Section 3 of Part I of this Statement) as of such Valuation Date; and (F)
any current liabilities as of such Valuation Date to the extent not
reflected in any of (i)(A) through (i)(E) (including, without limitation,
any payables for Municipal Obligations purchased as of such Valuation
Date and any liabilities incurred for the purpose of clearing securities
transactions) less (ii) the value (i.e., for purposes of current Moody's
guidelines, the face value of cash, short-term Municipal Obligations
rated MIG-1, VMIG-1 or P-1, and short-term securities that are the direct
obligation of the U.S. government, provided in each case that such
securities mature on or prior to the date upon which any of (i)(A)
through (i)(F) become payable, otherwise the Moody's Discounted Value) of
any of the Fund's assets irrevocably deposited by the Fund for the
payment of any of (i)(A) through (i)(F).
(ggg) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to
the failure by the Fund to satisfy the MuniPreferred Basic Maintenance
Amount (as required by paragraph (a) of Section 7 of Part I of this
Statement) as of a given Valuation Date, shall mean the seventh Business
Day following such Valuation Date.
(hhh) "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report
signed by the President, Treasurer or any Senior Vice President or Vice
President of the Fund which sets forth, as of the related Valuation Date,
the assets of the Fund, the Market Value and the Discounted Value thereof
(seriatim and in aggregate), and the MuniPreferred Basic Maintenance
Amount.
(iii) "MUNICIPAL OBLIGATIONS" shall mean "Municipal Obligations" as
defined in the Fund's registration statement on Form N-2 on file with the
Securities and Exchange Commission, as such registration statement may be
amended from time to time (the "Registration Statement").
(jjj) "1940 ACT" shall mean the Investment Company Act of 1940, as
amended from time to time.
12
<PAGE> 19
(kkk) "1940 ACT CURE DATE," with respect to the failure by the Fund
to maintain the 1940 Act MuniPreferred Asset Coverage (as required by
Section 6 of Part I of this Statement) as of the last Business Day of
each month, shall mean the last Business Day of the following month.
(lll) "1940 ACT MUNIPREFERRED ASSET COVERAGE" shall mean asset
coverage, as defined in Section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Fund which are
shares of beneficial interest, including all outstanding shares of
MuniPreferred (or such other asset coverage as may in the future be
specified in or under the 1940 Act as the minimum asset coverage for
senior securities which are shares or stock of a closed-end investment
company as a condition of declaring dividends on its common shares or
stock).
(mmm) "NOTICE OF REDEMPTION" shall mean any notice with respect to
the redemption of shares of MuniPreferred pursuant to paragraph (c) of
Section 11 of Part I of this Statement.
(nnn) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with
respect to a Special Rate Period of shares of MuniPreferred pursuant to
subparagraph (d)(i) of Section 4 of Part I of this Statement.
(ooo) "ORDER" and "ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(ppp) "ORIGINAL ISSUE INSURANCE," if defined in Section 4 of
APPENDIX A hereto, shall have the meaning specified in that section.
(qqq) "OTHER ISSUES," if defined in Section 4 of APPENDIX A hereto,
shall have the meaning specified in that section.
(rrr) "OUTSTANDING" shall mean, as of any Auction Date with respect
to shares of a series of MuniPreferred, the number of shares of such
series theretofore issued by the Fund except, without duplication, (i)
any shares of such series theretofore cancelled or delivered to the
Auction Agent for cancellation or redeemed by the Fund, (ii) any shares
of such series as to which the Fund or any Affiliate thereof shall be an
Existing Holder and (iii) any shares of such series represented by any
certificate in lieu of which a new certificate has been executed and
delivered by the Fund.
(sss) "PERMANENT INSURANCE," if defined in Section 4 of APPENDIX A
hereto, shall have the meaning specified in that section.
(ttt) "PERSON" shall mean and include an individual, a partnership,
a corporation, a trust, an unincorporated association, a joint venture or
other entity or a government or any agency or political subdivision
thereof.
(uuu) "PORTFOLIO INSURANCE," if defined in Section 4 of APPENDIX A
hereto, shall have the meaning specified in that section.
(vvv) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a
series of MuniPreferred, shall mean a customer of a Broker-Dealer that is
not a Beneficial Owner of shares of such series but that wishes to
purchase shares of such series, or that is a Beneficial Owner of shares
of such series that wishes to purchase additional shares of such series.
(www) "POTENTIAL HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other person as
may be permitted by the Fund) that is not an Existing Holder of shares of
such series or that is an Existing Holder of shares of such series that
wishes to become the Existing Holder of additional shares of such series.
(xxx) "PREFERRED SHARES" shall mean the preferred shares of the
Fund, and includes the shares of MuniPreferred.
13
<PAGE> 20
(yyy) "QUARTERLY VALUATION DATE" shall mean the last Business Day
of each February, May, August and November of each year, commencing on
the date set forth in Section 6 of APPENDIX A hereto.
(zzz) "RATE MULTIPLE" shall have the meaning specified in Section 4
of APPENDIX A hereto.
(aaaa) "RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the Initial Rate Period of shares of such
series and any Subsequent Rate Period, including any Special Rate Period,
of shares of such series.
(bbbb) "RATE PERIOD DAYS," for any Rate Period or Dividend Period,
means the number of days that would constitute such Rate Period or
Dividend Period but for the application of paragraph (d) of Section 2 of
Part I of this Statement or paragraph (b) of Section 4 of Part I of this
Statement.
(cccc) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A)
for purposes of calculation of Moody's Eligible Assets as of any
Valuation Date, no more than the aggregate of the following: (i) the book
value of receivables for Municipal Obligations sold as of or prior to
such Valuation Date if such receivables are due within five business days
of such Valuation Date, and if the trades which generated such
receivables are (x) settled through clearing house firms with respect to
which the Fund has received prior written authorization from Moody's or
(y) with counterparties having a Moody's long-term debt rating of at
least Baa3; and (ii) the Moody's Discounted Value of Municipal
Obligations sold as of or prior to such Valuation Date which generated
receivables, if such receivables are due within five business days of
such Valuation Date but do not comply with either of the conditions
specified in (i) above, and (B) for purposes of calculation of S&P
Eligible Assets as of any Valuation Date, the book value of receivables
for Municipal Obligations sold as of or prior to such Valuation Date if
such receivables are due within five business days of such Valuation
Date.
(dddd) "REDEMPTION PRICE" shall mean the applicable redemption
price specified in paragraph (a) or (b) of Section 11 of Part I of this
Statement.
(eeee) "REFERENCE RATE" shall mean (i) the higher of the Taxable
Equivalent of the Short-Term Municipal Bond Rate and the "AA" Composite
Commercial Paper Rate in the case of Minimum Rate Periods and Special
Rate Periods of 28 Rate Period Days or fewer; (ii) the "AA" Composite
Commercial Paper Rate in the case of Special Rate Periods of more than 28
Rate Period Days but fewer than 183 Rate Period Days; and (iii) the
Treasury Bill Rate in the case of Special Rate Periods of more than 182
Rate Period Days but fewer than 365 Rate Period Days.
(ffff) "REGISTRATION STATEMENT" has the meaning specified in the
definition of "Municipal Obligations."
(gggg) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(hhhh) "S&P DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(iiii) "S&P ELIGIBLE ASSET" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(jjjj) "S&P EXPOSURE PERIOD" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure
any failure to maintain, as of such Valuation Date, the Discounted Value
for its portfolio at least equal to the MuniPreferred Basic Maintenance
Amount (as described in paragraph (a) of Section 7 of Part I of this
Statement).
(kkkk) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation
Date, a multiplicative factor equal to (i) 305% in the case of any
Minimum Rate Period or any Special Rate Period of 28 Rate Period Days or
fewer; (ii) 268% in the case of any Special Rate Period of more than 28
Rate Period Days but fewer than 183 Rate Period Days; and (iii) 204% in
the case of any Special Rate Period of more than 182 Rate Period Days.
14
<PAGE> 21
(llll) "SECONDARY MARKET INSURANCE," if defined in Section 4 of
APPENDIX A hereto, shall have the meaning specified in that section.
(mmmm) "SECURITIES DEPOSITORY" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the Fund which agrees to follow the procedures required to be
followed by such securities depository in connection with shares of
MuniPreferred.
(nnnn) "SELL ORDER" and "SELL ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(oooo) "SPECIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of
Section 4 of Part I of this Statement.
(pppp) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning
specified in subparagraph (a)(i) of Section 11 of Part I of this
Statement.
(qqqq) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City
time, on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as
specified by the Auction Agent from time to time.
(rrrr) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(ssss) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall
have the respective meanings specified in paragraph (a) of Section 3 of
Part II of this Statement.
(tttt) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(uuuu) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall
have the respective meanings specified in paragraph (a) of Section 3 of
Part II of this Statement.
(vvvv) "SUBSEQUENT RATE PERIOD," with respect to shares of a series
of MuniPreferred, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but
excluding the next Dividend Payment Date for shares of such series and
any period thereafter from and including one Dividend Payment Date for
shares of such series to but excluding the next succeeding Dividend
Payment Date for shares of such series; PROVIDED, HOWEVER, that if any
Subsequent Rate Period is also a Special Rate Period, such term shall
mean the period commencing on the first day of such Special Rate Period
and ending on the last day of the last Dividend Period thereof.
(wwww) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First
Boston Company or Morgan Stanley & Co. Incorporated or their respective
affiliates or successors, if such entity is a commercial paper dealer;
PROVIDED, HOWEVER, that none of such entities shall be a Commercial Paper
Dealer.
(xxxx) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean
The First Boston Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated or their respective affiliates or successors, if such entity
is a U.S. Government securities dealer; PROVIDED, HOWEVER, that none of
such entities shall be a U.S. Government Securities Dealer.
(yyyy) "SUFFICIENT CLEARING BIDS" shall have the meaning specified
in paragraph (a) of Section 3 of Part II of this Statement.
(zzzz) "TAXABLE ALLOCATION" shall have the meaning specified in
Section 3 of Part I of this Statement.
(aaaaa) "TAXABLE INCOME" shall have the meaning specified in
Section 12 of APPENDIX A hereto.
15
<PAGE> 22
(bbbbb) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE,"
on any date for any Minimum Rate Period or Special Rate Period of 28 Rate
Period Days or fewer, shall mean 90% of the quotient of (A) the per annum
rate expressed on an interest equivalent basis equal to the Kenny S&P 30
day High Grade Index or any successor index (the "Kenny Index")(PROVIDED,
HOWEVER, that any such successor index must be approved by Moody's (if
Moody's is then rating the shares of MuniPreferred) and S&P (if S&P is
then rating the shares of MuniPreferred)), made available for the
Business Day immediately preceding such date but in any event not later
than 8:30 A.M., New York City time, on such date by Kenny S&P Evaluation
Services or any successor thereto, based upon 30-day yield evaluations at
par of short-term bonds the interest on which is excludable for regular
Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny S&P Evaluation Services or any such successor
from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but
shall exclude any bonds the interest on which constitutes an item of tax
preference under Section 57(a)(5) of the Code, or successor provisions,
for purposes of the "alternative minimum tax," divided by (B) 1.00 minus
the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or the maximum marginal regular Federal
corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater; PROVIDED, HOWEVER, that if
the Kenny Index is not made so available by 8:30 A.M., New York City
time, on such date by Kenny S&P Evaluation Services or any successor, the
Taxable Equivalent of the Short-Term Municipal Bond Rate shall mean the
quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any
preceding Business Day, divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income
or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income (in each case expressed as a decimal),
whichever is greater.
(ccccc) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(ddddd) "TREASURY BILL RATE," on any date for any Rate Period,
shall mean (i) the bond equivalent yield, calculated in accordance with
prevailing industry convention, of the rate on the most recently
auctioned Treasury Bill with a remaining maturity closest to the length
of such Rate Period, as quoted in The Wall Street Journal on such date
for the Business Day next preceding such date; or (ii) in the event that
any such rate is not published in The Wall Street Journal, then the bond
equivalent yield, calculated in accordance with prevailing industry
convention, as calculated by reference to the arithmetic average of the
bid price quotations of the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the
Business Day immediately preceding such date obtained from the U.S.
Government Securities Dealers to the Auction Agent.
(eeeee) "TREASURY NOTE" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of five years or
less but more than 364 days.
(fffff) "TREASURY NOTE RATE," on any date for any Rate Period,
shall mean (i) the yield on the most recently auctioned Treasury Note
with a remaining maturity closest to the length of such Rate Period, as
quoted in The Wall Street Journal on such date for the Business Day next
preceding such date; or (ii) in the event that any such rate is not
published in The Wall Street Journal, then the yield as calculated by
reference to the arithmetic average of the bid price quotations of the
most recently auctioned Treasury Note with a remaining maturity closest
to the length of such Rate Period, as determined by bid price quotations
as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the
Auction Agent. If any U.S. Government Securities Dealer does not quote a
rate required to determine the Treasury Bill Rate or the Treasury Note
Rate, the Treasury Bill Rate or the Treasury Note Rate shall be
determined on the basis of the quotation or quotations furnished by the
remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers and any Substitute U.S. Government Securities Dealers selected by
the Fund to provide such rate or rates not being supplied by any U.S.
Government Securities Dealer or U.S. Government Securities Dealers, as
the case may be, or, if the Fund does not select any such Substitute U.S.
Government Securities Dealer
16
<PAGE> 23
or Substitute U.S. Government Securities Dealers, by the remaining U.S.
Government Securities Dealer or U.S. Government Securities Dealers.
(ggggg) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman
Government Securities Incorporated, Goldman, Sachs & Co., Salomon
Brothers Inc and Morgan Guaranty Trust Company of New York or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer.
(hhhhh) "VALUATION DATE" shall mean, for purposes of determining
whether the Fund is maintaining the MuniPreferred Basic Maintenance
Amount and the Minimum Liquidity Level, each Business Day.
(iiiii) "VOLATILITY FACTOR" shall mean, as of any Valuation Date,
the greater of the Moody's Volatility Factor and the S&P Volatility
Factor.
(jjjjj) "VOTING PERIOD" shall have the meaning specified in
paragraph (b) of Section 5 of Part I of this Statement.
(kkkkk) "WINNING BID RATE" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 8 of APPENDIX
A hereto shall be incorporated herein and made part hereof by reference
thereto.
17
<PAGE> 24
PART I
1. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares constituting a series of MuniPreferred
shall be as set forth with respect to such series in Section 2 of APPENDIX A
hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a
parity with each other, with shares of any other series of MuniPreferred and
with shares of any other series of Preferred Shares as to the payment of
dividends by the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of MuniPreferred of
any series shall be entitled to receive, when, as and if declared by the Board
of Trustees, out of funds legally available therefor in accordance with the
Declaration and applicable law, cumulative cash dividends at the Applicable
Rate for shares of such series, determined as set forth in paragraph (e) of
this Section 2, and no more (except to the extent set forth in Section 3 of
this Part I), payable on the Dividend Payment Dates with respect to shares of
such series determined pursuant to paragraph (d) of this Section 2. Holders of
shares of MuniPreferred shall not be entitled to any dividend, whether payable
in cash, property or shares, in excess of full cumulative dividends, as herein
provided, on shares of MuniPreferred. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
shares of MuniPreferred which may be in arrears, and, except to the extent set
forth in subparagraph (e)(i) of this Section 2, no additional sum of money
shall be payable in respect of any such arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on
shares of MuniPreferred of any series shall accumulate at the Applicable Rate
for shares of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment
Dates with respect to shares of a series of MuniPreferred shall be as set forth
with respect to shares of such series in Section 9 of APPENDIX A hereto;
PROVIDED, HOWEVER, that:
(i) (A) in the case of a series of MuniPreferred designated as
"Series F MuniPreferred" or "Series M MuniPreferred" in Section 1 of
APPENDIX A hereto, if the Monday or Tuesday, as the case may be, on which
dividends would otherwise be payable on shares of such series is not a
Business Day, then such dividends shall be payable on such shares on the
first Business Day that falls after such Monday or Tuesday, as the case
may be, and (B) in the case of a series of MuniPreferred designated as
"Series T MuniPreferred," "Series W MuniPreferred" or "Series TH
MuniPreferred" in Section 1 of APPENDIX A hereto, if the Wednesday,
Thursday or Friday, as the case may be, on which dividends would
otherwise be payable on shares of such series is not a Business Day, then
such dividends shall be payable on such shares on the first Business Day
that falls prior to such Wednesday, Thursday or Friday, as the case may
be; and
(ii) notwithstanding Section 9 of APPENDIX A hereto, the Fund in
its discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of MuniPreferred consisting of
more than 28 Rate Period Days; PROVIDED, HOWEVER, that such dates shall
be set forth in the Notice of Special Rate Period relating to such
Special Rate Period, as delivered to the Auction Agent, which Notice of
Special Rate Period shall be filed with the Secretary of the Fund; and
further provided that (1) any such Dividend Payment Date shall be a
Business Day and (2) the last Dividend Payment Date in respect of such
Special Rate Period shall be the Business Day immediately following the
last day thereof, as such last day is determined in accordance with
paragraph (b) of Section 4 of this Part I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS. (i) DIVIDEND RATES.
The dividend rate on shares of MuniPreferred of any series during the period
from and after the Date of Original Issue of shares of such series to and
including the last day of the Initial Rate Period of shares of such series
shall be equal to the rate per annum set forth with respect to shares of such
series under "Designation" in Section 1 of APPENDIX A hereto. For each
Subsequent Rate Period of shares of such series thereafter, the dividend rate
on shares of such series shall be equal to the rate per annum that results
18
<PAGE> 25
from an Auction for shares of such series on the Auction Date next preceding
such Subsequent Rate Period; PROVIDED, HOWEVER, that if:
(A) an Auction for any such Subsequent Rate Period is not held for
any reason other than as described below, the dividend rate on shares of
such series for such Subsequent Rate Period will be the Maximum Rate for
shares of such series on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with respect to
shares of such series during any Rate Period thereof (other than any
Special Rate Period consisting of more than 364 Rate Period Days or any
Rate Period succeeding any Special Rate Period consisting of more than
364 Rate Period Days during which a Failure to Deposit occurred that has
not been cured), but, prior to 12:00 Noon, New York City time, on the
third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall have been cured in
accordance with paragraph (f) of this Section 2 and the Fund shall have
paid to the Auction Agent a late charge ("Late Charge") equal to the sum
of (1) if such Failure to Deposit consisted of the failure timely to pay
to the Auction Agent the full amount of dividends with respect to any
Dividend Period of the shares of such series, an amount computed by
multiplying (x) 200% of the Reference Rate for the Rate Period during
which such Failure to Deposit occurs on the Dividend Payment Date for
such Dividend Period by (y) a fraction, the numerator of which shall be
the number of days for which such Failure to Deposit has not been cured
in accordance with paragraph (f) of this Section 2 (including the day
such Failure to Deposit occurs and excluding the day such Failure to
Deposit is cured) and the denominator of which shall be 360, and applying
the rate obtained against the aggregate Liquidation Preference of the
outstanding shares of such series and (2) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the
Redemption Price of the shares, if any, of such series for which Notice
of Redemption has been mailed by the Fund pursuant to paragraph (c) of
Section 11 of this Part I, an amount computed by multiplying (x) 200% of
the Reference Rate for the Rate Period during which such Failure to
Deposit occurs on the redemption date by (y) a fraction, the numerator of
which shall be the number of days for which such Failure to Deposit is
not cured in accordance with paragraph (f) of this Section 2 (including
the day such Failure to Deposit occurs and excluding the day such Failure
to Deposit is cured) and the denominator of which shall be 360, and
applying the rate obtained against the aggregate Liquidation Preference
of the outstanding shares of such series to be redeemed, no Auction will
be held in respect of shares of such series for the Subsequent Rate
Period thereof and the dividend rate for shares of such series for such
Subsequent Rate Period will be the Maximum Rate for shares of such series
on the Auction Date for such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with respect to
shares of such series during any Rate Period thereof (other than any
Special Rate Period consisting of more than 364 Rate Period Days or any
Rate Period succeeding any Special Rate Period consisting of more than
364 Rate Period Days during which a Failure to Deposit occurred that has
not been cured), and, prior to 12:00 Noon, New York City time, on the
third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall not have been cured in
accordance with paragraph (f) of this Section 2 or the Fund shall not
have paid the applicable Late Charge to the Auction Agent, no Auction
will be held in respect of shares of such series for the first Subsequent
Rate Period thereof thereafter (or for any Rate Period thereof thereafter
to and including the Rate Period during which (1) such Failure to Deposit
is cured in accordance with paragraph (f) of this Section 2 and (2) the
Fund pays the applicable Late Charge to the Auction Agent (the condition
set forth in this clause (2) to apply only in the event Moody's is rating
such shares at the time the Fund cures such Failure to Deposit), in each
case no later than 12:00 Noon, New York City time, on the fourth Business
Day prior to the end of such Rate Period), and the dividend rate for
shares of such series for each such Subsequent Rate Period shall be a
rate per annum equal to the Maximum Rate for shares of such series on the
Auction Date for such Subsequent Rate Period (but with the prevailing
rating for shares of such series, for purposes of determining such
Maximum Rate, being deemed to be "Below "ba3'/BB-"); or
(D) any Failure to Deposit shall have occurred with respect to
shares of such series during a Special Rate Period thereof consisting of
more than 364 Rate Period Days, or during any Rate Period thereof
succeeding any Special Rate Period consisting of more than 364 Rate
Period Days during which a Failure to Deposit
19
<PAGE> 26
occurred that has not been cured, and, prior to 12:00 Noon, New York City
time, on the fourth Business Day preceding the Auction Date for the Rate
Period subsequent to such Rate Period, such Failure to Deposit shall not
have been cured in accordance with paragraph (f) of this Section 2 or, in
the event Moody's is then rating such shares, the Fund shall not have
paid the applicable Late Charge to the Auction Agent (such Late Charge,
for purposes of this subparagraph (D), to be calculated by using, as the
Reference Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days but fewer than 365 Rate
Period Days and (y) commencing on the date on which the Rate Period
during which Failure to Deposit occurs commenced), no Auction will be
held in respect of shares of such series for such Subsequent Rate Period
(or for any Rate Period thereof thereafter to and including the Rate
Period during which (1) such Failure to Deposit is cured in accordance
with paragraph (f) of this Section 2 and (2) the Fund pays the applicable
Late Charge to the Auction Agent (the condition set forth in this clause
(2) to apply only in the event Moody's is rating such shares at the time
the Fund cures such Failure to Deposit), in each case no later than 12:00
Noon, New York City time, on the fourth Business Day prior to the end of
such Rate Period), and the dividend rate for shares of such series for
each such Subsequent Rate Period shall be a rate per annum equal to the
Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period (but with the prevailing rating for shares of such
series, for purposes of determining such Maximum Rate, being deemed to be
"Below `ba3'/BB-") (the rate per annum at which dividends are payable on
shares of a series of MuniPreferred for any Rate Period thereof being
herein referred to as the "Applicable Rate" for shares of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share payable
on shares of a series of MuniPreferred on any date on which dividends shall be
payable on shares of such series shall be computed by multiplying the
Applicable Rate for shares of such series in effect for such Dividend Period or
Dividend Periods or part thereof for which dividends have not been paid by a
fraction, the numerator of which shall be the number of days in such Dividend
Period or Dividend Periods or part thereof and the denominator of which shall
be 365 if such Dividend Period consists of 7 Rate Period Days and 360 for all
other Dividend Periods, and applying the rate obtained against $50,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of MuniPreferred shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Fund to make the
required payment to the Auction Agent) with respect to any Rate Period of
shares of such series if, within the respective time periods described in
subparagraph (e)(i) of this Section 2, the Fund shall have paid to the Auction
Agent (A) all accumulated and unpaid dividends on shares of such series and (B)
without duplication, the Redemption Price for shares, if any, of such series
for which Notice of Redemption has been mailed by the Fund pursuant to
paragraph (c) of Section 11 of Part I of this Statement; PROVIDED, HOWEVER,
that the foregoing clause (B) shall not apply to the Fund's failure to pay the
Redemption Price in respect of shares of MuniPreferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall pay to
the Auction Agent, not later than 12:00 Noon, New York City time, on the
Business Day next preceding each Dividend Payment Date for shares of a series
of MuniPreferred, an aggregate amount of funds available on the next Business
Day in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All moneys
paid to the Auction Agent for the payment of dividends (or for the payment of
any Late Charge) shall be held in trust for the payment of such dividends (and
any such Late Charge) by the Auction Agent for the benefit of the Holders
specified in paragraph (i) of this Section 2. Any moneys paid to the Auction
Agent in accordance with the foregoing but not applied by the Auction Agent to
the payment of dividends (and any such Late Charge) will, to the extent
permitted by law, be repaid to the Fund at the end of 90 days from the date on
which such moneys were so to have been applied.
20
<PAGE> 27
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of MuniPreferred
shall be paid on the Dividend Payment Date therefor to the Holders thereof as
their names appear on the record books of the Fund on the Business Day next
preceding such Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS.
Any dividend payment made on shares of MuniPreferred shall first be credited
against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to
the Holders as their names appear on the record books of the Fund on such date,
not exceeding 15 days preceding the payment date thereof, as may be fixed by
the Board of Trustees.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on
shares of MuniPreferred shall be designated as exempt-interest dividends up to
the amount of tax-exempt income of the Fund, to the extent permitted by, and
for purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of shares of MuniPreferred shall be entitled to receive, when, as
and if declared by the Board of Trustees, out of funds legally available
therefor in accordance with the Declaration and applicable law, dividends in an
amount equal to the aggregate Gross-up Payments as follows:
(a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE PERIOD
DAYS OR FEWER. If, in the case of any Minimum Rate Period or any Special
Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net
capital gains or other income taxable for Federal income tax purposes to
a dividend paid on shares of MuniPreferred without having given advance
notice thereof to the Auction Agent as provided in Section 5 of Part II
of this Statement (such allocation being referred to herein as a "Taxable
Allocation") solely by reason of the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of MuniPreferred or the liquidation of the Fund, the
Fund shall, prior to the end of the calendar year in which such dividend
was paid, provide notice thereof to the Auction Agent and direct the
Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of such shares that was entitled to such dividend
payment during such calendar year at such Holder's address as the same
appears or last appeared on the record books of the Fund.
(b) SPECIAL RATE PERIODS OF MORE THAN 28 RATE PERIOD DAYS. If, in
the case of any Special Rate Period of more than 28 Rate Period Days, the
Fund makes a Taxable Allocation to a dividend paid on shares of
MuniPreferred, the Fund shall, prior to the end of the calendar year in
which such dividend was paid, provide notice thereof to the Auction Agent
and direct the Fund's dividend disbursing agent to send such notice with
a Gross-up Payment to each Holder of shares that was entitled to such
dividend payment during such calendar year at such Holder's address as
the same appears or last appeared on the record books of the Fund.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Fund
shall not be required to make Gross-up Payments with respect to any net
capital gains or other taxable income determined by the Internal Revenue
Service to be allocable in a manner different from that allocated by the
Fund.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Fund, at
its option, may designate any succeeding Subsequent Rate Period of shares of a
series of MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Fund pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such
21
<PAGE> 28
series, the Redemption Price with respect to such shares shall have been
deposited with the Auction Agent. In the event the Fund wishes to designate
any succeeding Subsequent Rate Period for shares of a series of MuniPreferred
as a Special Rate Period consisting of more than 28 Rate Period Days, the Fund
shall notify S&P (if S&P is then rating such series) and Moody's (if Moody's is
then rating such series) in advance of the commencement of such Subsequent Rate
Period that the Fund wishes to designate such Subsequent Rate Period as a
Special Rate Period and shall provide S&P (if S&P is then rating such series)
and Moody's (if Moody's is then rating such series) with such documents as
either may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Fund
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special Rate Period
is not (a) a Tuesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series M MuniPreferred" in Section 1 of APPENDIX A
hereto, (b) a Wednesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series T MuniPreferred" in Section 1 of APPENDIX A
hereto, (c) a Thursday that is a Business Day in the case of a series of
MuniPreferred designated as "Series W MuniPreferred" in Section 1 of APPENDIX A
hereto, (d) a Friday that is a Business Day in the case of a series of
MuniPreferred designated as "Series TH MuniPreferred" in Section 1 of APPENDIX
A hereto, (e) a Monday that is a Business Day in the case of a series of
MuniPreferred designated as "Series F MuniPreferred" in Section 1 of APPENDIX A
hereto, then the Fund shall designate such Subsequent Rate Period as a Special
Rate Period consisting of the period commencing on the first day following the
end of the immediately preceding Rate Period and ending (a) on the first Monday
that is followed by a Tuesday that is a Business Day preceding what would
otherwise be such last day, in the case of Series M MuniPreferred, (b) on the
first Tuesday that is followed by a Wednesday that is a Business Day preceding
what would otherwise be such last day, in the case of Series T MuniPreferred,
(c) on the first Wednesday that is followed by a Thursday that is a Business
Day preceding what would otherwise be such last day, in the case of Series W
MuniPreferred, (d) on the first Thursday that is followed by a Friday that is a
Business Day preceding what would otherwise be such last day, in the case of
Series TH MuniPreferred, and (e) on the first Sunday that is followed by a
Monday that is a Business Day preceding what would otherwise be such last day,
in the case of Series F MuniPreferred.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period pursuant to paragraph (a) of this
Section 4, not less than 20 (or such lesser number of days as may be agreed to
from time to time by the Auction Agent) nor more than 30 days prior to the date
the Fund proposes to designate as the first day of such Special Rate Period
(which shall be such day that would otherwise be the first day of a Minimum
Rate Period), notice shall be (i) published or caused to be published by the
Fund in a newspaper of general circulation to the financial community in The
City of New York, New York, which carries financial news, and (ii) mailed by
the Fund by first-class mail, postage prepaid, to the Holders of shares of such
series. Each such notice shall state (A) that the Fund may exercise its option
to designate a succeeding Subsequent Rate Period of shares of such series as a
Special Rate Period, specifying the first day thereof and (B) that the Fund
will, by 11:00 A.M., New York City time, on the second Business Day next
preceding such date (or by such later time or date, or both, as may be agreed
to by the Auction Agent) notify the Auction Agent of either (x) its
determination, subject to certain conditions, to exercise such option, in which
case the Fund shall specify the Special Rate Period designated, or (y) its
determination not to exercise such option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York
City time, on the second Business Day next preceding the first day of any
proposed Special Rate Period of shares of a series of MuniPreferred as to which
notice has been given as set forth in paragraph (c) of this Section 4 (or such
later time or date, or both, as may be agreed to by the Auction Agent), the
Fund shall deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the
Fund has determined to designate the next succeeding Rate Period of
shares of such series as a Special Rate Period, specifying the same and
the first day thereof, (B) the Auction Date immediately prior to the
first day of such Special Rate Period, (C) that such Special Rate Period
shall not commence if (1) an Auction for shares of such series shall not
be held on such Auction Date for any reason or (2) an Auction for shares
of such series shall be held on such Auction Date but Sufficient Clearing
Bids for shares of such series shall not exist in such Auction, (D) the
scheduled Dividend Payment Dates for shares of such series during such
Special Rate Period and (E) the Special Redemption Provisions, if any,
applicable to shares of
22
<PAGE> 29
such series in respect of such Special Rate Period; such notice to be
accompanied by a MuniPreferred Basic Maintenance Report showing that, as
of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is then rating such series)
and S&P Eligible Assets (if S&P is then rating such series) each have an
aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that (a) the Maximum Rate is the Maximum Rate on
such Business Day as if such Business Day were the Auction Date for the
proposed Special Rate Period, and (b) the Moody's Discount Factors
applicable to Moody's Eligible Assets are determined by reference to the
first Exposure Period longer than the Exposure Period then applicable to
the Fund, as described in the definition of Moody's Discount Factor
herein); or
(ii) a notice stating that the Fund has determined not to exercise
its option to designate a Special Rate Period of shares of such series
and that the next succeeding Rate Period of shares of such series shall
be a Minimum Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Fund fails
to deliver either of the notices described in subparagraphs (d)(i) or (d)(ii)
of this Section 4 (and, in the case of the notice described in subparagraph
(d)(i) of this Section 4, a MuniPreferred Basic Maintenance Report to the
effect set forth in such subparagraph (if either Moody's or S&P is then rating
the series in question)) with respect to any designation of any proposed
Special Rate Period to the Auction Agent by 11:00 A.M., New York City time, on
the second Business Day next preceding the first day of such proposed Special
Rate Period (or by such later time or date, or both, as may be agreed to by the
Auction Agent), the Fund shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Rate Period to the effect set forth
in subparagraph (d)(ii) of this Section 4. In the event the Fund delivers to
the Auction Agent a notice described in subparagraph (d)(i) of this Section 4,
it shall file a copy of such notice with the Secretary of the Fund, and the
contents of such notice shall be binding on the Fund. In the event the Fund
delivers to the Auction Agent a notice described in subparagraph (d)(ii) of
this Section 4, the Fund will provide Moody's (if Moody's is then rating the
series in question) and S&P (if S&P is then rating the series in question) a
copy of such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF MUNIPREFERRED. Except as otherwise provided in
the Declaration or as otherwise required by law, (i) each Holder of shares of
MuniPreferred shall be entitled to one vote for each share of MuniPreferred
held by such Holder on each matter submitted to a vote of shareholders of the
Fund, and (ii) the holders of outstanding Preferred Shares, including each
share of MuniPreferred, and of Common Shares shall vote together as a single
class; PROVIDED, HOWEVER, that, at any meeting of the shareholders of the Fund
held for the election of trustees, the holders of outstanding Preferred Shares,
including MuniPreferred, represented in person or by proxy at said meeting,
shall be entitled, as a class, to the exclusion of the holders of all other
securities and classes of shares of beneficial interest of the Fund, to elect
two trustees of the Fund, each Preferred Share, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding Common Shares and Preferred
Shares, including MuniPreferred, voting together as a single class, shall
elect the balance of the trustees.
(b) VOTING FOR ADDITIONAL TRUSTEES. (i) VOTING PERIOD. During any
period in which any one or more of the conditions described in subparagraphs
(A) or (B) of this subparagraph (b)(i) shall exist (such period being referred
to herein as a "Voting Period"), the number of trustees constituting the Board
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 shares of MuniPreferred, would constitute a majority of the
Board of Trustees as so increased by such smallest number; and the holders of
Preferred Shares, including MuniPreferred, shall be entitled, voting as a class
on a one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of shares of beneficial interest of the Fund), 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:
(A) if at the close of business on any dividend payment date
accumulated dividends (whether or not earned or declared) on any
outstanding Preferred Share, including MuniPreferred, equal to at least
two full years' dividends shall be due
23
<PAGE> 30
and unpaid and sufficient cash or specified securities shall not have
been deposited with the Auction Agent for the payment of such accumulated
dividends; or
(B) if at any time holders of Preferred Shares are entitled under
the 1940 Act to elect a majority of the trustees of the Fund.
Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the accrual
of any right of the holders of Preferred Shares to elect additional trustees as
described in subparagraph (b)(i) of this Section 5, the Fund shall notify the
Auction Agent and the Auction Agent shall call a special meeting of such
holders, by mailing a notice of such special meeting to such holders, such
meeting to be held not less than 10 nor more than 20 days after the date of
mailing of such notice. If the Fund fails to send such notice to the Auction
Agent or if the Auction Agent does not call such a special meeting, it may be
called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders
of Preferred Shares held during a Voting Period at which trustees are to be
elected, such holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of shares of beneficial interest of
the Fund), shall be entitled to elect the number of trustees prescribed in
subparagraph (b)(i) of this Section 5 on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING TRUSTEES. The terms of office of all
persons who are trustees of the Fund at the time of a special meeting of
Holders and holders of other Preferred Shares to elect trustees shall continue,
notwithstanding the election at such meeting by the Holders and such other
holders of the number of trustees that they are entitled to elect, and the
persons so elected by the Holders and such other holders, together with the two
incumbent trustees elected by the Holders 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 Fund.
(iv) TERMS OF OFFICE OF CERTAIN TRUSTEES TO TERMINATE UPON TERMINATION OF
VOTING PERIOD. Simultaneously with the termination of a Voting Period, the
terms of office of the additional trustees elected by the Holders and holders
of other Preferred Shares pursuant to subparagraph (b)(i) of this Section 5
shall terminate, the remaining trustees shall constitute the trustees of the
Fund and the voting rights of the Holders and such other holders to elect
additional trustees pursuant to subparagraph (b)(i) of this Section 5 shall
cease, subject to the provisions of the last sentence of subparagraph (b)(i) of
this Section 5.
(c) HOLDERS OF MUNIPREFERRED TO VOTE ON CERTAIN OTHER MATTERS. (I)
INCREASES IN CAPITALIZATION. So long as any shares of MuniPreferred are
outstanding, the Fund shall not, without the affirmative vote or consent of the
Holders of at least a majority of the shares of MuniPreferred outstanding at
the time, in person or by proxy, either in writing or at a meeting, voting as a
separate class: (a) authorize, create or issue any class or series of shares
ranking prior to or on a parity with shares of MuniPreferred with respect to
the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, or authorize, create or
issue additional shares of any series of MuniPreferred (except that,
notwithstanding the foregoing, but subject to the provisions of paragraph (c)
of Section 10 of this Part I, the Board of Trustees, without the vote or
consent of the Holders of MuniPreferred, may from time to time authorize and
create, and the Fund may from time to time issue, additional shares of any
series of MuniPreferred or classes or series of Preferred Shares ranking on a
parity with shares of MuniPreferred with respect to the payment of dividends
and the distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Fund; PROVIDED, HOWEVER, that if Moody's or S&P is not then
rating the shares of MuniPreferred, the aggregate liquidation preference of all
Preferred Shares of the Fund outstanding after any such issuance, exclusive of
accumulated and unpaid dividends, may not exceed the amount set forth in
Section 10 of APPENDIX A hereto) or (b) amend, alter or repeal the provisions
of the Declaration, or this Statement, whether by merger, consolidation or
otherwise, so as to affect any preference, right or power of such shares of
MuniPreferred or the Holders thereof; PROVIDED, HOWEVER, that (i) none of the
actions permitted by the exception to (a) above will be deemed to affect such
preferences, rights or powers, (ii) a
24
<PAGE> 31
division of a share of MuniPreferred will be deemed to affect such preferences,
rights or powers only if the terms of such division adversely affect the
Holders of shares of MuniPreferred and (iii) the authorization, creation and
issuance of classes or series of shares ranking junior to shares of
MuniPreferred with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund,
will be deemed to affect such preferences, rights or powers only if Moody's or
S&P is then rating shares of MuniPreferred and such issuance would, at the time
thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred Asset
Coverage or the MuniPreferred Basic Maintenance Amount. So long as any shares
of MuniPreferred are outstanding, the Fund shall not, without the affirmative
vote or consent of the Holders of at least 66 2/3% of the shares of
MuniPreferred outstanding at the time, in person or by proxy, either in writing
or at a meeting, voting as a separate class, file a voluntary application for
relief under Federal bankruptcy law or any similar application under state law
for so long as the Fund is solvent and does not foresee becoming insolvent. If
any action set forth above would adversely affect the rights of one or more
series (the "Affected Series") of MuniPreferred in a manner different from any
other series of MuniPreferred, the Fund will not approve any such action
without the affirmative vote or consent of the Holders of at least a majority
of the shares of each such Affected Series outstanding at the time, in person
or by proxy, either in writing or at a meeting (each such Affected Series
voting as a separate class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in the
Declaration, (A) the affirmative vote of the Holders of at least a majority of
the Preferred Shares, including MuniPreferred, outstanding at the time, voting
as a separate class, shall be required to approve any conversion of the Fund
from a closed-end to an open-end investment company and (B) the affirmative
vote of the Holders of a "majority of the outstanding Preferred Shares,"
including MuniPreferred, voting as a separate class, shall be required to
approve any plan of reorganization (as such term is used in the 1940 Act)
adversely affecting such shares. The affirmative vote of the Holders of a
"majority of the outstanding Preferred Shares," including MuniPreferred, voting
as a separate class, shall be required to approve any action not described in
the first sentence of this Section 5(c)(ii) requiring a vote of security
holders of the Fund under Section 13(a) of the 1940 Act. For purposes of the
foregoing, "majority of the outstanding Preferred Shares" means (i) 67% or more
of such shares present at a meeting, if the Holders of more than 50% of such
shares are present or represented by proxy, or (ii) more than 50% of such
shares, whichever is less. In the event a vote of Holders of MuniPreferred is
required pursuant to the provisions of Section 13(a) of the 1940 Act, the Fund
shall, not later than ten Business Days prior to the date on which such vote is
to be taken, notify Moody's (if Moody's is then rating the shares of
MuniPreferred) and S&P (if S&P is then rating the shares of MuniPreferred) that
such vote is to be taken and the nature of the action with respect to which
such vote is to be taken. The Fund shall, not later than ten Business Days
after the date on which such vote is taken, notify Moody's (if Moody's is then
rating the shares of MuniPreferred) of the results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The
Board of Trustees, without the vote or consent of the shareholders of the Fund,
may from time to time amend, alter or repeal any or all of the definitions of
the terms listed below, or any provision of this Statement viewed by Moody's or
S&P as a predicate for any such definition, and any such amendment, alteration
or repeal will not be deemed to affect the preferences, rights or powers of
shares of MuniPreferred or the Holders thereof; PROVIDED, HOWEVER, that the
Board of Trustees receives written confirmation from Moody's (such confirmation
being required to be obtained only in the event Moody's is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Deposit Securities, Discounted Value, Receivables for
Municipal Obligations Sold, Issue Type Category and Other Issues as such terms
apply to S&P Eligible Assets, (y) Dividend Coverage Amount, Dividend Coverage
Assets, Minimum Liquidity Level, S&P Discount Factor, S&P Eligible Asset, S&P
Exposure Period and S&P Volatility Factor and (z) Valuation Date as such term
applies to the definitions of Dividend Coverage Amount, Dividend Coverage
Assets and Minimum Liquidity Level) and S&P (such confirmation being required
to be obtained only in the event S&P is rating the shares of MuniPreferred and
in no event being required to be obtained in the case of the definitions of (x)
Discounted Value, Receivables for Municipal Obligations Sold, Issue Type
Category and Other Issues as such terms apply to Moody's Eligible Assets, and
(y) Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure Period
and Moody's Volatility Factor) that any such amendment, alteration or repeal
would not impair the ratings then assigned by Moody's or S&P, as the case may
be, to shares of MuniPreferred:
Deposit Securities Moody's Exposure Period
Discounted Value Moody's Volatility Factor
25
<PAGE> 32
Dividend Coverage Amount 1940 Act Cure Date
Dividend Coverage Assets 1940 Act MuniPreferred Asset Coverage
Issue Type Category Other Issues
Market Value Quarterly Valuation Date
Maximum Potential Gross-up Receivables for Municipal
Payment Liability Obligations Sold
Minimum Liquidity Level S&P Discount Factor
MuniPreferred Basic Maintenance Amount S&P Eligible Asset
MuniPreferred Basic Maintenance Cure Date S&P Exposure Period
MuniPreferred Basic Maintenance Report S&P Volatility Factor
Moody's Discount Factor Valuation Date
Moody's Eligible Asset Volatility Factor
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the Holders of shares of MuniPreferred shall not
have any relative rights or preferences or other special rights other than
those specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of
MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR TRUSTEES SOLE REMEDY FOR FUND'S FAILURE TO PAY DIVIDENDS.
In the event that the Fund fails to pay any dividends on the shares of
MuniPreferred, the exclusive remedy of the Holders shall be the right to vote
for trustees pursuant to the provisions of this Section 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of
the Holders to vote on any matter, whether such right is created by this
Statement, by the other provisions of the Declaration, by statute or otherwise,
no Holder shall be entitled to vote any share of MuniPreferred and no share of
MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum if, prior to
or concurrently with the time of determination of shares entitled to vote or
shares deemed outstanding for quorum purposes, as the case may be, the
requisite Notice of Redemption with respect to such shares shall have been
mailed as provided in paragraph (c) of Section 11 of this Part I and the
Redemption Price for the redemption of such shares shall have been deposited in
trust with the Auction Agent for that purpose. No share of MuniPreferred held
by the Fund or any affiliate of the Fund (except for shares held by a
Broker-Dealer that is an affiliate of the Fund for the account of its
customers) shall have any voting rights or be deemed to be outstanding for
voting or other purposes.
6. 1940 ACT MUNIPREFERRED ASSET COVERAGE.
The Fund shall maintain, as of the last Business Day of each month in
which any share of MuniPreferred is outstanding, the 1940 Act MuniPreferred
Asset Coverage.
7. MUNIPREFERRED BASIC MAINTENANCE AMOUNT.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall
maintain, on each Valuation Date, and shall verify to its satisfaction that it
is maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the MuniPreferred Basic
Maintenance Amount (if S&P is then rating the shares of MuniPreferred) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or
greater than the MuniPreferred Basic Maintenance Amount (if Moody's is then
rating the shares of MuniPreferred).
(b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Fund fails to satisfy the MuniPreferred
Basic Maintenance Amount, and on the third Business Day after the MuniPreferred
Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) a MuniPreferred Basic Maintenance Report as of the date of such
failure or such MuniPreferred Basic Maintenance Cure Date, as the case may be,
which will be deemed to have been delivered to the Auction Agent if the Auction
Agent receives a copy or telecopy, telex or other electronic transcription
thereof and on the same day the Fund mails to the Auction Agent for delivery on
the next Business Day the full MuniPreferred Basic Maintenance Report. The
Fund shall also deliver a MuniPreferred Basic Maintenance Report to (i) the
Auction Agent (if either Moody's or S&P is then rating the shares of
MuniPreferred) as of (A) the fifteenth day of each month (or, if such day is
not a
26
<PAGE> 33
Business Day, the next succeeding Business Day) and (B) the last Business Day
of each month, (ii) Moody's (if Moody's is then rating the shares of
MuniPreferred) and S&P (if S&P is then rating the shares of MuniPreferred) as
of any Quarterly Valuation Date, in each case on or before the third Business
Day after such day, and (iii) S&P, if and when requested for any Valuation
Date, on or before the third Business Day after such request. A failure by the
Fund to deliver a MuniPreferred Basic Maintenance Report pursuant to the
preceding sentence shall be deemed to be delivery of a MuniPreferred Basic
Maintenance Report indicating the Discounted Value for all assets of the Fund
is less than the MuniPreferred Basic Maintenance Amount, as of the relevant
Valuation Date.
(c) Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to a Quarterly Valuation Date, the Fund shall cause the
Independent Accountant to confirm in writing to S&P (if S&P is then rating the
shares of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) (i) the mathematical accuracy of the calculations
reflected in such Report (and in any other MuniPreferred Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Fund during the quarter ending on such Quarterly Valuation Date) and (ii)
that, in such Report (and in such randomly selected Report), the Fund
determined in accordance with this Statement whether the Fund had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly-selected Report), S&P Eligible Assets (if S&P is then rating the
shares of MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount and Moody's Eligible Assets (if Moody's
is then rating the shares of MuniPreferred) of an aggregate Discounted Value at
least equal to the MuniPreferred Basic Maintenance Amount (such confirmation
being herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to any Valuation Date on which the Fund failed to satisfy
the MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred
Basic Maintenance Cure Date with respect to such failure to satisfy the
MuniPreferred Basic Maintenance Amount, the Fund shall cause the Independent
Accountant to provide to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) an Accountant's Confirmation as to such MuniPreferred Basic
Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c)
or (d) of this Section 7 shows that an error was made in the MuniPreferred
Basic Maintenance Report for a particular Valuation Date for which such
Accountant's Confirmation was required to be delivered, or shows that a lower
aggregate Discounted Value for the aggregate of all S&P Eligible Assets (if S&P
is then rating the shares of MuniPreferred) or Moody's Eligible Assets (if
Moody's is then rating the shares of MuniPreferred), as the case may be, of the
Fund was determined by the Independent Accountant, the calculation or
determination made by such Independent Accountant shall be final and conclusive
and shall be binding on the Fund, and the Fund shall accordingly amend and
deliver the MuniPreferred Basic Maintenance Report to S&P (if S&P is then
rating the shares of MuniPreferred), Moody's (if Moody's is then rating the
shares of MuniPreferred) and the Auction Agent (if either S&P or Moody's is
then rating the shares of MuniPreferred) promptly following receipt by the Fund
of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any shares of MuniPreferred, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred)
and Moody's (if Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the close of business on such Date
of Original Issue. Within five Business Days of such Date of Original Issue,
the Fund shall cause the Independent Accountant to confirm in writing to S&P
(if S&P is then rating the shares of MuniPreferred) (i) the mathematical
accuracy of the calculations reflected in such Report and (ii) that the
Discounted Value of S&P Eligible Assets reflected thereon equals or exceeds the
MuniPreferred Basic Maintenance Amount reflected thereon.
(g) On or before 5:00 p.m., New York City time, on the third Business Day
after either (i) the Fund shall have redeemed Common Shares or (ii) the ratio
of the Discounted Value of S&P Eligible Assets or the Discounted Value of
Moody's Eligible Assets to the MuniPreferred Basic Maintenance Amount is less
than or equal to 105%, the Fund shall complete and deliver to S&P (if S&P is
then rating the shares of MuniPreferred) or Moody's
27
<PAGE> 34
(if Moody's is then rating the shares of MuniPreferred), as the case may be, a
MuniPreferred Basic Maintenance Report as of the date of either such event.
8. MINIMUM LIQUIDITY LEVEL.
So long as S&P is rating the shares of MuniPreferred, the Fund shall have,
as of each Valuation Date, Dividend Coverage Assets, with respect to each then
outstanding share of MuniPreferred, having a value not less than the Dividend
Coverage Amount with respect to such share (the "Minimum Liquidity Level").
If, as of each Valuation Date, the Fund does not have the required Dividend
Coverage Assets, the Fund shall, as soon as practicable, adjust its portfolio
in order to meet the Minimum Liquidity Level, but only if S&P is then rating
the shares of MuniPreferred.
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON PREFERRED SHARES OTHER THAN MUNIPREFERRED. Except as
set forth in the next sentence, no dividends shall be declared or paid or set
apart for payment on the shares of any class or series of shares of beneficial
interest of the Fund ranking, as to the payment of dividends, on a parity with
shares of MuniPreferred for any period unless full cumulative dividends have
been or contemporaneously are declared and paid on the shares of each series of
MuniPreferred through its most recent Dividend Payment Date. When dividends
are not paid in full upon the shares of each series of MuniPreferred through
its most recent Dividend Payment Date or upon the shares of any other class or
series of shares of beneficial interest of the Fund ranking on a parity as to
the payment of dividends with shares of MuniPreferred through their most recent
respective dividend payment dates, all dividends declared upon shares of
MuniPreferred and any other such class or series of shares of beneficial
interest ranking on a parity as to the payment of dividends with shares of
MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of MuniPreferred and such other class or series of
shares of beneficial interest shall in all cases bear to each other the same
ratio that accumulated dividends per share on the shares of MuniPreferred and
such other class or series of shares of beneficial interest bear to each other
(for purposes of this sentence, the amount of dividends declared per share of
MuniPreferred shall be based on the Applicable Rate for such share for the
Dividend Periods during which dividends were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES UNDER
THE 1940 ACT. The Board of Trustees shall not declare any dividend (except a
dividend payable in Common Shares), or declare any other distribution, upon the
Common Shares, or purchase Common Shares, unless in every such case the
Preferred Shares have, at the time of any such declaration or purchase, an
asset coverage (as defined in and determined pursuant to the 1940 Act) of at
least 200% (or such other asset coverage as may in the future be specified in
or under the 1940 Act as the minimum asset coverage for senior securities which
are shares or stock of a closed-end investment company as a condition of
declaring dividends on its common shares or stock) after deducting the amount
of such dividend, distribution or purchase price, as the case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long
as any share of MuniPreferred is outstanding, and except as set forth in
paragraph (a) of this Section 9 and paragraph (c) of Section 12 of this Part I,
(A) the Fund shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
in options, warrants or rights to subscribe for or purchase, Common Shares or
other shares, if any, ranking junior to the shares of MuniPreferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of the Common Shares or any other shares
of the Fund ranking junior to or on a parity with the shares of MuniPreferred
as to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or
otherwise acquire for consideration any Common Shares or any other such junior
shares (except by conversion into or exchange for shares of the Fund ranking
junior to the shares of MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), or any
such parity shares (except by conversion into or exchange for shares of the
Fund ranking junior to or on a parity with MuniPreferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), unless (i) full cumulative dividends on shares of each series of
MuniPreferred through its most recently ended Dividend Period shall have been
paid or shall have been declared and sufficient funds for the payment thereof
deposited with the Auction Agent and (ii) the Fund has redeemed the full number
of shares of MuniPreferred required to be redeemed by any provision for
mandatory redemption pertaining thereto, and (B) the Fund shall not
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declare, pay or set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in shares of, or in options, warrants or
rights to subscribe for or purchase, Common Shares or other shares, if any,
ranking junior to shares of MuniPreferred as to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up) in
respect of Common Shares or any other shares of the Fund ranking junior to
shares of MuniPreferred as to the payment of dividends or the distribution of
assets upon dissolution, liquidation or winding up, or call for redemption,
redeem, purchase or otherwise acquire for consideration any Common Shares or
any other such junior shares (except by conversion into or exchange for shares
of the Fund ranking junior to shares of MuniPreferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), unless immediately after such transaction the Discounted Value of
Moody's Eligible Assets (if Moody's is then rating the shares of MuniPreferred)
and S&P Eligible Assets (if S&P is then rating the shares of MuniPreferred)
would each at least equal the MuniPreferred Basic Maintenance Amount.
10. RATING AGENCY RESTRICTIONS.
For so long as any shares of MuniPreferred are outstanding and Moody's or
S&P, or both, are rating such shares, the Fund will not, unless it has received
written confirmation from Moody's or S&P, or both, as appropriate, that any
such action would not impair the ratings then assigned by such rating agency to
such shares, engage in any one or more of the following transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Fund may, without obtaining the
written confirmation described above, borrow money for the purpose of
clearing securities transactions if (i) the MuniPreferred Basic
Maintenance Amount would continue to be satisfied after giving effect to
such borrowing and (ii) such borrowing (A) is privately arranged with a
bank or other person and is evidenced by a promissory note or other
evidence of indebtedness that is not intended to be publicly distributed
or (B) is for "temporary purposes," is evidenced by a promissory note or
other evidence of indebtedness and is in an amount not exceeding 5 per
centum of the value of the total assets of the Fund at the time of the
borrowing; for purposes of the foregoing, "temporary purpose" means that
the borrowing is to be repaid within sixty days and is not to be extended
or renewed;
(c) issue additional shares of any series of MuniPreferred or any
class or series of shares ranking prior to or on a parity with shares of
MuniPreferred with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the
Fund, or reissue any shares of MuniPreferred previously purchased or
redeemed by the Fund;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any corporation;
(g) change the pricing service (currently J.J. Kenny) referred to
in the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION. (i) Subject to the provisions of subparagraph
(v) of this paragraph (a), shares of MuniPreferred of any series may be
redeemed, at the option of the Fund, as a whole or from time to time in part,
on the second Business Day preceding any Dividend Payment Date for shares of
such series, out of funds legally available therefor, at a redemption price per
share equal to the sum of $50,000 plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption; PROVIDED, HOWEVER, that (1) shares of
a series of MuniPreferred may not be redeemed in part if after such partial
redemption fewer than 250 shares of such series remain outstanding; (2) unless
otherwise provided in Section 11 of APPENDIX A hereto, shares of a series of
MuniPreferred are redeemable by the Fund during the Initial Rate Period thereof
only on the second Business Day next preceding the last Dividend Payment Date
for such Initial Rate Period; and (3) subject
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<PAGE> 36
to subparagraph (ii) of this paragraph (a), the Notice of Special Rate Period
relating to a Special Rate Period of shares of a series of MuniPreferred, as
delivered to the Auction Agent and filed with the Secretary of the Fund, may
provide that shares of such series shall not be redeemable during the whole or
any part of such Special Rate Period (except as provided in subparagraph (iv)
of this paragraph (a)) or shall be redeemable during the whole or any part of
such Special Rate Period only upon payment of such redemption premium or
premiums as shall be specified therein ("Special Redemption Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of
MuniPreferred for a Special Rate Period thereof may contain Special Redemption
Provisions only if the Fund's Board of Trustees, after consultation with the
Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such
series, determines that such Special Redemption Provisions are in the best
interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to subparagraph (i) of this paragraph
(a), the number of shares of such series to be redeemed shall be determined by
the Board of Trustees, and such shares shall be redeemed pro rata from the
Holders of shares of such series in proportion to the number of shares of such
series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a),
shares of any series of MuniPreferred may be redeemed, at the option of the
Fund, as a whole but not in part, out of funds legally available therefor, on
the first day following any Dividend Period thereof included in a Rate Period
consisting of more than 364 Rate Period Days if, on the date of determination
of the Applicable Rate for shares of such series for such Rate Period, such
Applicable Rate equalled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price per share equal to the
sum of $50,000 plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed for
redemption.
(v) The Fund may not on any date mail a Notice of Redemption pursuant to
paragraph (c) of this Section 11 in respect of a redemption contemplated to be
effected pursuant to this paragraph (a) unless on such date (a) the Fund has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount (including any applicable premium) due to Holders of shares of
MuniPreferred by reason of the redemption of such shares on such redemption
date and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is
then rating the shares of MuniPreferred) and the Discounted Value of S&P
Eligible Assets (if S&P is then rating the shares of MuniPreferred) each at
least equal the MuniPreferred Basic Maintenance Amount, and would at least
equal the MuniPreferred Basic Maintenance Amount immediately subsequent to such
redemption if such redemption were to occur on such date. For purposes of
determining in clause (b) of the preceding sentence whether the Discounted
Value of Moody's Eligible Assets at least equals the MuniPreferred Basic
Maintenance Amount, the Moody's Discount Factors applicable to Moody's Eligible
Assets shall be determined by reference to the first Exposure Period longer
than the Exposure Period then applicable to the Fund, as described in the
definition of Moody's Discount Factor herein.
(b) MANDATORY REDEMPTION. The Fund shall redeem, at a redemption price
equal to $50,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by
the Board of Trustees for redemption, certain of the shares of MuniPreferred,
if the Fund fails to have either Moody's Eligible Assets with a Discounted
Value or S&P Eligible Assets with a Discounted Value greater than or equal to
the MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act
MuniPreferred Asset Coverage, in accordance with the requirements of the rating
agency or agencies then rating the shares of MuniPreferred, and such failure is
not cured on or before the MuniPreferred Basic Maintenance Cure Date or the
1940 Act Cure Date, as the case may be. The number of shares of MuniPreferred
to be redeemed shall be equal to the lesser of (i) the minimum number of shares
of MuniPreferred, together with all other Preferred Shares subject to
redemption or retirement, the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the Cure Date, would have
resulted in the Fund's having both Moody's Eligible Assets with a Discounted
Value and S&P Eligible Assets with a Discounted Value greater than or equal to
the MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act
MuniPreferred Asset Coverage, as the case may be, on such Cure Date (PROVIDED,
HOWEVER, that if there is no such minimum number of shares of MuniPreferred and
other Preferred Shares the redemption or retirement of which would have had
such result, all shares of MuniPreferred and
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<PAGE> 37
Preferred Shares then outstanding shall be redeemed), and (ii) the maximum
number of shares of MuniPreferred, together with all other Preferred Shares
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor in accordance with the Declaration and
applicable law. In determining the shares of MuniPreferred required to be
redeemed in accordance with the foregoing, the Fund shall allocate the number
required to be redeemed to satisfy the MuniPreferred Basic Maintenance Amount
or the 1940 Act MuniPreferred Asset Coverage, as the case may be, pro rata
among shares of MuniPreferred and other Preferred Shares (and, then, pro rata
among each series of MuniPreferred) subject to redemption or retirement. The
Fund shall effect such redemption on the date fixed by the Fund therefor, which
date shall not be earlier than 20 days nor later than 40 days after such Cure
Date, except that if the Fund does not have funds legally available for the
redemption of all of the required number of shares of MuniPreferred and other
Preferred Shares which are subject to redemption or retirement or the Fund
otherwise is unable to effect such redemption on or prior to 40 days after such
Cure Date, the Fund shall redeem those shares of MuniPreferred and other
Preferred Shares which it was unable to redeem on the earliest practicable date
on which it is able to effect such redemption. If fewer than all of the
outstanding shares of a series of MuniPreferred are to be redeemed pursuant to
this paragraph (b), the number of shares of such series to be redeemed shall be
redeemed pro rata from the Holders of shares of such series in proportion to
the number of shares of such series held by such Holders.
(c) NOTICE OF REDEMPTION. If the Fund shall determine or be required to
redeem shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of
this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares
of such series to be redeemed, at such Holder's address as the same appears on
the record books of the Fund on the record date established by the Board of
Trustees. Such Notice of Redemption shall be so mailed not less than 20 nor
more than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of shares of
MuniPreferred to be redeemed and the series thereof; (iii) the CUSIP number for
shares of such series; (iv) the Redemption Price; (v) the place or places where
the certificate(s) for such shares (properly endorsed or assigned for transfer,
if the Board of Trustees shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of MuniPreferred held
by any Holder are to be redeemed, the Notice of Redemption mailed to such
Holder shall also specify the number of shares of such series to be redeemed
from such Holder. The Fund may provide in any Notice of Redemption relating to
a redemption contemplated to be effected pursuant to paragraph (a) of this
Section 11 that such redemption is subject to one or more conditions precedent
and that the Fund shall not be required to effect such redemption unless each
such condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of MuniPreferred (whether or not earned or declared) are in
arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Fund shall not
purchase or otherwise acquire any shares of such series; PROVIDED, HOWEVER,
that the foregoing shall not prevent the purchase or acquisition of all
outstanding shares of such series pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the
Declaration and applicable law, such redemption shall be made as soon as
practicable to the extent such funds become available. Failure to redeem
shares of MuniPreferred shall be deemed to exist at any time after the date
specified for redemption in a Notice of Redemption when the Fund shall have
failed, for any reason whatsoever, to deposit in trust with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed; PROVIDED, HOWEVER, that the foregoing shall not
apply in the case of the Fund's failure to deposit in trust with the Auction
Agent the Redemption Price with respect to any shares where (1) the Notice of
Redemption relating to such redemption provided that such redemption was
subject to one or more conditions precedent and (2) any such condition
precedent shall not have been satisfied at the time or times and in the manner
specified in such Notice of Redemption. Notwithstanding the fact that the Fund
may not have redeemed shares of MuniPreferred for which a Notice of Redemption
has been mailed,
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dividends may be declared and paid on shares of MuniPreferred and shall include
those shares of MuniPreferred for which a Notice of Redemption has been mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND. All moneys
paid to the Auction Agent for payment of the Redemption Price of shares of
MuniPreferred called for redemption shall be held in trust by the Auction Agent
for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares
shall no longer be deemed to be outstanding for any purpose, and all rights of
the Holders of the shares so called for redemption shall cease and terminate,
except the right of such Holders to receive the Redemption Price, but without
any interest or other additional amount, except as provided in subparagraph
(e)(i) of Section 2 of this Part I and in Section 3 of this Part I. Upon
surrender in accordance with the Notice of Redemption of the certificates for
any shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Trustees shall so require and the Notice of Redemption shall so
state), the Redemption Price shall be paid by the Auction Agent to the Holders
of shares of MuniPreferred subject to redemption. In the case that fewer than
all of the shares represented by any such certificate are redeemed, a new
certificate shall be issued, representing the unredeemed shares, without cost
to the Holder thereof. The Fund shall be entitled to receive from the Auction
Agent, promptly after the date fixed for redemption, any cash deposited with
the Auction Agent in excess of (i) the aggregate Redemption Price of the shares
of MuniPreferred called for redemption on such date and (ii) all other amounts
to which Holders of shares of MuniPreferred called for redemption may be
entitled. Any funds so deposited that are unclaimed at the end of 90 days from
such redemption date shall, to the extent permitted by law, be repaid to the
Fund, after which time the Holders of shares of MuniPreferred so called for
redemption may look only to the Fund for payment of the Redemption Price and
all other amounts to which they may be entitled. The Fund shall be entitled to
receive, from time to time after the date fixed for redemption, any interest on
the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant
to this Section 11, the Fund shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the 1940 Act
and any applicable Massachusetts law, but shall effect no redemption except in
accordance with the 1940 Act and any applicable Massachusetts law.
(i) ONLY WHOLE SHARES OF MUNIPREFERRED MAY BE REDEEMED. In the case of
any redemption pursuant to this Section 11, only whole shares of MuniPreferred
shall be redeemed, and in the event that any provision of the Declaration would
require redemption of a fractional share, the Auction Agent shall be authorized
to round up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a
parity with each other, with shares of any other series of MuniPreferred and
with shares of any other series of Preferred Shares as to the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund.
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(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or
winding up of the affairs of the Fund, whether voluntary or involuntary, the
Holders of shares of MuniPreferred then outstanding shall be entitled to
receive and to be paid out of the assets of the Fund available for distribution
to its shareholders, before any payment or distribution shall be made on the
Common Shares or on any other class of shares of the Fund ranking junior to the
MuniPreferred upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Preference with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but
unpaid to (but not including) the date of final distribution in same-day funds,
together with any payments required to be made pursuant to Section 3 of this
Part I in connection with the liquidation of the Fund. After the payment to
the Holders of the shares of MuniPreferred of the full preferential amounts
provided for in this paragraph (b), the Holders of MuniPreferred as such shall
have no right or claim to any of the remaining assets of the Fund.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Fund
available for distribution to the Holders of shares of MuniPreferred upon any
dissolution, liquidation, or winding up of the affairs of the Fund, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to paragraph (b) of this Section 12,
no such distribution shall be made on account of any shares of any other class
or series of Preferred Shares ranking on a parity with the shares of
MuniPreferred with respect to the distribution of assets upon such dissolution,
liquidation or winding up unless proportionate distributive amounts shall be
paid on account of the shares of MuniPreferred, ratably, in proportion to the
full distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of
shares of any series or class or classes of shares ranking on a parity with the
shares of MuniPreferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, after
payment shall have been made in full to the Holders of the shares of
MuniPreferred as provided in paragraph (b) of this Section 12, but not prior
thereto, any other series or class or classes of shares ranking junior to the
shares of MuniPreferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the Holders of the shares of MuniPreferred shall not be entitled to share
therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all
or substantially all the property or business of the Fund, nor the merger or
consolidation of the Fund into or with any Massachusetts business trust or
corporation nor the merger or consolidation of any Massachusetts business trust
or corporation into or with the Fund shall be a dissolution, liquidation or
winding up, whether voluntary or involuntary, for the purposes of this Section
12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADD ADDITIONAL SERIES. Subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of Trustees
may, by resolution duly adopted, without shareholder approval (except as
otherwise provided by this Statement or required by applicable law), amend
APPENDIX A hereto to (1) reflect any amendments hereto which the Board of
Trustees is entitled to adopt pursuant to the terms of this Statement without
shareholder approval or (2) add additional series of MuniPreferred or
additional shares of a series of MuniPreferred (and terms relating thereto) to
the series and shares of MuniPreferred theretofore described thereon. Each
such additional series and all such additional shares shall be governed by the
terms of this Statement.
(b) APPENDIX A INCORPORATED BY REFERENCE. APPENDIX A hereto is
incorporated in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of MuniPreferred shall be
issued.
(d) STATUS OF SHARES OF MUNIPREFERRED REDEEMED, EXCHANGED OR OTHERWISE
ACQUIRED BY THE FUND. Shares of MuniPreferred which are redeemed, exchanged or
otherwise acquired by the Fund shall return to the status of authorized and
unissued Preferred Shares without designation as to series.
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(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable
law, the Board of Trustees may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of
MuniPreferred prior to the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified
in the By-Laws of the Fund or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
PART II
1. ORDERS. (a) Prior to the Submission Deadline on each Auction Date
for shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to
its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner desires
to continue to hold without regard to the Applicable Rate for
shares of such series for the next succeeding Rate Period of such
shares;
(B) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner offers to
sell if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall be less than
the rate per annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner offers to
sell without regard to the Applicable Rate for shares of such
series for the next succeeding Rate Period of shares of such
series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if
any, of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall not be less than
the rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of
this paragraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information referred to
in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a
"Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to
as a "Sell Order" and collectively as "Sell Orders."
(b)(i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
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<PAGE> 41
(A) the number of Outstanding shares of such series specified in
such Bid if the Applicable Rate for shares of such series determined on
such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such
series to be determined as set forth in clause (iv) of paragraph (a) of
Section 4 of this Part II if the Applicable Rate for shares of such
series determined on such Auction Date shall be equal to the rate
specified therein; or
(C) the number of Outstanding shares of such series specified in
such Bid if the rate specified therein shall be higher than the Maximum
Rate for shares of such series, or such number or a lesser number of
Outstanding shares of such series to be determined as set forth in clause
(iii) of paragraph (b) of Section 4 of this Part II if the rate specified
therein shall be higher than the Maximum Rate for shares of such series
and Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares
of a series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in
such Sell Order; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (iii) of paragraph (b) of Section 4 of this
Part II if Sufficient Clearing Bids for shares of such series do not
exist;
PROVIDED, HOWEVER, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of MuniPreferred shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso
to paragraph (c) of Section 2 of this Part II if (1) such shares were
transferred by the Beneficial Owner thereof without compliance by such
Beneficial Owner or its transferee Broker-Dealer (or other transferee person,
if permitted by the Fund) with the provisions of Section 7 of this Part II or
(2) such Broker-Dealer has informed the Auction Agent pursuant to the terms of
its Broker-Dealer Agreement that, according to such Broker-Dealer's records,
such Broker-Dealer believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of
shares of a series of MuniPreferred subject to an Auction on any Auction Date
shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in
such Bid if the Applicable Rate for shares of such series determined on
such Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (v) of paragraph (a) of Section 4 of this
Part II if the Applicable Rate for shares of such series determined on
such Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other than whole
shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of MuniPreferred
of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as
an Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
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<PAGE> 42
(ii) the aggregate number of shares of such series that are the
subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
shares of such series:
(A) the number of shares, if any, of such series subject to any
Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid
of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any
Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of
such series, the rate and number of shares of such series specified in
such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; PROVIDED,
HOWEVER, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall
deem a Sell Order to have been submitted by or on behalf of such Existing
Holder covering the number of outstanding shares of such series held by such
Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
shares of MuniPreferred of a series subject to an Auction held by such Existing
Holder, such Orders shall be considered valid in the following order of
priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if
the number of shares of such series subject to such Hold Orders exceeds
the number of Outstanding shares of such series held by such Existing
Holder, the number of shares subject to each such Hold Order shall be
reduced pro rata to cover the number of Outstanding shares of such series
held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares
of such series held by such Existing Holder over the number of shares of
such series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of such series subject to such Bids is greater than such
excess, such Bids shall be considered valid up to and including the
amount of such excess, and the number of shares of such series
subject to each Bid with the same rate shall be reduced pro rata to
cover the number of shares of such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid
of an Existing Holder for shares of such series is submitted to the
Auction Agent with different rates, such Bids shall be considered
valid in the ascending order of their respective rates up to and
including the amount of such excess; and
36
<PAGE> 43
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of Bids
considered not valid in whole or in part under this clause (ii)
shall be treated as the subject of a Bid for shares of such series
by or on behalf of a Potential Holder at the rate therein
specified; and
(iii) all Sell Orders for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares
of such series held by such Existing Holder over the sum of shares of
such series subject to valid Hold Orders referred to in clause (i) above
and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
MuniPreferred is submitted to the Auction Agent by or on behalf of any
Potential Holder, each such Bid submitted shall be a separate Bid with the rate
and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior
to the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE. (a) Not earlier than the Submission Deadline on each Auction
Date for shares of a series of MuniPreferred, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series
over the number of Outstanding shares of such series subject to Submitted
Hold Orders (such excess being hereinafter referred to as the "Available
MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject
to Submitted Bids of Potential Holders specifying one or more rates
equal to or lower than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject
to Submitted Bids of Existing Holders specifying one or more rates
higher than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject
to Submitted Sell Orders
(in the event such excess or such equality exists (other than because the
number of shares of such series in subclauses (B) and (C) above is zero
because all of the Outstanding shares of such series are subject to
Submitted Hold Orders), such Submitted Bids in subclause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist,
the lowest rate specified in such Submitted Bids (the "Winning Bid Rate"
for shares of such series) which if:
(A)(I) each such Submitted Bid of Existing Holders specifying
such lowest rate and (II) all other such Submitted Bids of Existing
Holders specifying lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of such series that
are subject to such Submitted Bids; and
(B)(I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted Bids
of Potential Holders specifying lower rates were accepted;
37
<PAGE> 44
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in subclause
(B) above, would equal not less than the Available MuniPreferred of such
series.
(b) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of
the Maximum Rate for shares of the series of MuniPreferred for which an Auction
is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist,
that the Applicable Rate for all shares of such series for the next
succeeding Rate Period thereof shall be equal to the Winning Bid Rate for
shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not
exist (other than because all of the Outstanding shares of such series
are subject to Submitted Hold Orders), that the Applicable Rate for all
shares of such series for the next succeeding Rate Period thereof shall
be equal to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject
to Submitted Hold Orders, that the Applicable Rate for all shares of such
series for the next succeeding Rate Period thereof shall be as set forth
in Section 12 of APPENDIX A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS
AND ALLOCATION OF SHARES. Existing Holders shall continue to hold the shares
of MuniPreferred that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 3 of this Part II, the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the
Auction Agent and the Auction Agent shall take such other action as set forth
below:
(a) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have been made, all Submitted Sell Orders with respect to shares of such series
shall be accepted and, subject to the provisions of paragraphs (d) and (e) of
this Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all
other Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares
of such series shall be accepted, thus requiring each such Existing
Holder to sell the shares of MuniPreferred subject to such Submitted
Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder
to continue to hold the shares of MuniPreferred subject to such Submitted
Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be rejected, thus entitling such Existing Holder to
continue to hold the shares of MuniPreferred subject to such Submitted
Bid, unless the number of Outstanding shares of MuniPreferred subject to
all such Submitted Bids shall be greater than the number of shares of
MuniPreferred ("remaining shares") in the excess of the Available
MuniPreferred of such series over the number of shares of MuniPreferred
subject to Submitted Bids described in clauses (ii) and (iii) of this
paragraph (a), in which event such Submitted Bid of such Existing Holder
shall be rejected in part, and such Existing Holder shall be entitled to
continue to hold shares of MuniPreferred subject to such Submitted Bid,
but only in an amount equal to the number of shares of MuniPreferred of
such series obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the
38
<PAGE> 45
number of Outstanding shares of MuniPreferred held by such Existing
Holder subject to such Submitted Bid and the denominator of which shall
be the aggregate number of Outstanding shares of MuniPreferred subject to
such Submitted Bids made by all such Existing Holders that specified a
rate equal to the Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be accepted but only in an amount equal to the number
of shares of such series obtained by multiplying the number of shares in
the excess of the Available MuniPreferred of such series over the number
of shares of MuniPreferred subject to Submitted Bids described in clauses
(ii) through (iv) of this paragraph (a) by a fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred subject
to such Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding shares of MuniPreferred subject to such Submitted
Bids made by all such Potential Holders that specified a rate equal to
the Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such
series specifying any rate that is higher than the Maximum Rate for
shares of such series and the Submitted Sell Orders for shares of such
series of each Existing Holder shall be accepted, thus entitling each
Existing Holder that submitted or on whose behalf was submitted any such
Submitted Bid or Submitted Sell Order to sell the shares of such series
subject to such Submitted Bid or Submitted Sell Order, but in both cases
only in an amount equal to the number of shares of such series obtained
by multiplying the number of shares of such series subject to Submitted
Bids described in clause (ii) of this paragraph (b) by a fraction, the
numerator of which shall be the number of Outstanding shares of such
series held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and the denominator of which shall be the aggregate
number of Outstanding shares of such series subject to all such Submitted
Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to Submitted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as
it shall determine in its sole discretion, round up or down the number of
shares of MuniPreferred of such series to be purchased or sold by any Existing
Holder or Potential Holder on such Auction Date as a result of such procedures
so that the number of shares so purchased or sold by each Existing Holder or
Potential Holder on such Auction Date shall be whole shares of MuniPreferred.
39
<PAGE> 46
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this Section 4, any Potential Holder would be entitled or
required to purchase less than a whole share of a series of MuniPreferred on
any Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, allocate shares of MuniPreferred of such series for
purchase among Potential Holders so that only whole shares of MuniPreferred of
such series are purchased on such Auction Date as a result of such procedures
by any Potential Holder, even if such allocation results in one or more
Potential Holders not purchasing shares of MuniPreferred of such series on such
Auction Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of shares
of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect
to each Potential Holder and Existing Holder, to the extent that such aggregate
number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, shares of MuniPreferred of such series.
Notwithstanding any provision of the Auction Procedures or the Settlement
Procedures to the contrary, in the event an Existing Holder or Beneficial Owner
of shares of a series of MuniPreferred with respect to whom a Broker-Dealer
submitted a Bid to the Auction Agent for such shares that was accepted in whole
or in part, or submitted or is deemed to have submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent
Member to deliver such shares against payment therefor, partial deliveries of
shares of MuniPreferred that have been made in respect of Potential Holders' or
Potential Beneficial Owners' Submitted Bids for shares of such series that have
been accepted in whole or in part shall constitute good delivery to such
Potential Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver shares of MuniPreferred of any
series or to pay for shares of MuniPreferred of any series sold or purchased
pursuant to the Auction Procedures or otherwise.
5. NOTIFICATION OF ALLOCATIONS. Whenever the Fund intends to include any
net capital gains or other income taxable for Federal income tax purposes in
any dividend on shares of MuniPreferred, the Fund shall, in the case of a
Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, notify the Auction Agent
of the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the Fund,
it will be required in turn to notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its Beneficial Owners and Potential Beneficial Owners of
shares of MuniPreferred believed by it to be interested in submitting an Order
in the Auction to be held on such Auction Date.
6. AUCTION AGENT. For so long as any shares of MuniPreferred are
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Fund and its affiliates (which however, may engage or have
engaged in business transactions with the Fund or its affiliates) and at no
time shall the Fund or any of its affiliates act as the Auction Agent in
connection with the Auction Procedures. If the Auction Agent resigns or for
any reason its appointment is terminated during any period that any shares of
MuniPreferred are outstanding, the Board of Trustees shall use its best efforts
promptly thereafter to appoint another qualified commercial bank, trust company
or financial institution to act as the Auction Agent. The Auction Agent's
registry of Existing Holders of shares of a series of MuniPreferred shall be
conclusive and binding on the Broker-Dealers. A Broker-Dealer may inquire of
the Auction Agent between 3:00 p.m. on the Business Day preceding an Auction
for shares of a series of MuniPreferred and 9:30 a.m. on the Auction Date for
such Auction to ascertain the number of shares of such series in respect of
which the Auction Agent has determined such Broker-Dealer to be an Existing
Holder. If such Broker-Dealer believes it is the Existing Holder of fewer
shares of such series than specified by the Auction Agent in response to such
Broker-Dealer's inquiry, such Broker-Dealer may so inform the Auction Agent of
that belief. Such Broker-Dealer shall not, in its capacity as Existing Holder
of shares of such series,
40
<PAGE> 47
submit Orders in such Auction in respect of shares of such series covering in
the aggregate more than the number of shares of such series specified by the
Auction Agent in response to such Broker-Dealer's inquiry.
7. TRANSFER OF SHARES OF MUNIPREFERRED. Unless otherwise permitted by
the Fund, a Beneficial Owner or an Existing Holder may sell, transfer or
otherwise dispose of shares of MuniPreferred only in whole shares and only
pursuant to a Bid or Sell Order placed with the Auction Agent in accordance
with the procedures described in this Part II or to a Broker-Dealer; PROVIDED,
HOWEVER, that (a) a sale, transfer or other disposition of shares of
MuniPreferred from a customer of a Broker-Dealer who is listed on the records
of that Broker-Dealer as the holder of such shares to that Broker-Dealer or
another customer of that Broker-Dealer shall not be deemed to be a sale,
transfer or other disposition for purposes of this Section 7 if such
Broker-Dealer remains the Existing Holder of the shares so sold, transferred or
disposed of immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
other Person, if permitted by the Fund) to whom such transfer is made shall
advise the Auction Agent of such transfer.
8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period, (i)
all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the name of the
Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of MuniPreferred shall be made on the books of the Fund to
any Person other than the Securities Depository or its nominee.
IN WITNESS WHEREOF, NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2, has
caused these presents to be signed on , 199 in its name and on its behalf by
its Vice President and attested by its Assistant Secretary. The Fund's
Declaration of Trust is on file with the Secretary of State of the Commonwealth
of Massachusetts, and the said officers of the Fund have executed this
Statement as officers and not individually, and the obligations and rights set
forth in this Statement are not binding upon any such officers, or the trustees
or shareholders of the Fund, individually, but are binding only upon the assets
and property of the Fund.
NUVEEN INSURED PREMIUM INCOME
MUNICIPAL FUND 2
By
James J. Wesolowski
Vice President and Secretary
ATTEST:
Scott Craven Jones
Assistant Secretary
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<PAGE> 48
NUVEEN INSURED
PREMIUM INCOME
MUNICIPAL FUND 2
APPENDIX A
SECTION 1. DESIGNATION AS TO SERIES.
SERIES M: A series of 1,040 Preferred Shares, liquidation preference
$50,000 per share, is hereby designated "Municipal Auction Rate Cumulative
Preferred Shares, Series M." Each share of Series M MuniPreferred shall be
issued on November 10, 1993; have an Applicable Rate for its Initial Rate
Period equal to 2.35% per annum; have an initial Dividend Payment Date of
November 23, 1993; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Declaration applicable to Preferred Shares of the Fund, as set forth in
Part I and Part II of this Statement. The Series M MuniPreferred shall
constitute a separate series of Preferred Shares of the Fund, and each share of
Series M MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
SERIES W: A series of 1,040 Preferred Shares, liquidation preference
$50,000 per share, is hereby designated "Municipal Auction Rate Cumulative
Preferred Shares, Series W." Each share of Series W MuniPreferred shall be
issued on November 10, 1993; have an Applicable Rate for its Initial Rate
Period equal to 2.35% per annum; have an initial Dividend Payment Date of
November 18, 1993; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Declaration applicable to Preferred Shares of the Fund, as set forth in
Part I and Part II of this Statement. The Series W MuniPreferred shall
constitute a separate series of Preferred Shares of the Fund, and each share of
Series W MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
SERIES F: A series of 1,098 Preferred Shares, liquidation preference
$50,000 per share, is hereby designated "Municipal Auction Rate Cumulative
Preferred Shares, Series F." Each share of Series F MuniPreferred shall be
issued on November 10, 1993; have an Applicable Rate for its Initial Rate
Period equal to 2.35% per annum; have an initial Dividend Payment Date of
November 22, 1993; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Declaration applicable to Preferred Shares of the Fund, as set forth in
Part I and Part II of this Statement. The Series F MuniPreferred shall
constitute a separate series of Preferred Shares of the Fund, and each share of
Series F MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES.
The number of authorized shares constituting Series M MuniPreferred is
1,040; Series W MuniPreferred is 1,040; and Series F MuniPreferred is 1,098.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS.
Notwithstanding the definitions contained under the heading "Definitions"
in this Statement, the following terms shall have the following meanings for
purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS.
For purposes of this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), except where the context
otherwise requires:
"GROSS-UP PAYMENT" means payment to a Holder of shares of
MuniPreferred of an amount which, when taken together with the aggregate
amount of Taxable Allocations made to such Holder to which such Gross-up
Payment relates, would cause such Holder's dividends in dollars (after
Federal income tax consequences) from the aggregate of such Taxable
Allocations and the related Gross-up Payment to be equal to the dollar
amount of the dividends which would have been received by such Holder if
the amount of such aggregate Taxable Allocations would have been
excludable from the gross income of such Holder. Such Gross-up Payment
shall be calculated (i) without consideration being given to the time
value of money; (ii) assuming
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<PAGE> 49
that no Holder of shares of MuniPreferred is subject to the Federal
alternative minimum tax with respect to dividends received from the Fund;
and (iii) assuming that each Taxable Allocation and each Gross-up Payment
(except to the extent such Gross-up Payment is designated as an
exempt-interest dividend under Section 852(b)(5) of the Code or successor
provisions) would be taxable in the hands of each Holder of shares of
MuniPreferred at the maximum marginal regular Federal individual income
tax rate applicable to ordinary income or net capital gains, as
applicable, or the maximum marginal regular Federal corporate income tax
rate applicable to ordinary income or net capital gains, as applicable,
whichever is greater, in effect at the time such Gross-up Payment is
made.
"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining
the Discounted Value of any Moody's Eligible Asset, the percentage
determined by reference to (i) (A) in the event such Municipal Obligation
is covered by an Original Issue Insurance policy or a Portfolio Insurance
policy which does not provide the Fund with the option to obtain
Permanent Insurance with respect to such Municipal Obligation, or is not
covered by bond insurance, the Moody's or S&P rating on such Municipal
Obligation, (B) in the event such Municipal Obligation is covered by a
Secondary Market Insurance Policy, the Moody's insurance claims-paying
ability rating of the issuer of the policy, or (C) in the event such
Municipal Obligation is covered by a Portfolio Insurance policy which
provides the Fund with the option to obtain Permanent Insurance with
respect to such Municipal Obligation, at the Fund's option, the Moody's
or S&P rating on such Municipal Obligation or the Moody's insurance
claims-paying ability rating of the issuer of the Portfolio Insurance
policy and (ii) the shortest Exposure Period set forth opposite such
rating that is the same length as or is longer than the Moody's Exposure
Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
RATING CATEGORY
---------------
(V)
EXPOSURE PERIOD AAA* AA* A* BAA* OTHER** MIG-1*** SP-1+***
------------------- ---- ---- ---- ---- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than seven
weeks 154 164 173 205 235 137 149
9 weeks or less but
greater than eight
weeks 158 169 179 209 242 138 150
</TABLE>
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
If the Moody's Discount Factor used to discount a particular Municipal
Obligation is determined by reference to the insurance claims-paying ability
rating of the insurer of such Municipal Obligation, such Moody's Discount
Factor will be increased by an amount equal to 50% of the difference between
(i) the percentage set forth in the above table under the applicable rating
category, and (ii) the percentage set forth in the above table under the rating
category that is one rating category below the applicable rating
category. Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% as long as
such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash, (ii)
is publicly rated Baa or higher by Moody's or, if not rated by Moody's but
rated by S&P, is rated at least BBB by S&P (provided, however, that for
purposes of determining the Moody's Discount Factor applicable to any such
S&P-rated Municipal Obligation, such Municipal Obligation (excluding any
short-term Municipal Obligation) shall be deemed to have a Moody's rating
43
<PAGE> 50
which is one full rating category lower than its S&P rating), (iii) does not
have its Moody's rating suspended by Moody's, and (iv) is part of an issue of
Municipal Obligations of at least $10,000,000. Municipal Obligations issued by
any one issuer and rated BBB by S&P may comprise no more than 4% of total
Moody's Eligible Assets; such BBB-rated Municipal Obligations, if any, together
with any Municipal Obligations issued by the same issuer and rated Baa by
Moody's or A by S&P, may comprise no more than 6% of total Moody's Eligible
Assets; such BBB, Baa and A-rated Municipal Obligations, if any, together with
any Municipal Obligations issued by the same issuer and rated A by Moody's or
AA by S&P, may comprise no more than 10% of total Moody's Eligible Assets; and
such BBB, Baa, A and AA-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by the same issuer and rated Aa by Moody's or AAA
by S&P, may comprise no more than 20% of total Moody's Eligible Assets. For
purposes of the foregoing sentence, any Municipal Obligation backed by the
guaranty, letter of credit or insurance issued by a third party shall be deemed
to be issued by such third party if the issuance of such third party credit is
the sole determinant of the rating on such Municipal Obligation. Municipal
Obligations issued by issuers located within a single state or territory and
rated BBB by S&P may comprise no more than 12% of total Moody's Eligible
Assets; such BBB-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by issuers located within the same state or
territory and rated Baa by Moody's or A by S&P, may comprise no more than 20%
of total Moody's Eligible Assets; such BBB, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by issuers
located within the state or territory and rated A by Moody's or AA by S&P, may
comprise no more than 40% of total Moody's Eligible Assets; and such BBB, Baa,
A and AA-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by issuers located within the same state or territory and
rated Aa by Moody's or AAA by S&P, may comprise no more than 60% of total
Moody's Eligible Assets. For purposes of applying the foregoing requirements,
a Municipal Obligation shall be deemed to be rated BBB by S&P if rated BBB-,
BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated without
including cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1 or, if not
rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered to have
a long-term rating of A. When the Fund sells a Municipal Obligation and agrees
to repurchase such Municipal Obligation at a future date, such Municipal
Obligation shall be valued at its Discounted Value for purposes of determining
Moody's Eligible Assets, and the amount of the repurchase price of such
Municipal Obligation shall be included as a liability for purposes of
calculating the MuniPreferred Basic Maintenance Amount. When the Fund
purchases a Moody's Eligible Asset and agrees to sell it at a future date, such
Eligible Asset shall be valued at the amount of cash to be received by the Fund
upon such future date, provided that the counterparty to the transaction has a
long-term debt rating of at least A2 from Moody's and the transaction has a
term of no more than 30 days, otherwise such Eligible Asset shall be valued at
the Discounted Value of such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent it is (i) subject to any material lien, mortgage,
pledge, security interest or security agreement of any kind (collectively,
"Liens"), except for (a) Liens which are being contested in good faith by
appropriate proceedings and which Moody's has indicated to the Fund will not
affect the status of such asset as a Moody's Eligible Asset, (b) Liens for
taxes that are not then due and payable or that can be paid thereafter without
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Fund by Nuveen Advisory Corp., United States Trust Company of New York or
the Auction Agent and (d) Liens by virtue of any repurchase agreement; or (ii)
deposited irrevocably for the payment of any liabilities for purposes of
determining the MuniPreferred Basic Maintenance Amount.
For purposes of determining as of any Valuation Date whether the Fund has
Moody's Eligible Assets with an aggregate Discounted Value at least equal to
the MuniPreferred Basic Maintenance Amount, the Fund shall include as a
liability in the calculation of the MuniPreferred Basic Maintenance Amount an
amount calculated semi-annually equal to 150% of the estimated cost of
obtaining Permanent Insurance with respect to Moody's Eligible Assets that are
(i) covered by Portfolio Insurance policies which provide the Fund with the
option to obtain such Permanent Insurance and (ii) discounted by a Moody's
Discount Factor determined by reference to the insurance claims-paying ability
rating of the issuer of such Portfolio Insurance policy.
"ORIGINAL ISSUE INSURANCE" shall mean "Original Issue Insurance" as
defined in the Fund's Registration Statement.
"PERMANENT INSURANCE" shall mean "Permanent Insurance" as defined in the
Fund's Registration Statement.
44
<PAGE> 51
"PORTFOLIO INSURANCE" shall mean "Portfolio Insurance" as defined in the
Fund's Registration Statement.
"RATE MULTIPLE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean the percentage, determined as set
forth below, based on the prevailing rating of shares of such series in effect
at the close of business on the Business Day next preceding such Auction Date:
<TABLE>
<CAPTION>
PREVAILING RATING PERCENTAGE
- ------------------- ----------
<S> <C>
"aa3"/AA- or higher 110%
"a3"/A- 125%
"baa3"/BBB- 150%
"ba3"/BB- 200%
Below "ba3"/BB- 250%
</TABLE>
PROVIDED, HOWEVER, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for Federal income tax purposes to shares
of such series prior to the Auction establishing the Applicable Rate for shares
of such series, the applicable percentage in the foregoing table shall be
divided by the quantity 1 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income, whichever is
greater.
For purposes of this definition, the "prevailing rating" of shares of a
series of MuniPreferred shall be (i) "aa3"/AA- or higher if such shares have a
rating of "aa3" or better by Moody's and AA- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not "aa3"/AA- or higher,
then "a3"/A- if such shares have a rating of "a3" or better by Moody's and A-
or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such
shares have a rating of "baa3" or better by Moody's and BBB- or better by S&P
or the equivalent of such ratings by such agencies or a substitute rating
agency or substitute rating agencies selected as provided below, (iv) if not
"aa3"/AA- or higher, "a3"/A- or "baa3"/BBB-, then "ba3"/BB- if such shares have
a rating of "ba3" or better by Moody's and BB- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, and (v) if not "aa3"/AA-
or higher, "a3"/A-, "baa3"/BBB-, or "ba3"/BB-, then Below "ba3"/BB-; PROVIDED,
HOWEVER, that if such shares are rated by only one rating agency, the
prevailing rating will be determined without reference to the rating of any
other rating agency. The Fund shall take all reasonable action necessary to
enable either S&P or Moody's to provide a rating for shares of MuniPreferred.
If neither S&P nor Moody's shall make such a rating available, the party set
forth in Section 7 of Appendix A or its successor shall select at least one
nationally recognized statistical rating organization (as that term is used in
the rules and regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended from time to time) to act as a
substitute rating agency in respect of shares of the series of MuniPreferred
set forth opposite such party's name in Section 7 of APPENDIX A and the Fund
shall take all reasonable action to enable such rating agency to provide a
rating for such shares.
"S&P DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to (i)(A) in the event such Municipal Obligation is covered by an
Original Issue Insurance policy or a Portfolio Insurance policy which does not
provide the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation, or is not covered by bond insurance, the S&P or
Moody's rating on such Municipal Obligation, (B) in the event such Municipal
Obligation is covered by a Secondary Market Insurance policy, the S&P insurance
claims-paying ability rating of the issuer of the policy, or (C) in the event
such Municipal Obligation is covered by a Portfolio Insurance policy which
provides the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation, at the Fund's option, the S&P or Moody's rating on
such Municipal Obligation or the S&P insurance claims-paying ability rating of
the issuer of the Portfolio Insurance policy and (ii) the shortest Exposure
Period set forth opposite such rating that is the same length as or is longer
than the S&P Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
---------------
45
<PAGE> 52
<TABLE>
<CAPTION>
EXPOSURE PERIOD AAA* AA* A* BBB*
- ---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
40 Business Days 190% 195% 210% 250%
22 Business Days 170 175 190 230
10 Business Days 155 160 175 215
7 Business Days 150 155 170 210
3 Business Days 130 135 150 190
</TABLE>
*S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
within 30 days or less, or 125% if such Municipal Obligations are not rated by
S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; PROVIDED, HOWEVER, that any
such Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-1+ from S&P; and FURTHER PROVIDED that such
Moody's-rated short-term Municipal Obligations may comprise no more than 50% of
short-term Municipal Obligations that qualify as S&P Eligible Assets and (ii)
no S&P Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold. For purposes of the foregoing, Anticipation Notes rated
SP-1+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not
mature or have a demand feature at par exercisable in 30 days and which do not
have a long-term rating, shall be considered to be short-term Municipal
Obligations.
"S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars; (iii) is publicly rated BBB or higher
by S&P or, if not rated by S&P but rated by Moody's, is rated at least A by
Moody's (PROVIDED, HOWEVER, that such Moody's-rated Municipal Obligations will
be included in S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 50% of the aggregate Market Value of S&P
Eligible Assets; and FURTHER PROVIDED that, for purposes of determining the S&P
Discount Factor applicable to any such Moody's-rated Municipal Obligation, such
Municipal Obligation will be deemed to have an S&P rating which is one full
rating category lower than its Moody's rating); (iv) is not part of a private
placement of Municipal Obligations; and (v) is part of an issue of Municipal
Obligations with an original issue size of at least $20 million or, if of an
issue with an original issue size below $20 million (but in no event below $10
million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Solely for purposes of this definition, the term
"Municipal Obligation" means any obligation the interest on which is exempt from
regular Federal income taxation and which is issued by any of the fifty United
States, the District of Columbia or any of the territories of the United States,
their subdivisions, counties, cities, towns, villages, school districts and
agencies (including authorities and special districts created by the states),
and federally sponsored agencies such as local housing authorities.
Notwithstanding the foregoing limitations:
(1) Municipal Obligations of any one issuer or guarantor (excluding
bond insurers) shall be considered S&P Eligible Assets only to the extent
the Market Value of such Municipal Obligations does not exceed 10% of the
aggregate Market Value of S&P Eligible Assets, provided that 2% is added
to the applicable S&P Discount Factor for every 1% by which the Market
Value of such Municipal Obligations exceeds 5% of the aggregate Market
Value of S&P Eligible Assets; and
(2) Long-term Municipal Obligations shall be considered S&P
Eligible Assets only to the extent that the Market Value of such
Municipal Obligations does not exceed 20% of the aggregate Market Value
of S&P Eligible Assets.
For purposes of determining as of any Valuation Date whether the Fund has
S&P Eligible Assets with an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount, the Fund shall include as a liability
in the calculation of the MuniPreferred Basic Maintenance Amount an amount
calculated semi-annually equal to 150% of the estimated cost of obtaining
Permanent Insurance with respect to S&P Eligible Assets that are (i) covered by
Portfolio Insurance policies which provide the Fund with the option to obtain
such Permanent Insurance and (ii) discounted by an S&P Discount Factor
46
<PAGE> 53
determined by reference to the insurance claims-paying ability rating of the
issuer of such Portfolio Insurance policy.
"SECONDARY MARKET INSURANCE" shall mean "Secondary Market Insurance" as
defined in the Fund's Registration Statement.
SECTION 5. INITIAL RATE PERIODS.
The Initial Rate Period for shares of Series M MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
November 23, 1993.
The Initial Rate Period for shares of Series W MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
November 18, 1993.
The Initial Rate Period for shares of Series F MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
November 22, 1993.
SECTION 6. DATE FOR PURPOSES OF PARAGRAPH (YYY) CONTAINED UNDER THE HEADING
"DEFINITIONS" IN THIS STATEMENT.
November 30, 1993.
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN
THIS STATEMENT.
Party: Series of MuniPreferred: [fm]
Kidder, Peabody & Co. Incorporated Series M
Smith Barney Shearson Inc. Series W
Merrill Lynch, Pierce, Fenner & Smith
Incorporated Series F
SECTION 8. ADDITIONAL DEFINITIONS.
Not applicable.
SECTION 9. DIVIDEND PAYMENT DATES.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of
this Statement, dividends shall be payable on shares of:
Series M MuniPreferred on Tuesday, November 23, 1993, and on each Tuesday
thereafter.
Series W MuniPreferred on Thursday, November 18, 1993, and on each
Thursday thereafter.
Series F MuniPreferred on Monday, November 22, 1993, and on each Monday
thereafter.
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (C)(I) OF SECTION 5 OF PART I
OF THE STATEMENT.
$158,900,000.
SECTION 11. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.
SECTION 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (B)(III) OF SECTION 3
OF PART II OF THIS STATEMENT.
For purposes of subparagraph (b)(iii) of Section 3 of Part II of this
Statement, the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall be equal to the lesser of
the Kenny Index (if such Rate Period consists of fewer than 183 Rate Period
Days) or the product of (A) (I) the "AA" Composite Commercial Paper Rate on
such Auction Date for such Rate Period, if such Rate Period consists of fewer
than 183 Rate Period Days; (II) the Treasury Bill Rate on such Auction Date for
such Rate Period, if such Rate Period consists of more than 182 but fewer than
365 Rate Period Days; or (III) the Treasury Note Rate on such Auction Date for
such Rate Period, if such Rate Period is more than 364 Rate Period Days (the
rate described in the
47
<PAGE> 54
foregoing clause (A)(I), (II) or (III), as applicable, being referred to herein
as the "Benchmark Rate") and (B) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum
marginal regular Federal corporate income tax rate applicable to ordinary
income, whichever is greater; PROVIDED, HOWEVER, that if the Fund has notified
the Auction Agent of its intent to allocate to shares of such series in such
Rate Period any net capital gains or other income taxable for Federal income
tax purposes ("Taxable Income"), the Applicable Rate for shares of such series
for such Rate Period will be (i) if the Taxable Yield Rate (as defined below)
is greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the
Taxable Yield Rate is less than or equal to the Benchmark Rate, then the rate
equal to the sum of (x) the lesser of the Kenny Index (if such Rate Period
consists of fewer than 183 Rate Period Days) or the product of the Benchmark
Rate multiplied by the factor set forth in the preceding clause (B) and (y) the
product of the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or the maximum marginal regular Federal corporate
income tax applicable to ordinary income, whichever is greater, multiplied by
the Taxable Yield Rate. For purposes of the foregoing, Taxable Yield Rate
means the rate determined by (a) dividing the amount of Taxable Income
available for distribution per such share of MuniPreferred by the number of
days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360
(in the case of any other Dividend Period), and (c) dividing the amount
determined in (b) above by $50,000.
48
<PAGE> 1
EXHIBIT 99.2
AMENDMENT TO BY-LAWS
OF
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
The By-Laws of Nuveen Insured Premium Income Municipal Fund 2, a Massachusetts
business trust, have been amended, by unanimous vote of the Board of Trustees at
a meeting duly called, convened and held on February 2, 1994, to read as
follows:
WHEREAS, the Board of Directors (Trustees) desires to amend the By-laws of the
Fund by adding Section 5.6(b) and revising what becomes Section 5.6(c) in order
to clarify certain provisions regarding the Board's ability to declare a record
date for the payment of dividends or other distributions or allocations.
NOW, THEREFORE, BE IT RESOLVED, that Section 5.6 of the By-Laws of the fund is
amended and restated in its entirety to read as follows:
Section 5.6 Record Date: Certification of Beneficial Owner. (a) The
directors may fix a date not more than sixty (60) days before the date of a
meeting of shareholders as the date for the determination of the holders of
shares entitled to notice of and entitled to vote at the meeting.
(b) The directors (trustees) may fix a date for determining
shareholders entitled to receive payment of any dividend or distribution or
an allotment of any rights or entitled to exercise any rights in respect of
any change, conversion or exchange of stock (shares).
(c) In the absence of any such fixed record date, (i) the date for
the determination of holders of shares entitled to notice of and entitled
to vote at a meeting of shareholders shall be the later of the close of
business on the day on which notice of the meeting is mailed or the
thirtieth day before the meeting, and (ii) the date for determining
shareholders entitled to receive payment of any dividend or distribution or
an allotment of any rights or entitled to exercise any rights in respect of
any change, conversion or exchange of stock (shares) shall be the close of
business on the day on which the resolution of the Board of Directors
(Trustees) is adopted.
(d) A resolution approved by the affirmative vote of a majority of
the directors (trustees) present may establish a procedure whereby a
shareholder may certify in writing to the Corporation (Trust) that all or a
portion of the shares registered in the name of the shareholder are held
for the account of one or more beneficial owners. Upon receipt by the
Corporation (Trust) of the writing, the persons specified as beneficial
owners, rather than the actual shareholders, are deemed the shareholders
for the purposes specified in the writing.
<PAGE> 2
BY-LAWS
OF
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
DECLARATION OF TRUST
AND
OFFICES
Section 1.1 Declaration of Trust. These By-Laws shall be subject to the
Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of Nuveen Insured Premium Income Municipal Fund 2, the Massachusetts
business trust established by the Declaration of Trust (the "Trust").
Section 1.2 Registered Agent. The registered agent of the Trust in the
Commonwealth of Massachusetts shall be CT Corporation System, 2 Oliver Street,
Boston, Massachusetts, or such other agent as may be fixed by the Board of
Trustees.
Section 1.3 Other Offices. The Trust may have such other offices and
places of business within or without the Commonwealth of Massachusetts as the
Board of Trustees shall determine.
SHAREHOLDERS
Section 2.1 Place of Meetings. Meetings of the shareholders may be held
at such place or places within or without the Commonwealth of Massachusetts as
the Board of Trustees shall determine.
Section 2.2 Regular Meeting. Regular meetings of the shareholders for the
election of Trustees and the transaction of such other business as may
properly come before the meeting shall be held on an annual or other less
frequent periodic basis at such date and time as the Board of Trustees by
resolution shall designate, except as otherwise required by applicable law.
Section 2.3 Special Meeting. Special meetings of the shareholders for any
purpose or purposes may be called by the Chairman of the Board, the President or
two or more Trustees, and must be called at the written request, stating the
purpose or purposes of the meeting, of shareholders entitled to cast at least
10 percent of all the votes entitled to be cast at the meeting.
Section 2.4 Notice of Meetings. Notice stating the time and place of the
meeting, and in the case of a special meeting the purpose or purposes thereof
and by whom called, shall be delivered to each shareholder entitled to vote,
and each other shareholder entitled to notice of the meeting, not less than ten
nor more than sixty days prior to the meeting, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were announced at
the time of the adjournment.
<PAGE> 3
Section 2.5 Quorum and Action. (a) The holders of a majority of the
voting power of the shares of beneficial interest of the Trust (the "Shares")
entitled to vote at a meeting are a quorum for the transaction of business. If
a quorum is present when a duly called or held meeting is convened, the
shareholders present may continue to transact business until adjournment, even
though the withdrawal of a number of shareholders originally present leaves
less than the proportion or number otherwise required for a quorum.
Notwithstanding the foregoing, when the holders of Preferred Shares are
entitled to elect any of the Trust's Trustees by class vote of such holders,
the holders of 33 1/3% of the shares entitled to vote at a meeting shall
constitute a quorum for the purpose of such an election.
(b) The shareholders shall take action by the affirmative vote of
the holders of a majority, except in the case of the election of Trustees which
shall only require a plurality, of the voting power of the Shares present and
entitled to vote at a meeting of shareholders at which a quorum is present,
except as may be otherwise required by the Investment Company Act of 1940, as
amended (the "1940 Act"), the Declaration of Trust or any resolution of the
Trustees which authorizes the issuance of Preferred Shares.
Section 2.6 Voting. At each meeting of the shareholders, every holder
of Shares then entitled to vote may vote in person or by proxy and, except as
may be otherwise provided by the 1940 Act, the Declaration of Trust or any
resolution of the Trustees which authorizes the issuance of Preferred Shares,
shall have one vote for each Share registered in his name.
Section 2.7 Proxy Representation. A shareholder may cast or authorize
the casting of a vote by filing a written appointment of a proxy with an officer
of the Trust at or before the meeting at which the appointment is to be
effective. The appointment of a proxy is valid for eleven months, unless a
longer period is expressly provided in the appointment. No appointment is
irrevocable unless the appointment is coupled with an interest in the Shares or
in the Trust.
Section 2.8 Adjourned Meetings. Any meeting of shareholders may, by
announcement thereat, be adjourned to a designated time and place by the vote
of the holders of a majority of the Shares present and entitled to vote thereat
even though less than a quorum is so present. An adjourned meeting may
reconvene as designated, and when a quorum is present any business may be
transacted which might have been transacted at the meeting as originally
called.
Section 2.9 Action by Written Consent in Lieu of Meeting of
Shareholders. -- See Section 6.3 of these By-Laws.
TRUSTEES
Section 3.1 Qualifications and Number; Vacancies. Each Trustee shall
be a natural person. A Trustee need not be a shareholder, a citizen of the
United States, or a resident of the Commonwealth of Massachusetts. The initial
number of Trustees of the Trust, their term and election and the filling of
vacancies, shall be as provided in the Declaration of Trust.
Section 3.2 Powers. The business and affairs of the Trust shall be
managed under the direction of the Board of Trustees. All powers of the Trust
may be exercised by or under the authority of the Board of Trustees, except
those conferred on or reserved to the shareholders by statute, the Declaration
of Trust or these By-Laws.
-2-
<PAGE> 4
Section 3.3 Investment Policies. It shall be the duty of the Board of
Trustees to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Trust are at all times
consistent with the investment objectives, policies and restrictions with
respect to securities investments and otherwise of the Trust filed from time to
time with the Securities and Exchange Commission and as required by the 1940
Act, unless such duty is delegated to an investment adviser pursuant to a
written contract, as provided in the Declaration of Trust. The Trustees,
however, may delegate the duty of management of the assets of the Trust, and
may delegate such other of their powers and duties as are permitted by the
Declaration of Trust, to the Executive Committee or any other committee, or to
an individual or corporate investment adviser to act as investment adviser
pursuant to a written contract to be approved or ratified initially by the vote
of a majority of the outstanding voting securities of the Trust at the first
annual meeting of shareholders and to be renewable annually by the affirmative
vote of a majority of the entire Board of Trustees, including a majority of the
Trustees of the Trust who are not parties to such contract or affiliated
persons (other than as Trustees) of the Trust or the investment adviser.
Section 3.4 Meetings. Regular meetings of the Trustees may be held
without notice at such times as the Trustees shall fix. Special meetings of the
Trustees may be called by the Chairman of the Board or the President, and shall
be called at the written request of two or more Trustees. Unless waived by each
Trustee, three days' notice of special meetings shall be given to each Trustee
in person, by mail, by telephone, or by telegram or cable, or by any other
means that reasonably may be expected to provide similar notice. Notice of
special meetings need not state the purpose or purposes thereof. Meetings of
the Board may be held at any place within or outside the Commonwealth of
Massachusetts. A conference among Trustees by any means of communication
through which the Trustees may simultaneously hear each other during the
conference constitutes a meeting of the Trustees or of a Committee of the
Trustees, if the notice requirements have been met (or waived) and if the
number of Trustees participating in the conference would be sufficient to
constitute a quorum at such meeting. Participation in such meeting by that
means constitutes presence in person at the meeting.
Section 3.5 Quorum and Action. A majority of the Trustees currently
holding office, or in the case of a meeting of a Committee of the Trustees, a
majority of the members of such Committee, shall constitute a quorum for the
transaction of business at any meeting. If a quorum is present when a duly
called or held meeting is convened, the Trustees present may continue to
transact business until adjournment, even though the withdrawal of a number of
Trustees originally present leaves less than the proportion or number otherwise
required for a quorum. At any duly held meeting at which a quorum is present,
the affirmative vote of the majority of the Trustees present shall be the act of
the Trustees or the Committee, as the case may be, on any question, except
where the act of a greater number is required by these By-Laws or by the
Declaration of Trust.
Section 3.6 Action by Written Consent in Lieu of Meetings of Trustees.
- -- See Section 6.3 of these By-Laws.
Section 3.7 Committees. The Trustees, by resolution adopted by the
affirmative vote of a majority of the Trustees, may designate from its members
an Executive Committee, an Audit Committee (whose function shall be to advise
the Trustees as to the selection of and review of the work of the independent
public accountants of the Trust) and any other Committee, each
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<PAGE> 5
such Committee to consist of two or more persons who need not be Trustees and
to have such powers and authority (to the extent permitted by law) as may be
provided in such resolution.
OFFICERS
Section 4.1 Number and Qualifications. The officers of the
Trust shall include a Chairman of the Board, a President, a Controller, one or
more Vice Presidents (one of whom may be designated an Executive Vice
President), a Treasurer, and a Secretary. Any two or more offices may be held
by the same person. Unless otherwise determined by the Trustees, each officer
shall be appointed by the Trustees for a term which shall continue until the
meeting of the Trustees following the next regular meeting of shareholders and
until his successor shall have been duly elected and qualified, or until his
death, or until he shall have resigned or have been removed, as hereinafter
provided in these By-Laws. The Trustees may from time to time elect, or
delegate to the Chairman of the Board or the President, or both, the power to
appoint, such officers (including one or more Assistant Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries) and such
agents as may be necessary or desirable for the business of the Trust. Such
other officers shall hold office for such terms as may be prescribed by the
Trustees or by the appointing authority.
Section 4.2 Resignations. Any officer of the Trust may resign
at any time by giving written notice of his resignation to the Trustees, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt,
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 4.3 Removal. An officer may be removed at any time,
with or without cause, by a resolution approved by the affirmative vote of a
majority of the Trustees present at a duly convened meeting of the Trustees.
Section 4.4 Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause, may be filled
for the unexpired portion of the term by the Trustees, or in the manner
determined by the Trustees.
Section 4.5 The Chairman of the Board. The Chairman of the
Board shall be elected from among the Trustees. He shall be the chief executive
officer of the Trust and shall:
(a) have general active management of the business of the
Trust;
(b) when present, preside at all meetings of the Trustees
and of the shareholders;
(c) see that all orders and resolutions of the Trustees are
carried into effect;
(d) sign and deliver in the name of the Trust any deeds,
mortgages, bonds, contracts or other instruments pertaining to the business of
the Trust, except in cases in which the authority to sign and deliver is
required by law to be exercised by another person or is expressly
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<PAGE> 6
delegated by the Declaration of Trust or By-Laws or by the Trustees to some
other officer or agent of the Trust; and
(e) maintain records of and, whenever necessary, certify all
proceedings of the Trustees and the shareholders.
The Chairman of the Board shall be authorized to do or cause to be done
all things necessary or appropriate, including preparation, execution and
filing of any documents, to effectuate the registration from time to time of
the Common Shares or Preferred Shares of the Trust with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended. He
shall perform all duties incident to the office of Chairman of the Board and
such other duties as from time to time may be assigned to him by the Trustees
or by these By-Laws.
Section 4.6 The President. The President shall be the chief operating
officer of the Trust and, subject to the Chairman of the Board, he shall have
general authority over and general management and control of the business and
affairs of the Trust. In general, he shall discharge all duties incident to
the office of the chief operating officer of the Trust and such other duties as
may be prescribed by the Trustees and the Chairman of the Board from time to
time. In the absence of the Chairman of the Board or in the event of his
disability, or inability to act or to continue to act, the President shall
perform the duties of the Chairman of the Board and when so acting shall have
all the powers of, and be subject to all the restrictions upon, the Chairman of
the Board.
Section 4.7 Executive Vice-President. In the case of the absence or
inability to act of the President and the Chairman of the Board, the Executive
Vice-President shall perform the duties of the President and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Executive Vice-President shall perform all duties incident to
the office of Executive Vice-President and such other duties as from time to
time may be assigned to him by the Trustees, the President or these By-Laws.
Section 4.8 Vice-Presidents. Each Vice-President shall perform all
such duties as from time to time may be assigned to him by the Trustees, the
Chairman of the Board or the President.
Section 4.9 Controller. The Controller shall:
(a) Keep accurate financial records for the Trust;
(b) render to the Chairman of the Board, the President and the
Trustees, whenever requested, an account of all transactions by and of the
financial condition of the Trust; and
(c) in general, perform all the duties incident to the office of
Controller and such other duties as from time to time may be assigned to him by
the Trustees, the Chairman of the Board or the President.
Section 4.10 Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Trust, except those which the Trust has placed in the
custody of a bank or trust
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<PAGE> 7
company pursuant to a written agreement designating such bank or trust company
as custodian of the property of the Trust, as required by Section 6.6 of these
By-Laws;
(b) deposit all money, drafts, and checks in the name of and to
the credit of the Trust in the banks and depositories designated by the
Trustees;
(c) endorse for deposit all notes, checks, and drafts received by
the Trust making proper vouchers therefor;
(d) disburse corporate funds and issue checks and drafts in the
name of the Trust, as ordered by the Trustees; and
(e) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Trustees, the Chairman of the Board or the President.
Section 4.11 Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Trustees, the committees of the
Trustees and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by statute;
(c) be custodian of the records of the Trust;
(d) see that the books, reports, statements, certificates and other
documents and records required by statute to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Trustees, the Chairman of the Board or the President.
Section 4.12 Salaries. The salaries of all officers shall be fixed by
the Trustees, and the Trustees have the authority by majority vote to
reimburse expenses and to establish reasonable compensation of all Trustees for
services to the Trust as Trustees, officers, or otherwise.
SHARES
Section 5.1 Share Certificates. Each owner of Common Shares of the
Trust shall be entitled upon request to have a certificate, in such form as
shall be approved by the Trustees, representing the number of Common Shares of
the Trust owned by him. No certificates shall be issued for fractional Common
Shares. The certificates representing Common Shares shall be signed in the
name of the Trust by the Chairman of the Board, the President, the Executive
Vice President or a Vice President and by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer (which signatures may be
either manual or facsimile, engraved or printed). In case any officer who
shall have signed such certificate shall have ceased to be such officer before
such certificates shall be issued, they may nevertheless be issued by the Trust
with the same effect as if
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<PAGE> 8
such officer were still in office at the date of their issue. No certificates
representing Preferred Shares shall be issued except as the Trustees may
otherwise authorize.
Section 5.2 Books and Records; Inspection. The Trust shall keep at its
principal executive office, or at another place or places within the United
States determined by the Trustees, a share register not more than one year
old, containing the names and addresses of the shareholders and the number and
classes of Shares held by each shareholder. The Trust shall also keep, at its
principal executive office, or at another place or places within the United
States determined by the Trustees, a record of the dates on which certificates
representing Shares were issued.
Section 5.3 Share Transfers. Upon compliance with any provisions
restricting the transferability of Shares that may be set forth in the
Declaration of Trust, these By-Laws, or any resolution or written agreement in
respect thereof, transfers of Shares of the Trust shall be made only on the
books of the Trust by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with an
officer of the Trust, or with a transfer agent or a registrar and on surrender
of any certificate or certificates for such Shares properly endorsed and the
payment of all taxes thereon. Except as may be otherwise provided by law or
these By-Laws, the person in whose name Shares stand on the books of the Trust
shall be deemed the owner thereof for all purposes as regards the Trust;
provided that whenever any transfer of Shares shall be made for collateral
security, and not absolutely, such fact, if known to an officer of the
Trust, shall be so expressed in the entry of transfer.
Section 5.4 Regulations. The Trustees may make such additional rules
and regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, certification, transfer and registration of Shares of
stock of the Trust. It may appoint, or authorize any officer or officers to
appoint, one or more transfer agents or one or more transfer clerks and one or
more registrars and may require all certificates for Shares of stock to bear
the signature or signatures of any of them.
Section 5.5 Lost, Destroyed or Mutilated Certificates. The holder of
any certificate representing Shares of the Trust shall immediately notify the
Trust of any loss, destruction or mutilation of such certificate, and the Trust
may issue a new certificate in the place of any certificate theretofore issued
by it which the owner thereof shall allege to have been lost or destroyed or
which shall have been mutilated, and the Trustees may, in their discretion,
require such owner or his legal representatives to give to the Trust, a bond in
such sum, limited or unlimited, and in such form and with such surety or
sureties as the Trustees in their absolute discretion shall determine, to
indemnify the Trust against any claim that may be made against it on account of
the alleged loss or destruction of any such certificate, or the issuance of a
new certificate. Anything herein to the contrary notwithstanding, the
Trustees, in their absolute discretion, may refuse to issue any such new
certificate, except as otherwise required by law.
Section 5.6 Record Date; Certification of Beneficial Owner. (a) The
Trustees may fix a date not more than sixty days before the date of a meeting
of shareholders as the date for the determination of the holders of Shares
entitled to notice of and entitled to vote at the meeting.
(b) In the absence of such fixed record date, (i) the date for
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be the later of the close of business on the day on which
notice of the meeting is mailed or the thirtieth day before
<PAGE> 9
the meeting, and (ii) the date for determining shareholders entitled to receive
payment of a dividend or an allotment of any rights shall be the close of
business on the day on which the resolution of the Trustees is adopted, but the
payment or allotment shall not be made more than sixty days after the date on
which the resolution is adopted.
(c) A resolution approved by the affirmative vote of a majority of the
Trustees present may establish a procedure whereby a shareholder may certify in
writing to the Trust that all or a portion of the Shares registered in the name
of the shareholder are held for the account of one or more beneficial owners.
Upon receipt by the Trust of the writing, the persons specified as beneficial
owners, rather than the actual shareholders, are deemed the shareholders for the
purposes specified in the writing.
MISCELLANEOUS
Section 6.1 Fiscal Year. The fiscal year of the Trust shall be as
fixed by the Trustees of the Trust.
Section 6.2 Notice and Waiver of Notice. (a) Any notice of a meeting
required to be given under these By-Laws to shareholders or Trustees, or both,
may be waived by any such person (i) orally or in writing signed by such person
before, at or after the meeting or (ii) by attendance at the meeting in person
or, in the case of a shareholder, by proxy.
(b) Except as otherwise specifically provided herein, all notices
required by these By-Laws shall be printed or written, and shall be delivered
either personally, by telegraph or cable or by mail and, if mailed, shall be
deemed to be delivered when deposited in the United States mail, postage
prepaid, addressed to the shareholder or Trustee at his address as it appears
on the records of the Trust.
Section 6.3 Action by Written Consent in Lieu of Meetings. (a) An
action required or permitted to be taken at a meeting of the shareholders may
be taken without a meeting by written action signed by all of the shareholders
entitled to vote on that action. The written action is effective when it has
been signed by all of those shareholders, unless a different effective time is
provided in the written action.
(b) An action which requires shareholder approval and which is
required or permitted to be taken at a meeting of Trustees may be taken by
written action signed by all of the Trustees. An action which does not
require shareholder approval and which is required or permitted to be taken at
a meeting of the Trustees or a Committee of the Trustees may be taken by
written action signed by the number of Trustees that would be required to take
the same action at a meeting of the Trustees or Committee, as the case may be,
at which all Trustees were present. The written action is effective when
signed by the required number of Trustees, unless a different effective time is
provided in the written action. When written action is taken by less than all
Trustees, all Trustees shall be notified immediately of this text and effective
date.
Section 6.4 Reports to Shareholders. The books of account of the
Trust shall be examined by an independent firm of public accountants at the
close of each annual period of the Trust and at such other times, if any, as
may be directed by the Trustees. A report to the
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<PAGE> 10
shareholders based upon such examination shall be mailed to each shareholder of
the Trust of record at his address as the same appears on the books of the
Trust. Each such report shall show the assets and liabilities of the Trust as
of the annual or other period covered by the report and the securities in which
the funds of the Trust were then invested; such report shall also show the
Trust's income and expenses for the period from the end of the Trust's
preceding fiscal year to the close of the annual or other period covered by the
report and any other information required by the 1940 Act, and shall set forth
such other matters as the Trustees or such independent firm of public
accountants shall determine.
Section 6.5 Approval of Firm of Independent Public Accountants. At
any regular meeting of the shareholders of the Trust there may be submitted,
for ratification or rejection, the name of the firm of independent public
accountants which has been selected for the fiscal year in which such meeting
is held by a majority of those members of the Trustees who are not investment
advisers of, or affiliated persons of an investment adviser of, or officers or
employees of, the Trust, as such terms are defined in the 1940 Act.
Section 6.6 Custodian. All securities and cash of the Trust shall be
held by a custodian meeting the requirements for a custodian contained in the
1940 Act and the rules and regulations thereunder and in any applicable state
securities or blue sky laws. The Trust shall enter into a written contract with
the custodian regarding the powers, duties and compensation of the custodian
with respect to the cash and securities of the Trust held by the custodian.
Said contract and all amendments thereto shall be approved by the Trustees of
the Trust. The Trust shall upon the resignation or inability to serve of the
custodian obtain a successor custodian and require that the cash and
securities owned by the Trust be delivered directly to the successor custodian.
Section 6.7 Prohibited Transactions. No officer or Trustee of the
Trust or of its investment adviser shall deal for or on behalf of the Trust
with himself, as principal or agent, or with any corporation or partnership in
which he has a financial interest. This prohibition shall not prevent: (a)
officers or Trustees of the Trust from having a financial interest in the
Trust, its principal underwriter or its investment adviser; (b) the purchase of
securities for the portfolio of the Trust or the sale of securities owned by
the Trust through a securities dealer, one or more of whose partners, officers
or directors is an officer or Trustee of the Trust, provided such transactions
are handled in the capacity of broker only and provided commissions charged do
not exceed customary brokerage charges for such service; (c) the purchase or
sale of securities for the portfolio of the Trust pursuant to a rule under the
1940 Act or pursuant to an exemptive order of the Securities and Exchange
Commission; or (d) the employment of legal counsel, registrar, transfer agent,
dividend disbursing agent, or custodian having a partner, officer or director
who is an officer or Trustee of the Trust, provided only customary fees are
charged for services rendered to or for the benefit of the Trust.
Section 6.8 Bonds. The Trustees may require any officer, agent or
employee of the Trust to give a bond to the Trust, conditioned upon the
faithful discharge of his duties, with one or more sureties and in such amount
as may be satisfactory to his Trustees. The Trustees shall, in any event,
require the Trust to provide and maintain a bond issued by a reputable fidelity
insurance company, authorized to do business in the place where the bond is
issued, against larceny and embezzlement, covering each officer and employee of
the Trust, who may singly, or jointly with others, have access to securities or
funds of the Trust, either directly or through authority to draw upon such
funds or to direct generally the disposition of such securities, such bond or
bonds to be in such reasonable form and amount as a majority of the Trustees
who are not "interested persons"
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<PAGE> 11
of the Trust as defined in the 1940 Act shall approve not less than once every
twelve months, with due consideration to all relevant factors including, but
not limited to, the value of the aggregate assets of the Trust to which any
such officer or employee may have access, the type and terms of the arrangements
made for the custody and safekeeping of such assets, and the nature of the
securities in the Trust's portfolio, and as meet all requirements which the
Securities and Exchange Commission may prescribe by order, rule or regulation.
AMENDMENTS
Section 7. These By-Laws may be amended or repealed, or new By-Laws
may be adopted, by the Trustees at any meeting thereof, provided that notice of
such meeting shall have been given if required by these By-Laws, which notice,
if required, shall state that amendment or repeal of the By-Laws or adoption of
new By-Laws, is one of the purposes of such meeting, or by action of the
Trustees by written consent in lieu of a meeting.
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<PAGE> 1
EXHIBIT 99.4.2
NUVEEN AUCTION AGENCY AGREEMENT
Basic Terms for Acting as Auction Agent
---------------------------------------
November 1, 1993
These basic terms ("Basic Terms") set forth the general terms and
conditions pursuant to which a bank or trust company identified in a Request and
Acceptance Letter will act as auction agent (an "Auction Agent") for Municipal
Auction Rate Cumulative Preferred Stock or Shares issued by an investment
company registered under the Investment Company Act of 1940, as amended, as
further identified by such Request and Acceptance Letter (a "Fund"), for which
Nuveen Advisory Corp. is the investment adviser.
- --------------------------------------------------------------------------------
The Fund proposes to issue shares of MuniPreferred(R) pursuant to its
Articles of Incorporation or Declaration of Trust, as amended or supplemented by
the Statement. The Fund desires that the Auction Agent perform certain duties
in connection with the MuniPreferred upon the terms and subject to the
conditions of the Agreement.
1. Definitions and Rules of Construction.
-------------------------------------
1.1 Terms Defined By Reference to Statement.
---------------------------------------
Capitalized terms not defined herein shall have the respective
meanings specified in the Statement.
1.2 Terms Defined Herein.
--------------------
As used herein and in the Settlement Procedures, the following terms
shall have the following meanings, unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean the member of, or
participant in, the Securities Depository that will act on behalf of a
Bidder.
(b) "Agreement" shall mean the Basic Terms, together with the Request
and Acceptance Letter relating to one or more series of MuniPreferred.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Procedures" shall mean the auction procedures
constituting Part II of the form of Statement as of the filing thereof.
(e) "Authorized Officer" of the Auction Agent shall mean each Senior
Vice President, Vice President, Assistant Vice President, Assistant
Treasurer and Assistant Secretary of the Auction Agent assigned to its
Corporate Trust and Agency Group and
<PAGE> 2
every other officer or employee of the Auction Agent designated as an
"Authorized Officer" for purposes hereof in a communication to the Fund.
(f) "Broker-Dealer Agreement" shall mean each agreement among the
Fund, the Auction Agent and a Broker-Dealer substantially in the form
attached hereto as Exhibit A.
(g) "Fund Officer" shall mean the Chairman of the Board of Directors
or Board of Trustees, as the case may be, each Vice Chairman of the Board
of Directors or Board of Trustees (whether or not designated by a number or
word or words added before or after the title "Vice Chairman"), the
President, each Vice President (whether or not designated by a number or
word or words added before or after the title "Vice President"), the
Secretary, the Treasurer, each Assistant Vice President, each Assistant
Secretary and each Assistant Treasurer of the Fund and every other officer
or employee of the Fund designated as a "Fund Officer" for purposes hereof
in a notice to the Auction Agent.
(h) "MuniPreferred" shall mean the preferred stock or shares, par
value $.01 per share, of the Fund designated as its "Municipal Auction Rate
Cumulative Preferred Stock" or "Municipal Auction Rate Cumulative Preferred
Shares" and bearing such further designation as to series as the Board of
Directors or Board of Trustees, as the case may be, of the Fund or any
committee thereof shall specify; as set forth in the Request and Acceptance
Letter.
(i) "Request and Acceptance Letter" shall mean the letter from the
Fund to the Auction Agent pursuant to which the Fund appoints the Auction
Agent and the Auction Agent accepts its appointment as auction agent for
the MuniPreferred.
(j) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit B.
(k) "Statement" shall mean the Statement Establishing and Fixing the
Rights and Preferences of, and authorizing the issuance of, one or more
series of Municipal Auction Rate Cumulative Preferred Stock or Municipal
Auction Rate Cumulative Preferred Shares, as filed by the Fund with the
office of the Secretary of State or other officer of the state where the
Fund was incorporated or organized, a copy of which is attached to the
Request and Acceptance Letter, as the same may be amended, supplemented or
modified from time to time.
1.3 Rules of Construction.
---------------------
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of the Agreement:
2
<PAGE> 3
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of the Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto" and other words of similar
import refer to the Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
2. The Auction.
-----------
2.1 Purpose; Incorporation by Reference of
Auction Procedures and Settlement Procedures.
--------------------------------------------
(a) The Statement for each series of MuniPreferred will provide that
the Applicable Rate for such series for each Subsequent Rate Period thereof
shall, except under certain conditions, be the rate per annum that a bank or
trust company appointed by the Fund advises results from implementation of the
Auction Procedures for such series. The Board of Directors or Board of
Trustees, as the case may be, of the Fund has adopted a resolution appointing
the Auction Agent as auction agent for purposes of the Auction Procedures for
each series of MuniPreferred. The Auction Agent accepts such appointment and
agrees to follow the procedures set forth in this Section 2 and the Auction
Procedures for the purpose of determining the Applicable Rate for each series of
MuniPreferred for each Subsequent Rate Period thereof for which the Applicable
Rate is to be determined by an Auction. Each periodic implementation of such
procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part hereof to the same extent as if such provisions
were fully set forth herein.
2.2 Preparation for Each Auction; Maintenance
of Registry of Beneficial Owners.
--------------------------------
(a) Not later than seven days prior to the first Auction Date for the
first series of MuniPreferred subject to an Auction, the Fund shall provide the
Auction Agent with a list of the Broker-Dealers. Not later than seven days
prior to any Auction Date for any series of MuniPreferred for which any change
in such list of Broker-Dealers is to be effective, the Fund will notify the
Auction Agent in writing of such change and, if any such change involves the
addition of a Broker-Dealer to such list, shall cause to be delivered to the
Auction Agent for
3
<PAGE> 4
execution by the Auction Agent a Broker-Dealer Agreement signed by such Broker-
Dealer; provided, however, that if the Fund proposes to designate any Special
Rate Period of any series of MuniPreferred pursuant to Section 4 of Part I of
the Statement, not later than 11:00 A.M. on the Business Day next preceding the
Auction next preceding the first day of such Rate Period or by such later time
or date, or both, as may be agreed to by the Auction Agent, the Fund shall
provide the Auction Agent with a list of the Broker-Dealers for such series and
a manually signed copy of each Broker-Dealer Agreement or a new Schedule A to a
Broker-Dealer Agreement (which Schedule A shall replace and supersede any
previous Schedule A to such Broker-Dealer Agreement) with each Broker-Dealer for
such series. The Auction Agent and the Fund shall have entered into a Broker-
Dealer Agreement with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(b) In the event that any Auction Date for any series of MuniPreferred
shall be changed after the Auction Agent shall have given the notice referred to
in clause (vi) of paragraph (a) of the Settlement Procedures, or after the
notice referred to in Section 2.5(a) hereof, if applicable, the Auction Agent,
by such means as the Auction Agent deems practicable, shall give notice of such
change to the Broker-Dealers for such series not later than the earlier of 9:15
A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date.
(c) (i) The Auction Agent shall maintain a registry of the
beneficial owners of the shares of MuniPreferred of each series who shall
constitute Existing Holders of shares of MuniPreferred of such series for
purposes of Auctions and shall indicate thereon the identity of the respective
Broker-Dealer of each Existing Holder, if any, on whose behalf such Broker-
Dealer submitted the most recent Order in any Auction which resulted in such
Existing Holder continuing to hold or purchasing shares of MuniPreferred of such
series. The Auction Agent shall keep such registry current and accurate. The
Fund shall provide or cause to be provided to the Auction Agent at or prior to
the Date of Original Issue of the shares of MuniPreferred of each series a list
of the initial Existing Holders of the shares of each such series of
MuniPreferred, the number of shares purchased by each such Existing Holder and
the respective Broker-Dealer of each such Existing Holder or the affiliate
thereof through which each such Existing Holder purchased such shares. The
Auction Agent shall advise the Fund in writing whenever the number of Existing
Holders is 500 or more. The Auction Agent may rely upon, as conclusive evidence
of the identities of the Existing Holders of shares of MuniPreferred of any
series (A) such list, (B) the results of Auctions, (C) notices from any Broker-
Dealer as described in the first sentence of Section 2.2(c)(iii) hereof and (D)
the results of any procedures approved by the Fund that have been devised for
the purpose of determining the identities of Existing Holders in situations
where shares of MuniPreferred may have been transferred without compliance with
any restriction on the transfer thereof set forth in the Auction Procedures.
(ii) In the event of any partial redemption of any series of
MuniPreferred, the Auction Agent shall, at least two Business Days prior to the
next Auction for such series, request each Broker-Dealer to provide the Auction
Agent with a list of Persons who such Broker-Dealer believes should remain
Existing Holders after such redemption based upon inquiries of those Persons
such Broker-Dealer believes are Beneficial Owners as a result
4
<PAGE> 5
of the most recent Auction and with respect to each such Person, the number of
shares of MuniPreferred of such series such Broker-Dealer believes are owned by
such Person after such redemption. In the absence of receiving any such
information from any Broker-Dealer, the Auction Agent may continue to treat the
Persons listed in its registry of Existing Holders as the beneficial owner of
the number of shares of MuniPreferred of such series shown in such registry.
(iii) The Auction Agent shall be required to register a
transfer of shares of MuniPreferred of any series from an Existing Holder of
such shares of MuniPreferred only if such transfer is to another Existing
Holder, or other Person if permitted by the Fund, and only if such transfer is
made (A) pursuant to an Auction, (B) the Auction Agent has been notified in
writing (I) in a notice substantially in the form of Exhibit C to the
Broker-Dealer Agreements by a Broker-Dealer of such transfer or (II) in a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreements by the
Broker-Dealer of any Existing Holder, or other Person if permitted by the Fund,
that purchased or sold such shares of MuniPreferred in an Auction of the failure
of such shares of MuniPreferred to be transferred as a result of such Auction or
(C) pursuant to procedures approved by the Fund that have been devised for the
purpose of determining the identities of Existing Holders in situations where
shares of MuniPreferred may have been transferred without compliance with any
restriction on the transfer thereof set forth in the Auction Procedures. The
Auction Agent is not required to accept any such notice for an Auction unless it
is received by the Auction Agent by 3:00 P.M. on the Business Day preceding such
Auction.
(d) The Auction Agent may request the Broker-Dealers, as set forth in
the Broker-Dealer Agreements, to provide the Auction Agent with a list of
Persons who such Broker-Dealer believes should be Existing Holders based upon
inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as
a result of the most recent Auction and with respect to each such Person, the
number of shares of such series of MuniPreferred such Broker-Dealer believes to
be owned by such Person. The Auction Agent shall keep confidential such
registry of Existing Holders and shall not disclose the identities of the
Existing Holders of such shares of MuniPreferred to any Person other than the
Fund and the Broker-Dealer that provided such information.
2.3 Information Concerning Rates.
----------------------------
(a) The Rate Multiple on the date of the Agreement is set forth in the
Request and Acceptance Letter. If there is any change in the credit rating of
MuniPreferred by either of the rating agencies (or substitute or successor
rating agencies) referred to in the definition of "Rate Multiple" resulting in
any change in the Rate Multiple for MuniPreferred after the date of the Request
and Acceptance Letter, the Fund shall notify the Auction Agent in writing of
such change in the Rate Multiple prior to 12:00 Noon on the Business Day prior
to the next Auction Date for any series of MuniPreferred succeeding such change.
If the Fund designates all or a portion of any dividend on shares of any series
of MuniPreferred to consist of net capital gains or other income taxable for
Federal income tax purposes, it will indicate, in its notice in the
5
<PAGE> 6
form of Exhibit I hereto to the Auction Agent pursuant to Section 2.6 hereof,
the Rate Multiple for such series to be in effect for the Auction Date on which
the dividend rate for such dividend is to be fixed. In determining the Maximum
Rate for any series of MuniPreferred on any Auction Date as set forth in Section
2.3(b)(i) hereof, the Auction Agent shall be entitled to rely on the last Rate
Multiple for MuniPreferred of which it has most recently received notice from
the Fund (or, in the absence of such notice, the percentage set forth in the
Request and Acceptance Letter), except that if the Fund shall have notified the
Auction Agent of a Rate Multiple to be in effect for an Auction Date in
accordance with the preceding sentence, the Rate Multiple in effect for the next
succeeding Auction Date of any series of MuniPreferred shall be, unless the Fund
notifies the Auction Agent of a change in the Rate Multiple for such succeeding
Auction Date pursuant to this Section 2.3(a), the Rate Multiple that was in
effect on the first preceding Auction Date for MuniPreferred with respect to
which the dividend, the rate for which was fixed on such Auction Date, did not
include any net capital gains or other income taxable for Federal income tax
purposes.
(b) (i) On each Auction Date for any series of MuniPreferred, the
Auction Agent shall determine the Maximum Rate for such series. The Maximum
Rate for any series of MuniPreferred on any Auction Date shall be:
(A) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of the Statement,
the product of (1) the Reference Rate on such Auction Date for the next
Rate Period of such series and (2) the Rate Multiple on such Auction Date,
unless such series has or had a Special Rate Period (other than a Special
Rate Period of 28 Rate Period Days or fewer) and an Auction at which
Sufficient Clearing Bids existed has not yet occurred for a Minimum Rate
Period of such series after such Special Rate Period, in which case the
higher of:
(1) the dividend rate on shares of such series for the then-
ending Rate Period; and
(2) the product of (x) the higher of (I) the Reference Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of such series, if such then ending Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to the then-ending Rate Period
of such series, if such then ending Rate Period was more than 364 Rate
Period Days, and (II) the Reference Rate on such Auction Date for a
Rate Period equal in length to such Special Rate Period of such
series, if such Special Rate Period was 364 Rate Period Days or fewer,
or the Treasury Note Rate on such Auction Date for a Rate Period equal
in length to such Special Rate Period, if such Special Rate Period was
more than 364 Rate Period Days and (y) the Rate Multiple on such
Auction Date; or
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<PAGE> 7
(B) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of the Statement,
the product of (1) the highest of (x) the Reference Rate on such Auction
Date for a Rate-Period equal in length to the then-ending Rate Period of
such series, if such then-ending Rate Period was 364 Rate Period Days or
fewer, or the Treasury Note Rate on such Auction Date for a Rate Period
equal in length to the then-ending Rate Period of such Rate Period, if such
then-ending Rate Period was more than 364 Rate Period Days, (y) the
Reference Rate on such Auction Date for the Special Rate Period for which
the Auction is being held if such Special Rate Period is 364 Rate Period
Days or fewer or the Treasury Note Rate on such Auction Date for the
Special Rate Period for which the Auction is being held if such Special
Rate Period is more than 364 Rate Period Days, and (z) the Reference Rate
on such Auction Date for Minimum Rate Periods and (2) the Rate Multiple on
such Auction Date.
Not later than 9:30 A.M. on each Auction Date the Auction Agent shall notify the
Fund and the Broker-Dealers of the Maximum Rate so determined and the "AA"
Composite Commercial Paper Rate(s), the Taxable Equivalent of the Short-Term
Municipal Bond Rate(s), Treasury Note Rate(s) and Treasury Bill Rate(s), as the
case may be, used to make such determination.
(ii) From and after a Failure to Deposit by the Fund during any Rate
Period of any series of MuniPreferred, until such failure is cured and a Late
Charge (as defined in paragraph (a) of Section 2.7), is paid, in accordance with
subparagraph (e)(i) of Section 2 of Part I of the Statement, on the first day of
each Rate Period of such series the Auction Agent shall determine the Treasury
Note Rate for such Rate Period of more than 364 Rate Period Days and the
Reference Rate for Rate Periods of 364 Rate Period Days or fewer. Not later
than 9:30 A.M. on each such first day, the Auction Agent shall notify the Fund
of the applicable Reference Rate and Treasury Note Rate.
(iii) If any "AA" Composite Commercial Paper Rate, Taxable
Equivalent of the Short-Term Municipal Bond Rate, Treasury Note Rate or Treasury
Bill Rate, as the case may be, is not quoted on an interest or bond equivalent,
as the case may be, basis, the Auction Agent shall convert the quoted rate to
the interest or bond equivalent thereof as set forth in the definition of such
rate in the Statement if the rate obtained by the Auction Agent is quoted on a
discount basis, or if such rate is quoted on a basis other than an interest or
bond equivalent or discount basis the Auction Agent shall convert the quoted
rate to an interest or bond equivalent rate after consultation with the Fund as
to the method of such conversion.
(iv) If any "AA" Composite Commercial Paper Rate is to be based on
rates supplied by Commercial Paper Dealers and one or more of the Commercial
Paper Dealers shall not provide a quotation for the determination of such "AA"
Composite Commercial Paper Rate, the Auction Agent shall immediately notify the
Fund so that the Fund can determine whether to select a Substitute Commercial
Paper Dealer or Substitute Commercial Paper Dealers to provide the quotation or
quotations not being supplied by any Commercial Paper Dealer or
7
<PAGE> 8
Commercial Paper Dealers. The Fund shall promptly advise the Auction Agent of
any such selection.
(v) If any Treasury Note Rate or Treasury Bill Rate is to be
based on rates supplied by U.S. Government Securities Dealers and one or more of
the U.S. Government Securities Dealers shall not provide a quotation for the
determination of such Treasury Rate, the Auction Agent shall immediately notify
the Fund so that the Fund can determine whether to select a Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers to
provide the quotation or quotations not being supplied by any U.S. Government
Securities Dealer or U.S. Government Securities Dealers. The Fund shall
promptly advise the Auction Agent of any such selection.
(c) The maximum marginal tax rate referred to in the definition of
"Rate Multiple" in the Statement is referred to in this Agreement as the
"Highest Marginal Rate." The Highest Marginal Rate on the date of the Agreement
is set forth in the Request and Acceptance Letter. If there is any change in
the Highest Marginal Rate, the Fund shall notify the Auction Agent in writing of
such change prior to 12:00 Noon on the Business Day prior to the next Auction
Date for MuniPreferred succeeding such change. In determining the Maximum Rate
for any series of MuniPreferred on any Auction Date, the Auction Agent shall be
entitled to rely on the Highest Marginal Rate of which it has most recently
received notice from the Fund (or, in the absence of such notice, the percentage
set forth in the Request and Acceptance Letter).
2.4 Auction Schedule.
----------------
The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent
with the consent of the Fund, which consent shall not be unreasonably withheld.
The Auction Agent shall give written notice of any such change to each Broker-
Dealer. Such notice shall be given prior to the close of business on the
Business Day next preceding the first Auction Date on which any such change
shall be effective.
Time Event
- ---- -----
By 9:30 A.M. Auction Agent advises the Fund and Broker-Dealers
of the applicable Maximum Rate and the Reference
Rate(s) and Treasury Note Rate(s), as the case may
be, used in determining such Maximum Rate as set
forth in Section 2.3(b)(i) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as provided
in Section 2(a) of the Auction Procedures.
Submission Deadline is 1:30 P.M.
8
<PAGE> 9
Time Event
- ---- -----
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant to
Section 3(a) of the Auction Procedures.
By approximately 3:00 P.M. Auction Agent advises Fund of results of Auction
as provided in Section 3(b) of the Auction
Procedures.
Submitted Bids and Submitted Sell Orders are
accepted and rejected and shares of MuniPreferred
allocated as provided in Section 4 of the Auction
Procedures. Auction Agent gives notice of Auction
results as set forth in paragraph(a) of the
Settlement Procedures.
The Auction Agent shall follow the notification procedures set forth in
paragraph (a) of the Settlement Procedures.
2.5 Designation of Special Rate Period.
----------------------------------
(a) The Statement will provide that, subject to the Fund's option to
designate a Special Rate Period as referred to in paragraph (b) of this Section
2.5, (i) each Rate Period of any series of MuniPreferred will be a Minimum Rate
Period (a duration of seven days, subject to certain exceptions) and (ii) each
Rate Period following a Rate Period of any series of MuniPreferred that is other
than a Minimum Rate Period will be a Minimum Rate Period. Not less than 10 nor
more than 20 days prior to the last day of any such Rate Period that is not a
Minimum Rate Period, (i) the Fund shall deliver to the Auction Agent a notice of
the Auction Date of the next succeeding Auction for such series in the form of
Exhibit C hereto and (ii) the Auction Agent shall deliver such notice by first-
class mail, postage prepaid, to each Existing Holder of shares of such series at
the address set forth for such Existing Holder in the records of the Auction
Agent and to the Broker-Dealers for such series as promptly as practicable after
its receipt of such notice from the Fund.
(b) Pursuant to the Statement, the Fund may, at its option, designate
a Special Rate Period for any series of MuniPreferred in the manner described in
Section 4 of Part I of the Statement.
(i) If the Board of Directors or Board of Trustees, as the case
may be, proposes to designate any succeeding Subsequent Rate Period of any
series of MuniPreferred as a Special Rate Period, (A) the Fund shall
deliver to the Auction Agent a notice of such proposed Special Rate Period
in the form of Exhibit D hereto not less than 20 (or such lesser number of
days as may be agreed to from time to time by the Auction Agent) nor more
than 30 days prior to the first day of such proposed Special Rate Period
and (B) the Auction Agent on behalf of the Fund shall deliver such notice
9
<PAGE> 10
by first-class mail, postage prepaid, to each Existing Holder of shares of
such series of MuniPreferred at the address set forth for such Existing
Holder in the records of the Auction Agent and to the Broker-Dealers for
such series as promptly as practicable after its receipt of such notice
from the Fund.
(ii) If the Board of Directors or Board of Trustees, as the case
may be, determines to designate such succeeding Subsequent Rate Period as a
Special Rate Period, (A) the Fund shall deliver to the Auction Agent a
notice of such determination in the form of Exhibit E hereto not later than
11:00 A.M. on the second Business Day next preceding the first day of such
proposed Special Rate Period (or such later time or date, or both, as may
be agreed to by the Auction Agent) and (B) the Auction Agent shall deliver
such notice to the Broker-Dealers for such series not later than 3:00 P.M.
on such second Business Day (or, if the Auction Agent has agreed to a later
time or date, as promptly as practicable thereafter).
(iii) If the Fund shall deliver to the Auction Agent a notice
not later than 11:00 A.M. on the second Business Day next preceding the
first day of such proposed Special Rate Period (or such later time or date,
or both, as may be agreed to by the Auction Agent) stating that the Fund
has determined not to exercise its option to designate such succeeding
Subsequent Rate Period as a Special Rate Period, in the form of Exhibit F
hereto, or shall fail to timely deliver either such notice or a notice in
the form of Exhibit E hereto, the Auction Agent shall deliver a notice in
the form of Exhibit F hereto to the Broker-Dealers for such series not
later than 3:00 P.M. on such second Business Day (or, if the Auction Agent
has agreed to a later time or date, as promptly as practicable thereafter).
Such change in the length of any Rate Period shall not occur if (1) an Auction
for shares of such series shall not be held on such Auction Date for any reason
or (2) an Auction for shares of such series shall be held on such Auction Date
but Sufficient Clearing Bids for shares of such series shall not exist in such
Auction.
2.6 Allocation of Taxable Income.
----------------------------
The Fund shall, in the case of a Minimum Rate Period or a Special Rate
Period of 28 Rate Period Days or fewer, and may, in the case of any other
Special Rate Period, designate all or a portion of any dividend on shares of any
series of MuniPreferred to consist of net capital gains or other income taxable
for Federal income tax purposes by delivering to the Auction Agent a notice in
the form of Exhibit I hereto of such designation not later than the Dividend
Payment Date for such series next preceding the Auction Date on which the
dividend rate for such dividend is to be fixed. The Auction Agent will deliver
such notice to the Broker-Dealers for such series on the Business Day following
its receipt of such notice from the Fund. Within two Business Days after any
Auction Date involving the allocation of income taxable for Federal income tax
purposes, the Auction Agent shall notify each Broker-Dealer for
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<PAGE> 11
the related series as to the dollar amount per share of such taxable income and
income exempt from Federal income taxation included in the related dividend.
2.7 Failure to Deposit.
------------------
(a) If:
(i) any Failure to Deposit shall have occurred with respect to
shares of MuniPreferred during any Rate Period thereof (other than any
Special Rate Period of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period of more than 364 Rate Period Days during
which a Failure to Deposit occurred that has not been cured), but, prior to
12:00 Noon, New York City time, on the third Business Day next succeeding
the date on which such Failure to Deposit occurred, such Failure to Deposit
shall have been cured in accordance with Section 2.7(c) hereof and the Fund
shall have paid to the Auction Agent a late charge (a "Late Charge") equal
to the sum of (1) if such Failure to Deposit consisted of the failure
timely to pay to the Auction Agent the full amount of dividends with
respect to any Dividend Period on such shares, an amount computed by
multiplying (x) 200% of the Reference Rate for the Rate Period during which
such Failure to Deposit occurs on the Dividend Payment Date for such
Dividend Period by (y) a fraction, the numerator of which shall be the
number of days for which such Failure to Deposit has not been cured in
accordance with Section 2.7(c) hereof (including the day such Failure to
Deposit occurs and excluding the day such Failure to Deposit is cured) and
the denominator of which shall be 360, and applying the rate obtained
against the aggregate liquidation preference of the outstanding shares of
MuniPreferred and (2) if such Failure to Deposit consisted of the failure
timely to pay to the Auction Agent the Redemption Price of the shares of
MuniPreferred, if any, for which Notice of Redemption has been given by the
Fund, an amount computed by multiplying (x) 200% of the Reference Rate for
the Rate Period during which such Failure to Deposit occurs on the
redemption date by (y) a fraction, the numerator of which shall be the
number of days for which such Failure to Deposit is not cured in accordance
with Section 2.7(c) hereof (including the day such Failure to Deposit
occurs and excluding the day such Failure to Deposit is cured) and the
denominator of which shall be 360, and applying the rate obtained against
the aggregate liquidation preference of the outstanding shares of
MuniPreferred to the redeemed,
then the Auction Agent shall deliver a notice in the form of Exhibit G hereto by
first-class mail, postage prepaid, to the Broker-Dealers for such series not
later than one Business Day after its receipt of the payment from the Fund
curing such Failure to Deposit and such Late Charge.
(b) If:
(i) any Failure to Deposit shall have occurred with respect to
shares of MuniPreferred during any Rate Period thereof (other than any
Special Rate Period of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period
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<PAGE> 12
of more than 364 Rate Period Days during which a Failure to Deposit
occurred but has not been cured), and, prior to 12:00 Noon, New York City
time, on the third Business Day next succeeding the date on which such
Failure to Deposit occurred, such Failure to Deposit shall not have been
cured in accordance with Section 2.7(c) hereof or the Fund shall not have
paid the applicable Late Charge to the Auction Agent; or
(ii) any Failure to Deposit shall have occurred with respect to
shares of MuniPreferred during a Special Rate Period thereof of more than
364 Rate Period Days, or during any Rate Period thereof succeeding any
Special Rate Period of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured, and, prior to 12:00
noon, New York City time, on the fourth Business Day preceding the Auction
Date for the Rate Period subsequent to such Rate Period, such Failure to
Deposit shall not have been cured in accordance with Section 2.7(c) hereof
or the Fund shall not have paid the applicable Late Charge to the Auction
Agent in accordance with Section 2(e)(i)(D) of the Statement (such Late
Charge, for purposes of this clause (b)(iii) of this Section 2.7, to be
calculated by using, as the Reference Rate, the Reference Rate applicable
to a Rate Period (x) consisting of more than 182 Rate Period Days and (y)
commencing on the date on which the Rate Period during which Failure to
Deposit occurs commenced);
then the Auction Agent shall deliver a notice in the form of Exhibit H hereto to
the Broker-Dealers for such series not later than one Business Day after the
receipt of the payment from the Fund curing such Failure to Deposit and such
Late Charge.
(c) A Failure to Deposit with respect to shares of MuniPreferred shall
have been cured (if such Failure to Deposit is not solely due to the willful
failure to the Fund to make the required payment to the Auction Agent) with
respect to any Rate Period if, within the respective time periods described
immediately above, the Fund shall have paid to the Auction Agent (i) all
accumulated and unpaid dividends on the shares of MuniPreferred and (ii) without
duplication, the Redemption Price for the shares of MuniPreferred, if any, for
which Notice of Redemption has been mailed; provided, however, that the
foregoing clause (ii) shall not apply to the Fund's failure to pay the
Redemption Price in respect of shares of MuniPreferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and each such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
2.8 Broker-Dealers.
--------------
(a) Not later than 12:00 Noon on each Auction Date for any series of
MuniPreferred, the Fund shall pay to the Auction Agent an amount in cash equal
to the aggregate fees payable to the Broker-Dealers for such series pursuant to
Section 2.8 of the Broker-Dealer Agreements for such series. The Auction Agent
shall apply such moneys as set forth in Section 2.8 of each such Broker-Dealer
Agreement.
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<PAGE> 13
(b) The Fund shall obtain the consent of the Auction Agent prior to
selecting any Person to act as a Broker-Dealer, which consent shall not be
unreasonably withheld.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as
set forth therein if so directed by the Fund, provided that at least one Broker-
Dealer Agreement would be in effect for each series of MuniPreferred after such
termination.
(d) Subject to the Auction Agent's having consented to the selection
of the relevant Broker-Dealer pursuant to Section 2.8(b) hereof, the Auction
Agent shall from time to time enter into such Broker-Dealer Agreements with one
or more Broker-Dealers as the Fund shall request, and shall enter into such
schedules to any such Broker-Dealer Agreements as the Fund shall request, which
schedules, among other things, shall set forth the series of MuniPreferred to
which such Broker-Dealer Agreement relates.
2.9 Ownership of Shares of MuniPreferred.
------------------------------------
The Fund shall notify the Auction Agent if the Fund or any affiliate
of the Fund acquires any shares of MuniPreferred of any series. Neither the
Fund nor any affiliate of the Fund shall submit any Order in any Auction for
MuniPreferred, except as set forth in the next sentence. Any Broker-Dealer that
is an affiliate of the Fund may submit Orders in Auctions, but only if such
Orders are not for its own account. For purposes of this Section 2.9, a Broker-
Dealer shall not be deemed to be an affiliate of the Fund solely because one or
more of the directors or executive officers of such Broker-Dealer or of any
Person controlled by, in control of or under common control with such Broker-
Dealer is also a director of the Fund. The Auction Agent shall have no duty or
liability with respect to enforcement of this Section 2.9.
2.10 Access to and Maintenance of Auction Records.
--------------------------------------------
The Auction Agent shall, upon the receipt of prior written notice from
the Fund, afford to the Fund access at reasonable times during normal business
hours to all books, records, documents and other information concerning the
conduct and results of Auctions. The Auction Agent shall maintain records
relating to any Auction for a period of six years after such Auction, and such
records shall, in reasonable detail, accurately and fairly reflect the actions
taken by the Auction Agent hereunder.
3. The Auction Agent as Dividend and
Redemption Price Disbursing Agent.
---------------------------------
The Auction Agent, as dividend and redemption price disbursing agent,
shall pay to the Holders of shares of MuniPreferred of any series (i) on each
Dividend Payment Date for such series, dividends on the shares of MuniPreferred
of such series, (ii) on any date fixed for redemption of shares of MuniPreferred
of any series, the Redemption Price of any shares of such series called for
redemption and (iii) any Late Charge related to any payment of dividends
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<PAGE> 14
or Redemption Price, in each case after receipt of the necessary funds from the
Fund with which to pay such dividends, Redemption Price or Late Charge. The
amount of dividends for any Rate Period for any series of MuniPreferred to be
paid by the Auction Agent to the Holders of such shares of such series will be
determined by the Fund as set forth in Section 2 of Part I of the Statement with
respect to such series. The Redemption Price of any shares to be paid by the
Auction Agent to the Holders will be determined by the Fund as set forth in
Section 11 of Part I of the Statement with respect to such series. The Fund
shall notify the Auction Agent in writing of a decision to redeem shares of any
series of MuniPreferred at least five days prior to the date a notice of
redemption is required to be mailed to the Holders of the shares to be redeemed
by paragraph (c) of Section 11 of Part I of the Statement. Such notice by the
Fund to the Auction Agent shall contain the information required by paragraph
(c) of Section 11 of Part I of the Statement to be stated in the notice of
redemption required to be mailed by the Fund to such Holders.
4. The Auction Agent as Transfer Agent and Registrar.
-------------------------------------------------
4.1 Issue of Stock or Shares Certificates.
-------------------------------------
Upon the Date of Original Issue of each series of MuniPreferred, one
or more certificates representing all of the shares of such series issued on
such date shall be issued by the Fund and, at the request of the Fund,
registered in the name of Cede & Co. and countersigned by the Auction Agent.
4.2 Registration of Transfer of Shares.
----------------------------------
Shares of each series of MuniPreferred shall be registered solely in
the name of the Securities Depository or its nominee.
4.3 Removal of Legend on Restricted Shares.
--------------------------------------
All requests for removal of legends on shares of MuniPreferred of any
series indicating restrictions on transfer shall be accompanied by an opinion of
counsel stating that such legends may be removed and such shares freely
transferred, such opinion to be delivered under cover of a letter from a Fund
Officer authorizing the Auction Agent to remove the legend on the basis of said
opinion.
4.4 Lost Stock or Share Certificates.
--------------------------------
The Auction 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 Auction Agent, subject at all times to provisions of law, the By-Laws of the
Fund governing such matters and resolutions adopted by the Fund with respect to
lost securities. The Auction Agent may issue new certificates in
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<PAGE> 15
exchange for and upon the cancellation of mutilated certificates. Any request
by the Fund to the Auction Agent to issue a replacement or new certificate
pursuant to this Section 4.4 shall be deemed to be a representation and warranty
by the Fund to the Auction Agent that such issuance will comply with such
provisions of law and the By-Laws and resolutions of the Fund.
4.5 Disposition of Cancelled
Certificates; Record Retention.
------------------------------
The Auction Agent shall retain all stock or share certificates which
have been cancelled in transfer or exchange and all accompanying documentation
in accordance with applicable rules and regulations of the Securities and
Exchange Commission for two calendar years. Upon the expiration of this two-
year period, the Auction Agent shall deliver to the Fund the cancelled
certificates and accompanying documentation. The Fund shall also undertake to
furnish to the Securities and Exchange Commission and to the Board of Governors
of the Federal Reserve System, upon demand, at either the principal office or at
any regional office, complete, correct and current hard copies of any and all
such records. Thereafter such records shall not be destroyed by the Fund
without the concurrence of the Auction Agent.
4.6 Stock or Record Books.
---------------------
For so long as the Auction Agent is acting as the transfer agent for
any series of MuniPreferred pursuant to the Agreement, it shall maintain a stock
or record book containing a list of the Holders of the shares of MuniPreferred
of each such series. In case of any request or demand for the inspection of the
stock or record books of the Fund or any other books in the possession of the
Auction Agent, the Auction Agent will notify the Fund and secure instructions as
to permitting or refusing such inspection. The Auction Agent reserves the
right, however, to exhibit the stock or record books or other books to any
Person in case it is advised by its counsel that its failure to do so would be
unlawful.
4.7 Return of Funds.
---------------
Any funds deposited with the Auction Agent hereunder by the Fund for
any reason, including but not limited to redemption of shares of MuniPreferred
of any series, that remain unpaid after ninety days shall be repaid to the Fund
upon the written request of the Fund, together with interest, if any, earned
thereon.
5. Representations and Warranties of the Fund.
------------------------------------------
The Fund represents and warrants to the Auction Agent that:
(a) the Fund is a duly incorporated and existing corporation or a duly
organized and existing business trust in good standing under the laws of
the State of its incorporation or organization and has full corporate power
or all requisite power to
15
<PAGE> 16
execute and deliver the Agreement and to authorize, create and issue the
shares of MuniPreferred of each series and the shares of MuniPreferred of
each series when issued, will be duly authorized, validly issued, fully
paid and nonassessable;
(b) the Agreement has been duly and validly authorized, executed and
delivered by the Fund and constitutes the legal, valid and binding
obligation of the Fund;
(c) the form of the certificate evidencing the shares of MuniPreferred
of each series complies or will comply with all applicable laws of the
State of its incorporation or organization;
(d) when issued, the shares of MuniPreferred of each series will have
been duly registered under the Securities Act of 1933, as amended, and no
further 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 the Agreement or will have been required in
connection with the issuance of the shares of MuniPreferred of each series;
(e) the execution and delivery of the Agreement and the issuance and
delivery of the shares of MuniPreferred of each series do not and will not
conflict with, violate or result in a breach of, the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation
or Declaration of Trust (as amended by one or more Statements) or the By-
Laws 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 the effect of which conflict, violation, default or breach
would be material to the Fund or the Fund and its subsidiaries taken as a
whole; and
(f) no taxes are payable upon or in respect of the execution of the
Agreement or the issuance of the shares of MuniPreferred of any series.
6. The Auction Agent.
-----------------
6.1 Duties and Responsibilities.
---------------------------
(a) The Auction Agent is acting solely as agent for the Fund hereunder
and owes no fiduciary duties to any Person, other than the Fund, by reason of
the Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in the Agreement, and no implied covenants
or obligations shall be read into the Agreement against the Auction Agent.
16
<PAGE> 17
(c) In the absence of bad faith or negligence on its part, the Auction
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 the
Agreement. The Auction Agent shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in ascertaining
the pertinent facts.
6.2 Rights of the Auction Agent.
---------------------------
(a) The Auction 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 believed in good faith
by it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized hereby which the Auction Agent believes in
good faith to have been given by the Fund or by a Broker-Dealer. The Auction
Agent may record telephone communications with the Fund or with the Broker-
Dealers or both.
(b) The Auction Agent may consult with counsel of its choice and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Auction 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 Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys and shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder.
6.3 Auction Agent's Disclaimer.
--------------------------
The Auction Agent makes no representation as to the validity or
adequacy of the Agreement, the Broker-Dealer Agreements or the shares of
MuniPreferred of any series except that the Auction Agent hereby represents that
the Agreement has been duly authorized, executed and delivered by the Auction
Agent and constitutes a legal and binding obligation of the Auction Agent.
6.4 Compensation, Expenses and Indemnification.
------------------------------------------
(a) The Fund shall pay the Auction Agent from time to time reasonable
compensation for all services rendered by it under the Agreement and the Broker-
Dealer Agreements.
17
<PAGE> 18
(b) The Fund shall reimburse the Auction Agent upon its request for
all reasonable out-of-pocket expenses, disbursements and advances incurred or
made by the Auction Agent in accordance with any provision of the Agreement and
the Broker-Dealer Agreements (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any expense or
disbursement attributable to its negligence or bad faith.
(c) The Fund shall indemnify the Auction Agent for and hold it
harmless against any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with its agency under the
Agreement and the Broker-Dealer Agreements, including the costs and expenses of
defending itself against any such claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder.
7. Miscellaneous.
-------------
7.1 Term of Agreement.
-----------------
(a) The term of the Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Fund may terminate the
Agreement at any time by so notifying the Auction Agent, provided that the Fund
has entered into an agreement in substantially the form of the Agreement with a
successor Auction Agent. The Auction Agent may terminate the Agreement upon
written notice to the Fund on the date specified in such notice, which date
shall be no earlier than 45 days after the date of delivery of such notice.
(b) Except as otherwise provided in this paragraph (b), the respective
rights and duties of the Fund and the Auction Agent under the Agreement with
respect to any series of MuniPreferred shall cease upon termination of the
Agreement with respect to such series. The Fund's representations, warranties,
covenants and obligations to the Auction Agent under Sections 5 and 6.4 hereof
shall survive the termination of the Agreement with respect to any series of
MuniPreferred. Upon termination of the Agreement with respect to any series of
MuniPreferred, the Auction Agent shall, at the Fund's request, promptly deliver
to the Fund copies of all books and records maintained by it with respect to
MuniPreferred in connection with its duties hereunder.
18
<PAGE> 19
7.2 Communications.
--------------
Except for (i) communications authorized to be by telephone pursuant
to the Agreement or the Auction Procedures and (ii) communications in connection
with Auctions (other than those expressly required to be in writing), all
notices, requests and other communications to any party hereunder shall be in
writing (including telecopy or similar writing) and shall be given to such
party, addressed to it, at its address or telecopy number set forth below:
If to the Fund, [Name of Fund]
333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
Telecopier No.: (312) 917-7942
Telephone No.: (312) 917-7700
If to the Auction Agent, to the
address or telecopy number set
forth in the Request and
Acceptance Letter,
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Fund by a Fund Officer and on
behalf of the Auction Agent by telephone (confirmed by telecopy or in writing)
by an Authorized Officer.
7.3 Entire Agreement.
----------------
The Agreement contains the entire agreement between the parties
relating to, and superseding any prior agreement between the parties relating
to, the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
between the parties relating to the subject matter hereof except for agreements
relating to the compensation of the Auction Agent.
7.4 Benefits.
--------
Nothing herein, express or implied, shall give to any Person, other
than the Fund, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.
19
<PAGE> 20
7.5 Amendment; Waiver.
-----------------
(a) The 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 the party to be
charged.
(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 right or remedy with respect to any subsequent
breach.
7.6 Successors and Assigns.
----------------------
The 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 Auction Agent.
7.7 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.
7.8 Governing Law.
-------------
The Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
If the Fund is a Massachusetts business trust, the following provision
is deemed to be included in the Basic Terms:
7.9 Declaration of Trust.
--------------------
The Fund's Declaration is on file with the Secretary of State of the
Commonwealth of Massachusetts. This Agreement has been executed on behalf of
the Fund by the Vice President and Treasurer of the Fund acting in such capacity
and not individually, and the obligations of the Fund set forth in this
Agreement are not binding upon any of the Fund's trustees, officers or
shareholders individually, but are binding only upon the assets and property of
the Fund.
20
<PAGE> 21
EXHIBIT A
---------
FORM OF
BROKER-DEALER AGREEMENT
-----------------------
<PAGE> 22
EXHIBIT B
---------
SETTLEMENT PROCEDURES
---------------------
<PAGE> 23
EXHIBIT C
---------
[NAME OF FUND]
NOTICE OF AUCTION DATE FOR
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that the Auction Date of the next Auction for
Series ___ of the Fund's MuniPreferred is scheduled to be _______________, 19___
and the next Dividend Payment Date for Series ___ of the Fund's MuniPreferred
will be __________________, 19___.
[A Failure to Deposit in respect of the Series ___ MuniPreferred currently
exists. If, prior to 12:00 noon, New York City time, on the fourth Business Day
preceding the next scheduled Auction Date of the Series ____ MuniPreferred, such
Failure to Deposit is not cured or the applicable Late Charge is not paid, the
next Auction will not be held. Notice of the next Auction for the Series ___
MuniPreferred will be delivered when such Failure to Deposit is cured and the
applicable Late Charge is paid./1/]
[NAME OF FUND]
- ----------
/1/Include this language if a Failure to Deposit exists.
<PAGE> 24
EXHIBIT D
---------
[NAME OF FUND]
NOTICE OF PROPOSED CHANGE OF
LENGTH OF RATE PERIOD OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
[Name of Fund] (the "Fund") may exercise its option to designate the Rate
Period of its Series ____ MuniPreferred commencing [the first day of the Special
Rate Period] as a Special Rate Period.
By 11:00 A.M. on the second Business Day preceding the first day of such
proposed Special Rate Period, the Fund will notify ___________________ of either
(a) its determination to exercise such option, designating the length of such
Special Rate Period for such series or (b) its determination not to exercise
such option.
[NAME OF FUND]
Dated: ___________________, 19___
<PAGE> 25
EXHIBIT E
---------
[NAME OF FUND]
NOTICE OF CHANGE OF LENGTH OF RATE PERIOD
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has determined to
designate the Rate Period of its Series ____ MuniPreferred commencing on [the
first day of the Special Rate Period] as a Special Rate Period.
The Special Rate Period will be __________ [Rate Period Days].
The Auction Date for the Special Rate Period is [the Business Day next
preceding the first day of such Special Rate Period].
As a result of the Special Rate Period designation, the amount of
dividends payable on Series ____ MuniPreferred during the Special Rate Period
will be based on a 360-day year.
The Special Rate Period shall not commence if (a) an Auction for shares of
MuniPreferred shall not be held on such Auction Date for any reason or (b) an
Auction for shares of MuniPreferred shall be held on such Auction Date but
Sufficient Clearing Bids for such shares shall not exist in such Auction.
The scheduled Dividend Payment Dates for such series of MuniPreferred
during such Special Rate Period will be _________________________.
[Special Redemption Provisions, if any]
Attached hereto is a MuniPreferred Basic Maintenance Report showing that,
as of the third Business Day next preceding such proposed Special Rate Period,
Moody's Eligible Assets (if Moody's is rating such shares of MuniPreferred) and
S&P Eligible Assets (if S&P is rating such shares of MuniPreferred) each have an
aggregate Discounted Value at least equal to the MuniPreferred Basic Maintenance
Amount as of such Business Day (assuming for purposes of the foregoing
calculation that (i) the Maximum Rate is the Maximum Rate on such Business Day
as if such Business Day were the Auction Date for the proposed Special Rate
Period, and (ii) the Moody's Discount Factors applicable to Moody's Eligible
Assets are determined by
<PAGE> 26
reference to the first Moody's Exposure Period longer than the Moody's Exposure
Period then applicable to the Fund.)
[NAME OF FUND]
Dated: _____________, 19____
E-2
<PAGE> 27
EXHIBIT F
---------
[NAME OF FUND]
NOTICE OF DETERMINATION NOT TO CHANGE
LENGTH OF RATE PERIOD OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has determined not
to exercise its option to designate a Special Rate Period of its Series ___
MuniPreferred and the next succeeding Rate Period of such series will be a
Minimum Rate Period of ____ Rate Period Days.
[NAME OF FUND]
Dated: _______________, 19____
<PAGE> 28
EXHIBIT G
---------
[NAME OF FUND]
NOTICE OF CURE OF
FAILURE TO DEPOSIT ON
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has cured its
Failure to Deposit and paid the applicable Late Charge with respect to its
Series ___ MuniPreferred. The dividend rate on the shares of Series ___
MuniPreferred for the current Dividend Period is _____________% per annum, the
Dividend Payment Date for the current Dividend Period is scheduled to be
_______________, 19___ and the next Auction Date is scheduled to be
_______________, 19___.
[NAME OF FUND]
Dated: ________________, 19___
<PAGE> 29
EXHIBIT H
---------
[NAME OF FUND]
NOTICE OF CURE OF
FAILURE TO DEPOSIT ON
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has cured its
Failure to Deposit and paid the applicable Late Charge with respect to its
Series ____ MuniPreferred. The next Auction Date for the Series ____
MuniPreferred is scheduled to be on _________________, 19___.
[NAME OF FUND]
Dated: _________________, 19____
<PAGE> 30
EXHIBIT I
---------
[NAME OF FUND]
NOTICE OF
[CAPITAL GAINS] [AND] [TAXABLE ORDINARY INCOME]/1/
DIVIDEND FOR
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that the amount of the dividend payable on
________________, 19____ for Series ____ of the Fund's MuniPreferred will be
determined by the Auction to be held on _______________, 19___. Up to [$ A ]/2/
[$ B ]/3/ per share of the dividend payable on such date as determined by such
Auction will consist of [capital gains]/2/ [ordinary income taxable for Federal
income tax purposes]/3/. If the dividend amount payable on such date as
determined by such Auction is less than [$ A ]/2/ [$ B ]/3/ per share, the
entire amount of the dividend will consist of [capital gains]/2/ [ordinary
income taxable for Federal income tax purposes]/3/. [To the extent such
dividend amount exceeds [$ A ] per share, any excess up to [$ B ] per share
will consist of ordinary income taxable for Federal income tax purposes.]/4/
Accordingly, the aforementioned composition of the dividend payable on
_______________, 19___ should be considered in determining Orders to be
submitted with respect to the Auction to be held on ________________, 19__. The
Rate Multiple in effect for such Auction will be ____%.
[NAME OF FUND]
- ----------
/1/Include language with respect to capital gains, taxable ordinary income
or both, depending on the character of the designation to be made with respect
to the dividend(s).
/2/Include bracketed material if a portion of the dividend will be
designated capital gains.
/3/Include bracketed material if a portion of the dividend will be
designated ordinary income taxable for Federal income tax purposes and no
portion of the dividend will be designated capital gains.
/4/Include bracketed material if a portion of the dividend will be
designated capital gains and a portion will be designated ordinary income
taxable for Federal income tax purposes.
<PAGE> 31
(Footnotes continued)
- ---------------------
A = the maximum amount of capital gains allocated to such series of
MuniPreferred to be included in such dividend, divided by the number of
shares of MuniPreferred.
B = the maximum amount of ordinary income taxable for Federal income tax
purposes allocated to such series of MuniPreferred to be included in such
dividend, divided by the number of shares in such series.
I-2
<PAGE> 1
EXHIBIT 99.4.3
NUVEEN BROKER-DEALER AGREEMENT
Basic Terms for Acting as a Broker-Dealer
-----------------------------------------
December 14, 1993
These basic terms ("Basic Terms") set forth the general terms and
conditions pursuant to which a broker-dealer identified in an Acceptance Letter
(together with its successors and assigns, a "BD") will act as a broker-dealer
for Municipal Auction Rate Cumulative Preferred Stock or Shares issued by
investment companies, now or hereafter organized, registered under the
Investment Company Act of 1940, as amended, as further identified by the Request
Letters (the "Funds"), for which Nuveen Advisory Corp. (the "Adviser") is the
investment adviser.
- --------------------------------------------------------------------------------
Each Fund has issued or may issue shares of MuniPreferred, pursuant to
its Articles of Incorporation or Declaration of Trust, as amended or
supplemented by the Statement of such Fund. A bank or trust company specified
in the Request Letter will act as the auction agent (the "Auction Agent") of
such Fund pursuant to authority granted it in the Auction Agency Agreement.
The Statement of each Fund will provide that, for each Subsequent Rate
Period of any series of MuniPreferred of such Fund then outstanding, the
Applicable Rate for such series for such Subsequent Rate Period shall, except
under certain conditions, be the rate per annum that the Auction Agent of such
Fund advises results from implementation of the Auction Procedures for such
series. The Board of Directors or Board of Trustees, as the case may be, of
each Fund will adopt a resolution appointing the Auction Agent as auction agent
for purposes of the Auction Procedures for each series of MuniPreferred of such
Fund.
The Auction Procedures of each Fund will require the participation of
one or more Broker-Dealers for each series of MuniPreferred of such Fund. BD
will act as a Broker-Dealer for each series of MuniPreferred of each Fund
identified in a Request Letter.
1. Definitions and Rules of Construction.
-------------------------------------
1.1. Terms Defined by Reference to Statement.
---------------------------------------
Capitalized terms not defined herein shall have the respective
meanings specified in the Statement of the relevant Fund.
1.2. Terms Defined Herein.
--------------------
As used herein and in the Settlement Procedures, the following terms
shall have the following meanings, unless the context otherwise requires:
<PAGE> 2
(a) "Acceptance Letter" shall mean the letter from Adviser to BD
pursuant to which the Adviser appoints BD as a Broker Dealer for each
series of MuniPreferred issued by any Fund that has executed a Request
Letter.
(b) "Agreement", with respect to any Fund, shall mean the Basic Terms,
together with the Acceptance Letter and the Request Letter relating to one
or more series of MuniPreferred of such Fund and any other substantially
similar agreement among such Fund, the Adviser, any Auction Agent for such
Fund and/or BD.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Agency Agreement", with respect to any Fund, shall mean
the Auction Agency Agreement between such Fund and the Auction Agent
relating to one or more series of MuniPreferred of such Fund.
(e) "Auction Procedures", with respect to any Fund, shall mean the
auction procedures constituting Part II of the form of Statement of such
Fund as of the filing thereof.
(f) "Authorized Officer" of an Auction Agent shall mean each Senior
Vice President, Vice President, Assistant Vice President, Assistant
Treasurer and Assistant Secretary of such Auction Agent assigned to its
Corporate Trust and Agency Group and every other officer or employee of
such Auction Agent designated as an "Authorized Officer" for purposes of
the Agreement in a communication to BD.
(g) "BD Officer" shall mean each officer or employee of BD designated
as a "BD Officer" for purposes of the Agreement in a communication to any
Auction Agent.
(h) "MuniPreferred" shall mean the preferred stock or shares, par
value $.01 per share, of any Fund designated as its "Municipal Auction Rate
Cumulative Preferred Stock" or "Municipal Auction Rate Cumulative Preferred
Shares" and bearing such further designation as to series as the Board of
Directors or Board of Trustees, as the case may be, of such Fund or any
committee thereof shall specify, as set forth in a Request Letter.
(i) "Request Letter", with respect to any Fund, shall mean the letter
from such Fund to the Adviser and the Auction Agent for such Fund pursuant
to which such Fund appoints BD as a Broker-Dealer for each series of
MuniPreferred of such Fund.
2
<PAGE> 3
(j) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.
(k) "Statement", with respect to any Fund, shall mean the Statement
Establishing and Fixing the Rights and Preferences of, and authorizing the
issuance of, one or more series of Municipal Auction Rate Cumulative
Preferred Stock or Municipal Auction Rate Cumulative Preferred Shares, as
filed by such Fund with the office of the Secretary of State or other
officer of the state where such Fund was incorporated or organized, a copy
of which will be attached to the Request Letter of such Fund.
1.3. Rules of Construction.
---------------------
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of each Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of such Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto", and other words of similar
import refer to such Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
2. The Auction.
-----------
2.1. Purpose; Incorporation by Reference of Auction Procedures and
-------------------------------------------------------------
Settlement Procedures.
- ---------------------
(a) The provisions of the Auction Procedures of any Fund will be
followed by the Auction Agent of such Fund for the purpose of determining the
Applicable Rate for any Subsequent Rate Period of any series of MuniPreferred of
such Fund for which the Applicable Rate is to be determined by an Auction. Each
periodic operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part hereof to the same extent as if such provisions
were fully set forth herein.
3
<PAGE> 4
(c) BD agrees to act as, and assumes the obligations of, and
limitations and restrictions placed upon, a Broker-Dealer under each Agreement
for each series of MuniPreferred. BD understands that other Persons meeting the
requirements specified in the definition of "Broker-Dealer" contained in the
Auction Procedures may execute Agreements and participate as Broker-Dealers in
Auctions.
2.2. Preparation for Each Auction.
----------------------------
(a) Not later than 9:30 A.M. on each Auction Date for any series of
MuniPreferred, the Auction Agent for such series shall advise the Broker-Dealers
for such series by telephone of the Maximum Rate therefor and the Reference
Rate(s) and Treasury Note Rate(s), as the case may be, used in determining such
Maximum Rate.
(b) In the event that any Auction Date for any series of MuniPreferred
shall be changed after the Auction Agent for such series has given the notice
referred to in clause (vi) of paragraph (a) of the Settlement Procedures, or
after the notice referred to in Section 2.5(a) hereof, if applicable, such
Auction Agent, by such means as such Auction Agent deems practicable, shall give
notice of such change to BD, if it is a Broker-Dealer for such series, not later
than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old
Auction Date.
(c) For purposes of maintaining its list of Existing Holders, the
Auction Agent for any series of MuniPreferred from time to time may request any
Broker-Dealer to provide such Auction Agent with a list of Persons who such
Broker-Dealer believes should be Existing Holders based upon inquiries of those
Persons such Broker-Dealer believes are Beneficial Owners as a result of the
most recent Auction and with respect to each such Person, the number of shares
of such series of MuniPreferred such Broker-Dealer believes are owned by such
Person. BD shall comply with any such request relating to a series of
MuniPreferred in respect of which BD was named a Broker-Dealer, and the Auction
Agent shall keep confidential any such information so provided by BD and shall
not disclose any information so provided by BD to any Person other than the Fund
and BD.
(d) BD agrees to maintain a list of customers relating to a series of
MuniPreferred and to use its best efforts, subject to existing laws and
regulations, to contact the customers on such list whom BD believes may be
interested in participating in the Auction on each Auction Date, as a Potential
Holder or a Potential Beneficial Owner, for the purposes set forth in the
Auction Procedures. Nothing herein shall require BD to submit an Order for any
customer in any Auction.
(e) The Auction Agent's registry of Existing Holders of shares of a
series of MuniPreferred shall be conclusive and binding on BD. BD may inquire
of the Auction Agent between 3:00 P.M. on the Business Day preceding an Auction
for shares of a series of MuniPreferred and 9:30 A.M. on the Auction Date for
such Auction to ascertain the number of shares of such series in respect of
which the Auction Agent has determined BD to be an
4
<PAGE> 5
Existing Holder. If BD believes it is the Existing Holder of fewer shares of
such series than specified by the Auction Agent in response to BD's inquiry, BD
may so inform the Auction Agent of that belief. BD shall not, in its capacity
as Existing Holder of shares of such series, submit Orders in such Auction in
respect of shares of such series covering in the aggregate more than the number
of shares of such series specified by the Auction Agent in response to BD's
inquiry.
2.3. Auction Schedule; Method of Submission of Orders.
------------------------------------------------
(a) Each Fund and the Auction Agent for such Fund shall conduct
Auctions for MuniPreferred in accordance with the schedule set forth below.
Such schedule with respect to any series of MuniPreferred of any Fund may be
changed by the Auction Agent for such series with the consent of such Fund,
which consent shall not be unreasonably withheld. Such Auction Agent shall give
written notice of any such change to each Broker-Dealer of such series. Such
notice shall be given prior to the close of business on the Business Day next
preceding the first Auction Date on which such change shall be effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent for such series advises such
Fund and the Broker-Dealers for such series
of the applicable Maximum Rate and the
Reference Rate(s) and Treasury Note
Rate(s), as the case may be, used in
determining such Maximum Rate as set
forth in Section 2.2(a) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in Section 2(a) of the Auction
Procedures of such Fund. Submission
Deadline is 1:30 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations
pursuant to Section 3(a) of the Auction
Procedures of such Fund.
5
<PAGE> 6
Time Event
---- -----
By approximately 3:00 P.M. Auction Agent advises Fund of results of
Auction as provided in Section 3(b) of the
Auction Procedures of such Fund.
Submitted Bids and Submitted Sell Orders
are accepted and rejected and shares of such
series of MuniPreferred allocated as
provided in Section 4 of the Auction
Procedures of such Fund.
Auction Agent gives notice of Auction
results as set forth in Section 2.4(a) hereof.
(b) BD shall submit Orders to the appropriate Auction Agent in writing
substantially in the form attached hereto as Exhibit B. BD shall submit a
separate Order to such Auction Agent for each Potential Holder or Existing
Holder with respect to whom BD is submitting an Order and shall not otherwise
net or aggregate such Orders prior to their submission to such Auction Agent.
(c) BD shall deliver to the appropriate Auction Agent (i) a written
notice in substantially the form attached hereto as Exhibit C of transfers of
shares of MuniPreferred to BD from another Person other than pursuant to an
Auction and (ii) a written notice substantially in the form attached hereto as
Exhibit D, of the failure of any shares of MuniPreferred to be transferred to or
by any Person that purchased or sold shares of MuniPreferred through BD pursuant
to an Auction. Such Auction Agent is not required to accept any such notice
described in clause (i) for an Auction unless it is received by the Auction
Agent by 3:00 P.M. on the Business Day preceding such Auction.
(d) BD and other Broker-Dealers may submit Orders in Auctions for
their own accounts (including Orders for their own accounts where the Order is
placed beneficially for a customer) unless the relevant Fund shall have notified
BD and all other Broker-Dealers that they may no longer do so, in which case
Broker-Dealers may continue to submit Hold Orders and Sell Orders for their own
accounts.
(e) BD agrees to handle its customers' orders in accordance with its
duties under applicable securities laws and rules.
(f) To the extent that pursuant to Section 4 of the Auction Procedures
of any Fund, BD continues to hold, sells, or purchases a number of shares that
is fewer than the number of shares in an Order submitted by BD to the Auction
Agent in which BD designated itself as an Existing Holder or Potential Holder in
respect of customer Orders, BD shall make
6
<PAGE> 7
appropriate pro rata allocations among its customers for which it submitted
Orders of similar tenor. If as a result of such allocations, any Beneficial
Owner would be entitled or required to sell, or any Potential Beneficial Owner
would be entitled or required to purchase, a fraction of a share of
MuniPreferred on any Auction Date, BD shall, in such manner as it shall
determine in its sole discretion, round up or down the number of shares of
MuniPreferred to be purchased or sold on such Auction Date by any Beneficial
Owner or Potential Beneficial Owner on whose behalf BD submitted an Order so
that the number of shares so purchased or sold by each such Beneficial Owner or
Potential Beneficial Owner on such Auction Date shall be whole shares of
MuniPreferred.
2.4. Notices.
-------
(a) On each Auction Date for any series of MuniPreferred, the Auction
Agent for such series shall notify BD, if BD is a Broker-Dealer of such series,
by telephone of the results of the Auction as set forth in paragraph (a) of the
Settlement Procedures. By approximately 11:30 A.M. on the Business Day next
succeeding such Auction Date, the relevant Auction Agent shall confirm to BD in
writing the disposition of all Orders submitted by BD in such Auction.
(b) BD shall notify each Existing Holder, Potential Holder, Beneficial
Owner or Potential Beneficial Owner of shares of MuniPreferred with respect to
whom BD has submitted an Order as set forth in paragraph (b) of the Settlement
Procedures and take such other action as is required of BD pursuant to the
Settlement Procedures.
2.5. Designation of Special Rate Period.
----------------------------------
(a) If any Fund delivers to its Auction Agent a notice of the Auction
Date for any series of MuniPreferred of such Fund for a Rate Period thereof that
next succeeds a Rate Period that is not a Minimum Rate Period in the form of
Exhibit C to the Auction Agency Agreement, and BD is a Broker-Dealer of such
series, the Auction Agent shall deliver such notice to BD as promptly as
practicable after its receipt of such notice from such Fund.
(b) If the Board of Directors or Board of Trustees, as the case may
be, of any Fund proposes to designate any succeeding Subsequent Rate Period of
any series of MuniPreferred of such Fund as a Special Rate Period and such Fund
delivers to its Auction Agent a notice of such proposed Special Rate Period in
the form of Exhibit D to the Auction Agency Agreement, and BD is a Broker-Dealer
for such series, such Auction Agent shall deliver such notice to BD as promptly
as practicable after its receipt of such notice from the Fund.
(c) If the Board of Directors or Board of Trustees, as the case may
be, of any Fund determines to designate such succeeding Subsequent Rate Period
as a Special Rate Period, and such Fund delivers to its Auction Agent a notice
of such Special Rate Period in the form of Exhibit E to the Auction Agency
Agreement not later than 11:00 A.M. on the second Business Day next preceding
the first day of such Rate Period (or by such later time or date, or both, as
7
<PAGE> 8
may be agreed to by such Auction Agent), and BD is a Broker-Dealer for such
series, such Auction Agent shall deliver such notice to BD not later than 3:00
P.M. on such second Business Day (or, if such Auction Agent has agreed to a
later time or date, as promptly as practicable thereafter).
(d) If any Fund shall deliver to its Auction Agent a notice not later
than 11:00 A.M. on the second Business Day next preceding the first day of any
Rate Period (or by such later time or date, or both, as may be agreed to by such
Auction Agent) stating that such Fund has determined not to exercise its option
to designate such succeeding Subsequent Rate Period as a Special Rate Period, in
the form of Exhibit F to the Auction Agency Agreement, or shall fail to timely
deliver either such notice or a notice in the form of Exhibit E to the Auction
Agency Agreement, and BD is a Broker-Dealer for such series, such Auction Agent
shall deliver a notice in the form of Exhibit F to the Auction Agency Agreement
to BD not later than 3:00 P.M. on such second Business Day (or, if such Auction
Agent has agreed to a later time or date, as promptly as practicable
thereafter).
2.6. Allocation of Taxable Income.
----------------------------
If any Fund delivers to its Auction Agent a notice in the form of
Exhibit I to the Auction Agency Agreement designating all or a portion of any
dividend on shares of any series of MuniPreferred of such Fund to consist of net
capital gains or other income taxable for Federal income tax purposes, and BD is
a Broker-Dealer for such series, such Auction Agent shall deliver such notice to
BD on the Business Day following its receipt of such notice from such Fund. On
or prior to the Auction Date referred to in such notice, BD will contact each of
its customers that is a Beneficial Owner of shares of such series of
MuniPreferred or a Potential Beneficial Owner of shares of such series of
MuniPreferred interested in submitting an Order in the Auction to be held on
such Auction Date, and BD will notify such Beneficial Owners and Potential
Beneficial Owners of the contents of such notice. BD will be deemed to have
notified such Beneficial Owners and Potential Beneficial Owners if, for each of
them, (i) BD makes a reasonable effort to contact such Beneficial Owner or
Potential Beneficial Owner by telephone, and (ii) upon failing to contact such
Beneficial Owner or Potential Beneficial Owner by telephone BD mails written
notification to such Beneficial Owner or Potential Beneficial Owner at the
mailing address indicated in the account records of BD.
The Auction Agent for any series of MuniPreferred shall be required to
notify BD if it is a Broker-Dealer for such series within two Business Days
after each Auction of such series that involves an allocation of income taxable
for Federal income tax purposes as to the dollar amount per share of such
taxable income and income exempt from Federal income taxation included in the
related dividend.
2.7. Failure to Deposit.
------------------
(a) If:
8
<PAGE> 9
(i) any Failure to Deposit shall have occurred with respect to
shares of any series of MuniPreferred of any Fund during any Rate Period
thereof (other than any Special Rate Period of more than 364 Rate Period
Days or any Rate Period succeeding any Special Rate Period of more than 364
Rate Period Days during which a Failure to Deposit occurred that has not
been cured), but, prior to 12:00 Noon, New York City time, on the third
Business Day next succeeding the date on which such Failure to Deposit
occurred, such Failure to Deposit shall have been cured in accordance with
Section 2.7 of the Auction Agency Agreement and such Fund shall have paid
to the Auction Agent for such series the applicable Late Charge as
described in Section 2.7 of the Auction Agency Agreement,
then, if BD is a Broker-Dealer for such series, such Auction Agent shall deliver
a notice in the form of Exhibit G to the Auction Agency Agreement by first-class
mail, postage prepaid, to BD not later than one Business Day after its receipt
of the payment from such Fund curing such Failure to Deposit and such Late
Charge.
(b) If:
(i) any Failure to Deposit shall have occurred with respect to
shares of any series of MuniPreferred of any Fund during any Rate Period
thereof (other than any Special Rate Period of more than 364 Rate Period
Days or any Rate Period succeeding any Special Rate Period of more than 364
Rate Period Days during which a Failure to Deposit occurred but has not
been cured), and, prior to 12:00 Noon, New York City time, on the third
Business Day next succeeding the date on which such Failure to Deposit
occurred, such Failure to Deposit shall not have been cured as described in
Section 2.7 of the Auction Agency Agreement or such Fund shall not have
paid to the Auction Agent for such series the applicable Late Charge
described in Section 2.7 of the Auction Agency Agreement; or
(ii) any Failure to Deposit shall have occurred with respect to
shares of any series of MuniPreferred of any Fund during a Special Rate
Period thereof of more than 364 Rate Period Days, or during any Rate Period
thereof succeeding any Special Rate Period of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not been cured,
and, prior to 12:00 noon, New York City time, on the fourth Business Day
preceding the Auction Date for the Rate Period subsequent to such Rate
Period, such Failure to Deposit shall not have been cured as described in
Section 2.7 of the Auction Agency Agreement or such Fund shall not have
paid to the Auction Agent for such series the applicable Late Charge
described in Section 2.7 of the Auction Agency Agreement;
9
<PAGE> 10
then such Auction Agent shall deliver a notice in the form of Exhibit H to the
Auction Agency Agreement to the Broker-Dealers for such series not later than
one Business Day after the receipt of the payment from such Fund curing such
Failure to Deposit and such Late Charge.
2.8. Service Charge to be Paid to BD.
-------------------------------
On the Business Day next succeeding each Auction Date for any series
of MuniPreferred specified in, or on Schedule A to, the Request Letter of any
Fund, the Auction Agent for such series shall pay to BD from moneys received
from such Fund an amount equal to the product of (a) (i) in the case of any
Auction Date immediately preceding a Rate Period of such series consisting of
364 Rate Period Days or fewer, 1/4 of 1%, or (ii) in the case of any Auction
Date immediately preceding a Rate Period of such series consisting of more than
364 Rate Period Days, such percentage as may be agreed upon by such Fund and BD
with respect to such Rate Period, times (b) a fraction, the numerator of which
is the number of Rate Period Days in the Rate Period therefor beginning on such
Business Day and the denominator of which is 365 if such Rate Period consists of
7 Rate Period Days and 360 for all other Rate Periods, times (c) $25,000 times
(d) the sum of (i) the aggregate number of shares of such series placed by BD in
such Auction that were (A) the subject of Submitted Bids of Existing Holders
submitted by BD and continued to be held as a result of such submission and (B)
the subject of Submitted Bids of Potential Holders submitted by BD and purchased
as a result of such submission plus (ii) the aggregate number of shares of such
series subject to valid Hold Orders (determined in accordance with paragraph (d)
of Section 2 of the Auction Procedures) submitted to the Auction Agent by BD
plus (iii) the number of shares of MuniPreferred deemed to be subject to Hold
Orders of Existing Holders pursuant to paragraph (c) of Section 2 of the Auction
Procedures of such Fund that were acquired by BD for its own account or were
acquired by BD for its customers who are Beneficial Owners.
For purposes of subclause (d)(iii) of the foregoing paragraph, if any
Existing Holder or Beneficial Owner who acquired shares of any series of
MuniPreferred through BD transfers those shares to another Person other than
pursuant to an Auction, then the Broker-Dealer for the shares so transferred
shall continue to be BD; provided, however, that if the transfer was effected
by, or if the transferee is, a Broker-Dealer other than BD, then such Broker-
Dealer shall be the Broker-Dealer for such shares.
2.9. Settlement.
----------
(a) If any Existing Holder or Beneficial Owner with respect to whom BD
has submitted a Bid or Sell Order for shares of MuniPreferred of any series that
was accepted in whole or in part fails to instruct its Agent Member to deliver
the shares of MuniPreferred subject to such Bid or Sell Order against payment
therefor, BD, if it knows the identity of such Agent Member, shall instruct such
Agent Member to deliver such shares against payment therefor and, if such Agent
Member fails to comply with such instructions, BD may deliver to the Potential
Holder or Potential Beneficial Owner with respect to whom BD submitted a Bid for
shares of MuniPreferred of such series that was accepted in whole or in part a
number of
10
<PAGE> 11
shares of MuniPreferred of such series that is less than the number of shares of
MuniPreferred of such series specified in such Bid to be purchased by such
Potential Holder or Potential Beneficial Owner.
(b) Neither the Auction Agent nor the Fund shall have any
responsibility or liability with respect to the failure of an Existing Holder,
Beneficial Owner, Potential Holder or Potential Beneficial Owner or its
respective Agent Member to deliver shares of MuniPreferred of any series or to
pay for shares of MuniPreferred of any series sold or purchased pursuant to the
Auction Procedures or otherwise.
(c) Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event BD is an Existing Holder
with respect to shares of a series of MuniPreferred and the Auction Procedures
provide that BD shall be deemed to have submitted a Sell Order in an Auction
with respect to such shares if BD fails to submit an Order in that Auction with
respect to such shares, BD shall have no liability to any Person for failing to
sell such shares pursuant to such a deemed Sell Order if (i) such shares were
transferred by the beneficial owner thereof without notification of such
transfer in compliance with the Auction Procedures or (ii) BD has indicated to
the Auction Agent pursuant to Section 2.2(e) of this Agreement that, according
BD's records, BD is not the Existing Holder of such shares.
(d) Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of shares of a series of MuniPreferred with respect to whom a
Broker-Dealer submitted a Bid to the Auction Agent for such shares that was
accepted in whole or in part, or submitted or is deemed to have submitted a Sell
Order for such shares that was accepted in whole or in part, fails to instruct
its Agent Member to deliver such shares against payment therefor, partial
deliveries of shares of MuniPreferred that have been made in respect of
Potential Holders, or Potential Beneficial Owners' Submitted Bids for shares of
such series that have been accepted in whole or in part shall constitute good
delivery to such Potential Holders and Potential Beneficial Owners.
(e) Notwithstanding the foregoing terms of this Section, any delivery
or non-delivery of shares of MuniPreferred of any series which represents any
departure from the results of an Auction for shares of such series, as
determined by the Auction Agent, shall be of no effect for purposes of the
registry of Existing Holders maintained by the Auction Agent pursuant to the
Auction Agency Agreement unless and until the Auction Agent shall have been
notified of such delivery or non-delivery.
(f) The Auction Agent shall have no duty or liability with respect to
enforcement of this Section 2.9.
11
<PAGE> 12
3. The Auction Agent.
-----------------
3.1. Duties and Responsibilities.
---------------------------
(a) Each Auction Agent is acting solely as agent for the Funds with
whom such Auction Agent has entered into Request Letters and owes no fiduciary
duties to any other Person, other than such Funds, by reason of the Agreements
to which such Auction Agent is a party.
(b) Each Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in the Agreements to which it is a party,
and no implied covenants or obligations shall be read into such Agreements
against such Auction Agent.
(c) In the absence of bad faith or negligence on its part, each
Auction 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 the
Agreements to which it is a party. Each Auction Agent shall not be liable for
any error of judgment made in good faith unless such Auction Agent shall have
been negligent in ascertaining the pertinent facts.
3.2. Rights of the Auction Agents.
----------------------------
(a) Each Auction 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 believed in good faith
by it to be genuine. Each Auction Agent shall not be liable for acting upon any
telephone communication authorized by the Agreements to which it is a party that
such Auction Agent believes in good faith to have been given by the appropriate
Fund, by the Adviser or by a Broker-Dealer. Each Auction Agent may record
telephone communications with the Broker-Dealers.
(b) Each Auction Agent may consult with counsel of its choice and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) Each Auction 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.
3.3. Auction Agents' Disclaimers.
---------------------------
Each Auction Agent makes no representation as to the validity or
adequacy of the Agreements to which it is a party, the Auction Agency Agreements
to which it is a party or the shares of MuniPreferred of any series.
12
<PAGE> 13
4. Miscellaneous.
-------------
4.1. Termination.
-----------
Any party to any Agreement may terminate such Agreement at any time on
five days' notice to the other parties to such Agreement, provided that the Fund
party to such Agreement shall not terminate the Agreement unless at least one
Broker-Dealer Agreement would be in effect for each series of MuniPreferred of
such Fund after such termination. Each Agreement shall automatically terminate
with respect to any series of MuniPreferred with respect to which the relevant
Auction Agency Agreement has terminated.
4.2. Participant in Securities Depository; Payment of Dividends in
-------------------------------------------------------------
Same-Day Funds.
- --------------
(a) BD is, and shall remain for the term of the Agreements, a member
of, or participant in, the Securities Depository (or an affiliate of such a
member or participant).
(b) BD represents that it (or if BD does not act as Agent Member, one
of its affiliates) shall make all dividend payments on the MuniPreferred
available in same-day funds on each Dividend Payment Date to customers that use
BD or affiliate as Agent Member.
4.3. Communications.
--------------
Except for (i) communications authorized to be by telephone by the
Agreement of any Fund or the Auction Procedures of such Fund and (ii)
communications in connection with Auctions (other than those expressly required
to be in writing), all notices, requests and other communications to any party
under such Agreement shall be in writing (including telecopy or similar writing)
and shall be given to such party, addressed to it, at its address or telecopy
number set forth below:
If to a Fund, [Name of Fund]
addressed: 333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
Telecopier No.: (312) 917-7942
Telephone No.: (312) 917-7700
If to the Adviser, Nuveen Advisory Corp.
addressed: 333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
13
<PAGE> 14
If to BD, to the
address or telecopy number
as set forth in the Acceptance
Letter,
If to an Action
Agent, to the address
or telecopy number as set
forth in the Request Letter,
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other parties. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
an Auction Agent by an Authorized Officer of such Auction Agent. BD may record
telephone communications with any Auction Agent.
4.4. Entire Agreement.
----------------
Each Agreement contains the entire agreement among the parties thereto
relating to the subject matter thereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
among the parties thereto relating to the subject matter thereof. Each
Agreement supersedes any prior agreement to which BD was a party in respect of
any Fund.
4.5. Benefits.
--------
Nothing in any Agreement, express or implied, shall give to any
person, other than the Fund party to such Agreement, the Adviser, the Auction
Agent party to such Agreement and BD and their respective successors and
assigns, any benefit or any legal or equitable right, remedy or claim under such
Agreement.
4.6. Amendment; Waiver.
-----------------
(a) Each Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged.
(b) Failure of any party to any Agreement to exercise any right or
remedy thereunder in the event of a breach thereof by any other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
14
<PAGE> 15
4.7. Successors and Assigns.
----------------------
Each Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and assigns of the Fund party to such
Agreement, the Adviser, the Auction Agent party to such Agreement and BD.
4.8. 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.
4.9. GOVERNING LAW.
-------------
EACH AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
4.10. Declaration of Trust.
--------------------
The Declaration of each Fund that is a Massachusetts business trust is
on file with the Secretary of State of the Commonwealth of Massachusetts. Each
Agreement to which a Fund that is a Massachusetts business trust is a party has
been executed on behalf of such Fund by the Vice President and Treasurer of such
Fund acting in such capacity and not individually, and the obligations of such
Fund set forth in such Agreement are not binding upon any of such Fund's
trustees, officers or shareholders individually, but are binding only upon the
assets and property of such Fund.
15
<PAGE> 16
EXHIBIT A
---------
SETTLEMENT PROCEDURES
---------------------
<PAGE> 17
<TABLE>
================================================================================================================================
<S> <C>
[AUCTION AGENT] AUCTION BID FORM NAME OF Broker-Dealer:
------------------------
AUTHORIZED
Submit to: SIGNATURE:
------------------------------------
TOTAL NUMBER OF ORDERS ON THIS BID FORM:
------
================================================================================================================================
</TABLE>
<PAGE> 18
EXHIBIT B
---------
[Name of Fund]
$_____ Municipal Auction Rate Cumulative Preferred
Stock [Shares], Series ____
$_____ Municipal Auction Rate Cumulative Preferred
Stock [Shares], Series ____
AUCTION DATE: _____________
ISSUE: ___________________ SERIES: _________
THE UNDERSIGNED Broker-Dealer SUBMITS THE FOLLOWING ORDERS ON BEHALF OF THE
BIDDER(S) LISTED BELOW:
<TABLE>
<CAPTION>
================================================================================================================================
ORDERS BY EXISTING HOLDERS- NUMBER OF SHARES OF MUNIPREFERRED ORDERS BY POTENTIAL NUMBER OF SHARES OF
HOLDERS- MUNIPREFERRED
POTENTIAL HOLDER BID/RATE
<S> <C> <C>
EXISTING HOLDER HOLD BID/RATE SELL 1. /
----------------- ------------------------
1. / 2. /
--------------------------- ------ -------------------- -------- ----------------- ------------------------
2. / 3. /
--------------------------- ------ -------------------- -------- ----------------- ------------------------
3. / 4. /
--------------------------- ------ -------------------- -------- ----------------- ------------------------
4. / 5. /
--------------------------- ------ -------------------- -------- ----------------- ------------------------
5. / 6. /
--------------------------- ------ -------------------- -------- ----------------- ------------------------
6. / 7. /
--------------------------- ------ -------------------- -------- ----------------- ------------------------
7. / 8. /
--------------------------- ------ -------------------- -------- ----------------- ------------------------
8. / 9. /
--------------------------- ------ -------------------- -------- ----------------- ------------------------
9. / 10. 1 /
--------------------------- ------ -------------------- -------- ---------------- ------------------------
10. / 11. 1 /
--------------------------- ------ -------------------- -------- ---------------- ------------------------
12. 1 /
- -------------------------------------------------------------------------------- ---------------- ------------------------
NOTES: 13. 1 /
- ------ ---------------- ------------------------
14. 1 /
---------------- ------------------------
1. If one or more Orders covering in the aggregate more than the number of 15. 1 /
outstanding shares of MuniPreferred held by any Existing holder are submitted, ---------------- ------------------------
such Orders shall be considered valid in the order of priority set forth in
the Auction Procedures.
2. A Hold Order or Sell Order may be placed only by an Existing Holder covering a
number of shares of MuniPreferred not greater than the number of shares of
MuniPreferred currently held by such Existing Holder.
3. Potential Holders may make Bids only, each of which must specify a rate. If
more than one Bid is submitted on behalf of any Potential Holder, each Bid
submitted shall be a separate Bid with the rate specified.
4. Bids may contain no more than three figures to the right of the decimal point
(.001 of 1%).
====================================================================================================================================
</TABLE>
<PAGE> 19
EXHIBIT C
---------
(To be used only for transfers made to a
Broker-Dealer other than pursuant to an Auction)
[NAME OF FUND]
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES],
SERIES ___
TRANSFER FORM
We are the Broker-Dealer to whom the Existing Holder or Beneficial Owner named
below transferred shares of the above series of MuniPreferred other than
pursuant to an Auction. We hereby notify you that such Existing Holder or
Beneficial Owner has transferred _______ shares of the above series of
MuniPreferred to us.
-------------------------------------------------
(Name of Existing Holder or
Beneficial Owner)
-------------------------------------------------
(Name of Broker-Dealer)
By:
----------------------------------------------
Printed Name:
Title:
<PAGE> 20
EXHIBIT D
---------
(To be used only for failures to deliver shares of
MuniPreferred sold pursuant to an Auction)
[NAME OF FUND]
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES],
SERIES ____
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
- -----------------------
I. We are a Broker-Dealer for ________________ (the "Purchaser"), which
purchased _______ shares of the above series of MuniPreferred in the
Auction held on _____ from the seller of such shares.
II. We are a Broker-Dealer for ____________ (the "Seller"), which sold ________
shares of the above series of MuniPreferred in the Auction held on ______
to the purchaser of such shares.
We hereby notify you that (check one) --
[_] the Seller failed to deliver such shares of MuniPreferred to the
Purchaser
[_] the Purchaser failed to make payment to the Seller upon delivery of
such shares of MuniPreferred
Name:
--------------------------------------------
(Name of Broker-Dealer)
By:
----------------------------------------------
Printed Name:
Title:
<PAGE> 21
[Form of Broker-Dealer Acceptance Letter]
Nuveen Advisory Corp.
December ___, 1993
[Broker-Dealer]
[Address]
Ladies and Gentlemen:
Reference is made to (a) the Broker-Dealer Agreements executed by the
Funds (as hereinafter defined) listed on Exhibit A hereto, Bankers Trust Company
and various broker-dealers, copies of which will be made available to you upon
request by Bankers Trust Company (the "Broker-Dealer Agreements") and (b) the
Nuveen Broker-Dealer Agreement-Basic Terms for Acting as a Broker-Dealer dated
December 14, 1993, receipt of which is hereby acknowledged by you (the "Basic
Terms"). For purposes of this letter ("Acceptance Letter") (a) "Fund" shall
mean any closed-end investment company registered under the Investment Company
Act of 1940, as amended, for which Nuveen Advisory Corp. acts as investment
adviser; (b) except as otherwise provided below, the terms of each Broker-Dealer
Agreement shall be incorporated herein by reference, and you shall be considered
BD for all purposes thereof, as if you were the Broker-Dealer signatory thereto
in the place of the actual Broker-Dealer signatory thereto; and (c) the Basic
Terms are incorporated herein by reference, you shall be considered BD for all
purposes thereof, Bankers Trust Company shall be considered the Auction Agent
for all purposes thereof, and each Fund not listed on Exhibit A hereto shall be
considered a Fund for all purposes thereof.
We hereby request that you act as a Broker-Dealer for the Money Market
Cumulative Preferred Stock ("MMP") of each series, and the Municipal Auction
Rate Cumulative Preferred Stock or Shares ("MPS" or "MuniPreferred") of each
series, of each Fund that executes a letter, substantially in the form attached
hereto as Exhibit B or Exhibit C, as appropriate, appointing you as a Broker-
Dealer ("Request Letter"). You hereby (a) accept such appointment as a Broker-
Dealer for each series of MMP, MPS or MuniPreferred of each Fund identified in a
Request Letter and (b) agree to act as BD in accordance with (1) the terms of
the Broker-Dealer Agreement relating to such Fund, in the case of any Fund
listed on Exhibit A hereto or (2) the Basic Terms, in the case of any other
Fund; provided, however, that:
2
<PAGE> 22
(1) for purposes of any such Broker-Dealer Agreement or the Basic
Terms, and notwithstanding any provision of any Broker-Dealer Agreement to the
contrary, your address, telecopy number and telephone number for communications
pursuant to such Broker-Dealer Agreement or the Basic Terms shall be as follows:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
and the address, telecopy number and telephone number of the Auction Agent for
communications pursuant to such Broker-Dealer or the Basic Terms shall be as
follows:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
(2) notwithstanding any provision of a Broker-Dealer Agreement to the
contrary, except as otherwise set forth herein, your appointment as Broker-
Dealer extends to each series of MMP, MPS or MuniPreferred issued by the Fund to
which such Broker-Dealer Agreement relates.
(3) the text of Section 2.9 of each Broker-Dealer Agreement shall be
deleted and the following shall be deemed to be inserted in its place:
(a) If any Existing Holder with respect to whom BD has submitted a Bid
or Sell Order for shares of MMP, MPS or MuniPreferred of any series that
was accepted in whole or in part fails to instruct its Agent Member to
deliver the shares of MMP, MPS or MuniPreferred subject to such Bid or Sell
Order against payment therefor, BD, if it knows the identity of such Agent
Member, shall instruct such Agent Member to deliver such shares against
payment therefor and, if such Agent Member fails to comply with such
instructions, BD may deliver to the Potential Holder with respect to whom
BD submitted a Bid for shares of MMP, MPS or MuniPreferred of such series
that was accepted in whole or in part a number of shares of MMP, MPS or
MuniPreferred of such
3
<PAGE> 23
series that is less than the number of shares of MMP, MPS, or MuniPreferred
of such series specified in such Bid to be purchased by such Potential
Holder.
(b) Neither the Auction Agent nor the Fund shall have any
responsibility or liability with respect to the failure of an Existing
Holder or a Potential Holder or its respective Agent Member to deliver
shares of MMP, MPS or MuniPreferred of any series or to pay for shares of
MMP, MPS or MuniPreferred of any series sold or purchased pursuant to the
Auction Procedures or otherwise.
(c) Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event BD is an Existing
Holder with respect to shares of a series of MMP, MPS or MuniPreferred and
the Auction Procedures provide that BD shall be deemed to have submitted a
Sell Order in an Auction with respect to such shares if BD fails to submit
in Order in that Auction with respect to such shares, BD shall have no
liability to any Person for failing to sell such shares pursuant to such a
deemed Sell Order if (i) such shares were transferred by the beneficial
owner thereof without notification of such transfer in compliance with the
Auction Procedures or (ii) BD has informed the Auction Agent pursuant to
Section 2.2(g) of this Agreement that, according to BD's records, BD
believes it is not the Existing Holder of such shares.
(d) Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event an Existing Holder of
shares of a series of MMP, MPS or MuniPreferred with respect to whom a
Broker-Dealer submitted a Bid to the Auction Agent for such shares that was
accepted in whole or in part, or submitted or is deemed to have submitted a
Sell Order for such shares that was accepted in whole or in part, fails to
instruct its Agent Member to deliver such shares against payment therefor,
partial deliveries of shares of MMP, MPS or MuniPreferred that have been
made in respect of Potential Holders' Submitted Bids for shares of such
series that have been accepted in whole or in part shall constitute good
delivery to such Potential Holders.
(e) Notwithstanding the foregoing terms of this Section, any delivery
or non-delivery of shares of MMP, MPS or MuniPreferred of any series which
represents any departure from the results of an Auction for shares of such
series, as determined by the Auction Agent, shall be of no effect for
purposes of the registry of Existing Holders maintained by the Auction
Agent pursuant to the Auction Agency Agreement unless and until the Auction
Agent shall have been notified of such delivery or non-delivery.
(f) The Auction Agent shall have no duty or liability with respect to
enforcement of this Section 2.9.
(4) a new Section 2.2(g) shall be added to each Broker-Dealer
Agreement, to read as follows:
4
<PAGE> 24
(g) The Auction Agent's registry of Existing Holders of shares of a
series of MMP, MPS or MuniPreferred shall be conclusive and binding on BD.
BD may inquire of the Auction Agent between 3:00 P.M. on the Business Day
preceding an Auction for shares of a series of MMP, MPS or MuniPreferred
and 9:30 A.M. on the Auction Date for such Auction to ascertain the number
of shares of such series in respect of which the Auction Agent has
determined BD to be an Existing Holder. If BD believes it is the Existing
Holder of fewer shares of such series than specified by the Auction Agent
in response to BD's inquiry, BD may so inform the Auction Agent of that
belief. BD shall not, in its capacity as Existing Holder of shares of such
series, submit Orders in such Auction in respect of shares of such series
covering in the aggregate more than the number of shares of such series
specified by the Auction Agent in response to BDs inquiry.
(5) a new sentence shall be added to the end of Section 2.2(d) of each
Broker-Dealer Agreement, to read as follows:
Nothing contained herein shall require BD to submit an Order for any
customer in any Auction.
You hereby acknowledge that, notwithstanding any provision of any
Broker-Dealer Agreement or the Basic Terms to the contrary, the Fund may (a)
upon five business days' notice to the Auction Agent and you, amend, alter or
repeal any of the provisions contained in any Broker-Dealer Agreement or the
Basic Terms, it being understood and agreed that you shall be deemed to have
accepted any such amendment, alteration or repeal if, after the expiration of
such five business day period, you submit an Order to the Auction Agent in
respect of the shares of MMP, MPS, MuniPreferred of the Fund or Funds to which
such amendment, alteration or repeal relates, and (b) upon two business days'
notice to the Auction Agent and you, exclude you from participating as a Broker-
Dealer in any particular Auction for any particular series of MMP, MPS or
MuniPreferred.
This Acceptance Letter shall be deemed to form part of each Broker-
Dealer Agreement and the Basic Terms.
Capitalized terms not defined in this Acceptance Letter shall have the
meanings ascribed to them in the relevant Broker-Dealer Agreement or the Basic
Terms, as the case may be.
5
<PAGE> 25
If the foregoing terms are acceptable to you, please so indicate in
the space provided below. This Acceptance Letter may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
NUVEEN ADVISORY CORP.
By:
-------------------------------------------
Name: H. William Stabenow
Title: Vice President and Treasurer
Accepted by and Agreed to as of
the date first written above:
[Broker-Dealer]
By:
------------------
Name:
Title:
6
<PAGE> 26
EXHIBIT A TO ACCEPTANCE LETTER
------------------------------
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen New Jersey Quality Income Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Municipal Market Opportunity Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.
<PAGE> 27
EXHIBIT B TO ACCEPTANCE LETTER
------------------------------
[Form of Request Letter]
_____________________, 1993
FROM: All investment companies registered under the Investment Company Act
of 1940, as amended, for which Nuveen Advisor Corp. acts as investment
adviser and whose registration statements relating to shares of Money
Market Cumulative Preferred Stock or Municipal Auction Rate Cumulative
Preferred Stock or Shares have been declared effective by the
Securities and Exchange Commission on or prior to the date hereof.
TO: Nuveen Advisory Corp.
Bankers Trust Company
Ladies and Gentlemen:
Reference is made to (a) the respective Broker-Dealer Agreements,
previously executed by the Funds (as hereinafter defined) listed on Exhibit A
hereto, various Broker-Dealers and Bankers Trust Company (the "Broker-Dealer
Agreements"); (b) the respective Auction Agency Agreements previously executed
by the Funds listed on Exhibit A hereto and Bankers Trust Company (the "Auction
Agency Agreements"); (c) the Nuveen Broker-Dealer Agreement -- Basic Terms for
Acting as a Broker-Dealer dated December 14, 1993, receipt of which is hereby
acknowledged by you (the "Broker-Dealer Basic Terms"); and (d) the Nuveen
Auction Agency Agreement -- Basic Terms for Acting as Auction Agent dated
November 1, 1993, receipt of which is hereby acknowledged by you (the "Auction
Agency Basic Terms"). For purposes of this letter ("Request Letter"), (a)
"Fund" shall mean any closed-end investment company registered under the
Investment Company Act of 1940, as amended, for which Nuveen Advisory Corp. acts
as investment adviser; (b) except as otherwise provided below, the terms of each
Broker-Dealer Agreement shall be incorporated herein by reference, and each
Broker-Dealer listed on Exhibit B hereto shall be considered BD for all purposes
thereof, as if such Broker-Dealer were the Broker-Dealer signatory thereto in
the place of the actual Broker-Dealer signatory thereto; (c) the Broker-Dealer
Basic Terms are incorporated herein by reference, each Broker-Dealer listed on
Exhibit B hereto shall be considered BD for all purposes thereof, Bankers Trust
Company shall be considered the Auction Agent for all purposes thereof, and each
Fund referred to on Exhibit C hereto shall be considered a Fund for all purposes
thereof; (d) except as otherwise provided below, the terms of each Auction
Agency Agreement shall be incorporated herein by reference, and each Broker-
Dealer listed on Exhibit B shall be considered a Broker-Dealer for all purposes
thereof; and (e) the Auction Agency Basic Terms are incorporated herein by
reference, Bankers Trust Company shall be considered the
<PAGE> 28
Auction Agent for all purposes thereof, and each Fund referred to on Exhibit C
hereto shall be considered a Fund for all purposes thereof.
We hereby appoint the Broker-Dealers listed on Exhibit B hereto as
Broker-Dealers for the Money Market Cumulative Preferred Stock ("MMP") or
Municipal Auction Rate Cumulative Preferred Stock or Shares ("MPS" or
"MuniPreferred") of each series of each Fund listed on Exhibit A hereto or
referred to on Exhibit C hereto. Each such Broker-Dealer will act as BD in
respect of such series in accordance with (1) the terms of the Broker-Dealer
Agreement relating to such Fund, in the case of any Fund listed on Exhibit A
hereto, except as otherwise set forth in an Acceptance Letter relating to such
Broker-Dealer from Nuveen Advisory Corp, to such Broker-Dealer or (2) the
Broker-Dealer Basic Terms, in the case of any Fund referred to on Exhibit C
hereto; provided, however, that for purposes of any such Broker-Dealer Agreement
or the Broker-Dealer Basic Terms, and notwithstanding any provision of any
Broker-Dealer Agreement to the contrary, Bankers Trust Company's address,
telecopy number and telephone number for communications pursuant to such Broker-
Dealer Agreement or the Broker-Dealer Basic Terms shall be as follows:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
Bankers Trust Company agrees to act as Auction Agent with respect to
shares of each series of MMP, MPS or MuniPreferred of each Fund listed on
Exhibit A or referred to on Exhibit C hereto in accordance with (1) the terms of
the Auction Agency Agreement relating to the MMP, MPS or MuniPreferred of such
Fund, in the case of any Fund listed on Exhibit A hereto or (2) the Auction
Agency Basic Terms, in the case of any Fund referred to on Exhibit C hereto;
provided, however, that Section 2.2(c)(i) of each Auction Agency Agreement shall
be amended to read as follows:
(c)(i) The Auction Agent shall maintain a registry of the beneficial
owners of the shares of MMP, MPS or MuniPreferred who shall constitute
Existing Holders of shares of MMP, MPS or MuniPreferred for purposes of
Auctions and shall indicate thereon the identity of the respective Broker-
Dealer of each Existing Holder, if any, on whose behalf such Broker-Dealer
submitted the most recent Order in any Auction which resulted in such
Existing Holder continuing to hold or purchasing shares of MMP, MPS or
MuniPreferred. The Auction Agent shall keep such registry current and
accurate. The Fund shall provide or cause to be provided to the Auction
Agent at or prior to the Date of Original Issue of the shares of MMP, MPS
or MuniPreferred a list of the initial Existing Holders of the shares of
MMP, MPS or MuniPreferred, the number of shares purchased by each such
Existing Holder and the respective Broker-Dealer of each such
2
<PAGE> 29
Existing Holder or the affiliate thereof through which each such Existing
Holer purchased such shares. The Auction Agent shall advise the Fund in
writing whenever the number of Existing Holders is 500 or more. The
Auction Agent may rely upon, as conclusive evidence of the identities of
the Existing Holders of shares of MMP, MPS or MuniPreferred (A) such list,
(B) the results of Auctions, (C) notices from any Existing Holder, the
Agent Member of any Existing Holder or the Broker-Dealer of any Existing
Holder as described in the first sentence of Section 2.2(c)(iii) hereof and
(D) the results of any procedures approved by the Fund that have been
devised for the purpose of determining the identities of Existing Holders
in situations where shares of MMP, MPS or MuniPreferred may have been
transferred without compliance with any restrictions on the transfer
thereof set forth in the Auction Procedures.
This Request Letter shall be deemed to form part of each Auction
Agency Agreement and the Auction Agency Basic Terms.
Capitalized terms not defined in this Request Letter shall have the
meanings ascribed to them in the relevant Broker-Dealer Agreement, Broker-Dealer
Basic Terms, Auction Agency Agreement or Auction Agency Basic Terms, as the case
may be.
3
<PAGE> 30
If the foregoing terms are acceptable to you, please so indicate in
the space provided below. This Request Letter may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
All investment companies registered under the
Investment Company Act of 1940, as amended, for
which Nuveen Advisory Corp. acts as investment
adviser and whose registration statements
relating to shares of Money Market Cumulative
Preferred Stock or Municipal Auction Rate
Cumulative Preferred Stock or Shares have been
declared effective by the Securities and
Exchange Commission on or prior to the date
hereof.
By:
-------------------------------------------
Name: H. William Stabenow
Title: Vice President and
Treasurer of each Fund
Accepted and Agreed to as of
the date first written above:
NUVEEN ADVISORY CORP. BANKERS TRUST COMPANY
By By:
------------------------- -------------------------------------------
Name: H. William Stabenow Name: Sandra Becker Whalen
Title: Vice President and Title: Assistant Treasurer
Treasurer
cc: [Broker-Dealers]
4
<PAGE> 31
EXHIBIT A TO REQUEST LETTER
---------------------------
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen New Jersey Quality Income Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Municipal Market Opportunity Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.
<PAGE> 32
EXHIBIT B TO REQUEST LETTER
---------------------------
[LIST OF BROKER-DEALERS]
<PAGE> 33
EXHIBIT C TO REQUEST LETTER
---------------------------
Each Fund not listed on Exhibit A whose registration statement
relating to shares of MMP, MPS or MuniPreferred has been declared effective by
the Securities and Exchange Commission on or prior to the date of the Request
Letter to which this Exhibit C is attached.
<PAGE> 34
EXHIBIT C TO ACCEPTANCE LETTER
------------------------------
[Form of Request Letter]
[Name(s) of Fund(s)]
__________________, 1993
Ladies and Gentlemen:
Reference is made to (a) the Nuveen Broker-Dealer Agreement -- Basic
Terms for Acting as a Broker-Dealer dated December 14, 1993, receipt of which is
hereby acknowledged by you (the "Broker-Dealer Basic Terms") and (b) the Nuveen
Auction Agency Agreement -- Basic Terms for Acting as Auction Agent dated
November 1, 1993, receipt of which is hereby acknowledged by you (the "Auction
Agency Basic Terms"). For purposes of this letter ("Request Letter"), (a)
"Fund" shall mean each undersigned closed-end investment company registered
under the Investment Company Act of 1940, as amended, for which Nuveen Advisory
Corp. acts as investment adviser; (b) the Broker-Dealer Basic Terms are
incorporated herein by reference, each Broker-Dealer listed on Exhibit A hereto
shall be considered BD for all purposes thereof, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund shall be
considered a Fund for all purposes thereof; and (c) the Auction Agency Basic
Terms are incorporated herein by reference, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund shall be
considered a Fund for all purposes thereof.
Each Fund hereby appoints the Broker-Dealers listed on Exhibit A
hereto as Broker-Dealers for each series of Money Market Cumulative Preferred
Stock ("MMP") or Municipal Auction Rate Cumulative Preferred Stock or Shares
("MPS" or "MuniPreferred") of such Fund. Each such Broker-Dealer will act as BD
in respect of each such series in accordance with the Broker-Dealer Basic Terms;
provided, however, that for purposes of the Broker-Dealer Basic Terms, Bankers
Trust Company's address, telecopy number and telephone number for communications
pursuant to the Broker-Dealer Basic Terms shall be as follows:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
<PAGE> 35
Bankers Trust Company agrees to act as Auction Agent with respect to
shares of each series of MMP, MPS or MuniPreferred of each Fund in accordance
with the Auction Agency Basic Terms.
This Request Letter shall be deemed to form
part of the Auction Agency Basic Terms.
Capitalized terms not defined in this Request Letter shall have the
meanings ascribed to them in the Broker-Dealer Basic Terms or Auction Agency
Basic Terms, as the case may be.
If the foregoing terms are acceptable to you, please so indicate in
the space provided below. This Request Letter may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
[NAME(S) OF FUND(S)]
By:
----------------------------------
Name: H. William Stabenow
Title: Vice President and
Treasurer of each Fund
Accepted and Agreed to as of
the date first written above:
NUVEEN ADVISORY CORP. BANKERS TRUST COMPANY
By: By:
------------------------------ ----------------------------------
Name: H. William Stabenow Name: Sandra Becker Whalen
Title: Vice President and Title: Assistant Treasurer
Treasurer
cc: [Broker-Dealers listed on Exhibit A]
2
<PAGE> 36
EXHIBIT A TO REQUEST LETTER
---------------------------
[LIST OF BROKER-DEALERS]
<PAGE> 1
EXHIBIT 99.4.5
[DTC LOGO]
BOOK-ENTRY-ONLY AUCTION-RATE/MONEY MARKET PREFERRED/AND
REMARKETED PREFERRED SECURITIES
Letter of Representations
(To be Completed by Issuer and Trust Company)
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
----------------------------------------------
(Name of Issuer)
BANKERS TRUST COMPANY
--------------------------------------
(Name of Trust Company)
Attention: General Counsel's Office September , 1996
The Depository Trust Company -------------------
55 Water Street; 49th Floor (Date)
New York, NY 10041-0099
Re: 2,200 Shares of Municipal Auction Rate Cumulative Preferred
Shares, Series T, par value $.01 per share of Nuveen Insured
Premium Income Municipal Fund 2, CUSIP No.
(Issue Description, including CUSIP number)
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced issue (the "Securities"), Trust Company will
act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of the Securities dated May 1, 1996 (the "Document"). Issuer is
distributing the Securities through The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on September , 1996 there shall
be deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co. which
<PAGE> 2
represents the total number of Securities issued. Said certificate shall
remain in DTC's custody as provided in the Document. If, however, the aggregate
principal amount of the Securities exceeds $150 million, one certificate will be
issued with respect to each $150 million of principal amount and an additional
certificate will be issued with respect to any remaining principal amount.
Each $150 million Securities certificate shall bear the following legend:
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein.
2. In the event of any solicitation of consents from or voting by holders of
the Securities, Issuer shall establish a record date for such purposes (with no
provision for revocation of consents or votes by subsequent holders) and shall,
to the extent possible, send notice of such record date to DTC not less than 15
calender days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be sent to DTC's Reorganization Department at (212)
709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed by
telephoning (212) 709-6870. Notices to DTC pursuant to this Paragraph by mail
or by any other means shall be sent to DTC's Reorganization Department as
indicated in Paragraph 4.
3. In the event of a full or partial redemption of the outstanding
Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
the number of Securities to be redeemed; and (b) the date such notice is to
be mailed to Security holders or published (the "Publication Date"). Such
notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight delivery) in a timely manner designed
to assure that such notice is in DTC's possession no later than the close of
business on the business day before or, if possible, two business days before
the Publication Date. Issuer or Trust Company shall forward such notice either
in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The
party sending such notice shall have a method to verify subsequently the
use of such means and the timeliness of such notice.) The Publication Date
shall be not be less than 20 days nor more than 45 days prior to the redemption
date. Notices to DTC pursuant to this Paragraph by telecopy shall be sent to
DTC's Call Notification Department at (516) 227-4039 or (516) 227-4190. If the
party sending the notice does not receive a telecopy receipt from DTC
confirming that the notice has been received, such party shall telephone
(516) 227-4070. Notices to DTC pursuant to this Paragraph by mail or by any
other means shall be sent to:
Manager: Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities, notice by
Issuer or Trust Company to Security holders specifying the terms of the tender
and the Publication Date of such notice shall be sent to DTC by a secure means
in the manner set forth in the preceding Paragraph. Notices to DTC pursuant to
this Paragraph and notices of other corporate actions (including mandatory)
-2-
<PAGE> 3
tenders, exchanges, and capital changes) by telecopy shall be sent to DTC's
Reorganization Department at (212) 709-1093 or (212) 709-1094, and receipt of
such notices shall be confirmed by telephoning (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager: Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square: 23rd Floor
New York, NY 10004-2695
5. All notices and payments advices sent to DTC shall contain the CUSIP
number of the Securities.
6. The Document indicates that the dividend rate for the Securities may vary
from time to time. Absent other existing arrangements with DTC, Issuer or Trust
Company shall give DTC notice of each such change in the dividend rate, on the
same day that the new rate is determined, by telephoning the Supervisor of DTC's
Dividend Announcement Section at (212) 709-1270, or by telecopy sent to (212)
709-1723. Such verbal or telecopy notice shall be followed by prompt written
confirmation sent by a secure means in the manner set forth in Paragraph 3 to:
Manager: Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square: 22nd Floor
New York, NY 10004-2695
7. Issuer and Trust Company acknowledge that as long as Cede & Co. is
the sole record owner of the Securities, Cede & Co. shall be entitled to all
voting rights applicable to the Securities and to receive the full amount of
all dividends, liquidation proceeds, and redemption proceeds payable with
respect to the Securities. Issuer and Trust Company acknowledge that DTC shall
treat any DTC Participant ("Participant") having Securities credited to
its DTC accounts as entitled to the full benefits of ownership of such
Securities. Without limiting the generality of the preceding sentence, Issuer
and Trust Company acknowledge that DTC shall treat any Participant having
Securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 11 and 12, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The treatment by DTC of the effects of the crediting by it of
Securities to the accounts of Participants described in the preceding two
sentences shall not affect the rights of Issuer, participants in auctions
relating to the Securities, purchasers, sellers, or holders of Securities
against any Participant.)
8. Transactions in the Securities shall be eligible for same-day funds
settlement in DTC's Same-Day Funds Settlement ("SDFS") system.
A. Dividend payment shall be received by Cede & Co. as nominee of DTC or
its registered assigns in same-day funds on each payment date (or the
equivalent in accordance with existing arrangements between Issuer or Trust
Company and DTC). Such payments shall
<PAGE> 4
be made payable to the order of Cede & Co. Absent any other existing
arrangements, such payments shall be addressed as follows:
Manager: Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square: 24th Floor
New York, NY 10004-2695
B. Redemption payments shall be made in same-day funds by Trust Company in
the manner set forth in the SDFS Paying Agent Operating Procedures, a
copy of which previously has been furnished to Trust Company.
9. DTC may direct Issuer or Trust Company to use any other number or address
as the number or address to which notices, payments of dividends, or redemption
proceeds may be sent. If requested, DTC will provide such instructions in
writing.
10. In the event of a redemption necessitating a reduction in the number of
Securities outstanding, DTC, in its discretion: (a) may request Issuer or Trust
Company to issue and authenticate a new Security certificate; or (b) may make an
appropriate notation on the Security certificate indicating the date and amount
of such reduction in the number of Securities outstanding, except in the case
of final redemption, in which case the certificate will be presented to Issuer
or Trust Company prior to payment, if required.
11. In the event that Issuer determines that beneficial owners of Securities
shall be able to obtain certificated Securities, Issuer or Trust Company shall
notify DTC of the availability of certificates. In such event, Issuer or Trust
Company shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
12. DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to Issuer or
Trust Company (at which time DTC will confirm with Issuer or Trust Company the
aggregate principal amount of Securities outstanding). Under such circumstances,
at DTC's request Issuer and Trust Company shall cooperate fully with DTC by
taking appropriate action to make available one or more separate certificates
evidencing Securities to any DTC Participant having Securities credited to its
DTC accounts.
13. Issuer hereby authorizes DTC to provide to Trust Company security
position listings of Participants with respect to the Securities from time to
time at the request of Trust Company. Issuer also authorizes DTC, in the event
of a partial redemption of Securities, to provide Trust Company, upon request,
with the names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify Trust
Company of those Participants whose positions in Securities have been selected
for redemption by DTC. Issuer authorizes and instructs Trust Company to provide
DTC with such signatures, examples of signatures, and authorizations to act as
may be deemed necessary or appropriate by DTC to permit DTC to discharge its
obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 4.
<PAGE> 5
This authorization, unless revoked by Issuer shall continue with
respect to the Securities while any Securities are on deposit at DTC, until and
unless Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the authorization of
any successor thereto so to act.
14. Issuer: (a) understands that DTC has no obligation to, and will not
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
15. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.
16. The Issuer's Declaration of Trust provides that the Issuer shall
adjust the number of days in rate periods for Securities under certain
circumstances. If the Issuer determines to make such an adjustment, the Issuer
shall give DTC notice of such change in the number of days at least 10 calendar
days prior to the rate period for which such change is to be effective. Such
notice shall be in writing and shall be forwarded by secure means to the
address set forth in paragraph 6 hereof.
17. The Issuer will notify DTC, at least 10 business days prior to the
payment date for a Gross-up Payment (as defined in the Document) in respect of
the Securities, of (i) the record date for holders of Securities entitled to
receive Gross-up Payments, (ii) the amount of Gross-up Payments payable on a
per share basis to such holders and (iii) the CUSIP number set forth on the
share certificate representing such Securities.
Notes: Very truly yours,
A. If there is a Trust Company
(as defined in this Letter of Nuveen Insured Premium Income Municipal
Representations), Trust Company Fund 2
as well as Issuer must sign this --------------------------------------------
Letter. If there is no Trust (Issuer)
Company, in signing this Letter
Issuer itself undertakes to
perform all of the By:
obligations set forth herein. -----------------------------------------
(Authorized Officer's Signature)
B. Schedule A contains statements
that DTC believes accurately
describe DTC, the method of Bankers Trust Company
effecting book-entry transfers --------------------------------------------
of securities distributed through (Trust Company)
DTC, and certain related matters.
By:
-----------------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
BY:
----------------------------------
cc: Underwriter
Underwriter's Counsel
<PAGE> 1
EXHIBIT 99.4.7
[DTC LOGO]
BOOK-ENTRY-ONLY AUCTION-RATE/MONEY MARKET PREFERRED/AND
REMARKETED PREFERRED SECURITIES
Letter of Representations
(To be Completed by Issuer and Trust Company)
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
----------------------------------------------
(Name of Issuer)
BANKERS TRUST COMPANY
--------------------------------------
(Name of Trust Company)
Attention: General Counsel's Office September , 1996
The Depository Trust Company -------------------
55 Water Street; 49th Floor (Date)
New York, NY 10041-0099
Re: 2,200 Shares of Municipal Auction Rate Cumulative Preferred
Shares, Series TH, par value $.01 per share of Nuveen Insured
Premium Income Municipal Fund 2, CUSIP No.
(Issue Description, including CUSIP number)
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced issue (the "Securities"), Trust Company will
act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of the Securities dated May 1, 1996 (the "Document"). Issuer is
distributing the Securities through The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on September , 1996 there shall
be deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co. which
<PAGE> 2
represents the total number of Securities issued. Said certificate shall
remain in DTC's custody as provided in the Document. If, however, the aggregate
principal amount of the Securities exceeds $150 million, one certificate will be
issued with respect to each $150 million of principal amount and an additional
certificate will be issued with respect to any remaining principal amount.
Each $150 million Securities certificate shall bear the following legend:
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein.
2. In the event of any solicitation of consents from or voting by holders
of the Securities, Issuer shall establish a record date for such purposes (with
no provision for revocation of consents or votes by subsequent holders) and
shall, to the extent possible, send notice of such record date to DTC not less
than 15 calender days in advance of such record date. Notices to DTC pursuant to
this Paragraph by telecopy shall be sent to DTC's Reorganization Department at
(212) 709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed
by telephoning (212) 709-6870. Notices to DTC pursuant to this Paragraph by mail
or by any other means shall be sent to DTC's Reorganization Department as
indicated in Paragraph 4.
3. In the event of a full or partial redemption of the outstanding
Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
the number of Securities to be redeemed; and (b) the date such notice is to
be mailed to Security holders or published (the "Publication Date"). Such
notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight delivery) in a timely manner designed
to assure that such notice is in DTC's possession no later than the close of
business on the business day before or, if possible, two business days before
the Publication Date. Issuer or Trust Company shall forward such notice either
in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The
party sending such notice shall have a method to verify subsequently the
use of such means and the timeliness of such notice.) The Publication Date
shall be not be less than 20 days nor more than 45 days prior to the redemption
date. Notices to DTC pursuant to this Paragraph by telecopy shall be sent to
DTC's Call Notification Department at (516) 227-4039 or (516) 227-4190. If the
party sending the notice does not receive a telecopy receipt from DTC
confirming that the notice has been received, such party shall telephone
(516) 227-4070. Notices to DTC pursuant to this Paragraph by mail or by any
other means shall be sent to:
Manager: Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities, notice by
Issuer or Trust Company to Security holders specifying the terms of the tender
and the Publication Date of such notice shall be sent to DTC by a secure means
in the manner set forth in the preceding Paragraph. Notices to DTC pursuant to
this Paragraph and notices of other corporate actions (including mandatory
-2-
<PAGE> 3
tenders, exchanges, and capital changes) by telecopy shall be sent to DTC's
Reorganization Department at (212) 709-1093 or (212) 709-1094, and receipt of
such notices shall be confirmed by telephoning (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager: Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square: 23rd Floor
New York, NY 10004-2695
5. All notices and payments advices sent to DTC shall contain the CUSIP
number of the Securities.
6. The Document indicates that the dividend rate for the Securities may vary
from time to time. Absent other existing arrangements with DTC, Issuer or Trust
Company shall give DTC notice of each such change in the dividend rate, on the
same day that the new rate is determined, by telephoning the Supervisor of DTC's
Dividend Announcement Section at (212) 709-1270, or by telecopy sent to (212)
709-1723. Such verbal or telecopy notice shall be followed by prompt written
confirmation sent by a secure means in the manner set forth in Paragraph 3 to:
Manager: Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square: 22nd Floor
New York, NY 10004-2695
7. Issuer and Trust Company acknowledge that as long as Cede & Co. is
the sole record owner of the Securities, Cede & Co. shall be entitled to all
voting rights applicable to the Securities and to receive the full amount of
all dividends, liquidation proceeds, and redemption proceeds payable with
respect to the Securities. Issuer and Trust Company acknowledge that DTC shall
treat any DTC Participant ("Participant") having Securities credited to
its DTC accounts as entitled to the full benefits of ownership of such
Securities. Without limiting the generality of the preceding sentence, Issuer
and Trust Company acknowledge that DTC shall treat any Participant having
Securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 11 and 12, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The treatment by DTC of the effects of the crediting by it of
Securities to the accounts of Participants described in the preceding two
sentences shall not affect the rights of Issuer, participants in auctions
relating to the Securities, purchasers, sellers, or holders of Securities
against any Participant.)
8. Transactions in the Securities shall be eligible for same-day funds
settlement in DTC's Same-Day Funds Settlement ("SDFS") system.
A. Dividend payment shall be received by Cede & Co. as nominee of DTC or
its registered assigns in same-day funds on each payment date (or the
equivalent in accordance with existing arrangements between Issuer or Trust
Company and DTC). Such payments shall
<PAGE> 4
be made payable to the order of Cede & Co. Absent any other existing
arrangements, such payments shall be addressed as follows:
Manager: Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square: 24th Floor
New York, NY 10004-2695
B. Redemption payments shall be made in same-day funds by Trust Company in
the manner set forth in the SDFS Paying Agent Operating Procedures, a
copy of which previously has been furnished to Trust Company.
9. DTC may direct Issuer or Trust Company to use any other number or address
as the number or address to which notices, payments of dividends, or redemption
proceeds may be sent. If requested, DTC will provide such instructions in
writing.
10. In the event of a redemption necessitating a reduction in the number of
Securities outstanding, DTC, in its discretion: (a) may request Issuer or Trust
Company to issue and authenticate a new Security certificate; or (b) may make an
appropriate notation on the Security certificate indicating the date and amount
of such reduction in the number of Securities outstanding, except in the case
of final redemption, in which case the certificate will be presented to Issuer
or Trust Company prior to payment, if required.
11. In the event that Issuer determines that beneficial owners of Securities
shall be able to obtain certificated Securities, Issuer or Trust Company shall
notify DTC of the availability of certificates. In such event, Issuer or Trust
Company shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
12. DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to Issuer or
Trust Company (at which time DTC will confirm with Issuer or Trust Company the
aggregate principal amount of Securities outstanding). Under such circumstances,
at DTC's request Issuer and Trust Company shall cooperate fully with DTC by
taking appropriate action to make available one or more separate certificates
evidencing Securities to any DTC Participant having Securities credited to its
DTC accounts.
13. Issuer hereby authorizes DTC to provide to Trust Company security
position listings of Participants with respect to the Securities from time to
time at the request of Trust Company. Issuer also authorizes DTC, in the event
of a partial redemption of Securities, to provide Trust Company, upon request,
with the names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify Trust
Company of those Participants whose positions in Securities have been selected
for redemption by DTC. Issuer authorizes and instructs Trust Company to provide
DTC with such signatures, examples of signatures, and authorizations to act as
may be deemed necessary or appropriate by DTC to permit DTC to discharge its
obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 4.
<PAGE> 5
This authorization, unless revoked by Issuer shall continue with respect
to the Securities while any Securities are on deposit at DTC, until and unless
Trust Company shall no longer be acting. In such event, Issuer shall provide DTC
with similar evidence, satisfactory to DTC, of the authorization of any
successor thereto so to act.
14. Issuer: (a) understands that DTC has no obligation to, and will
not, communicate to its Participants or to any person having an interest in
the; Securities any information contained in the Security certificate(s);
and (b) acknowledges that neither DTC's Participants nor any person having an
interest in the Securities shall be deemed to have notice of the provisions of
the Security certificate(s) by virtue of submission of such certificate(s) to
DTC.
15. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.
16. The Issuer's Declaration of Trust provides that the Issuer shall
adjust the number of days in rate periods for Securities under certain
circumstances. If the Issuer determines to make such an adjustment, the Issuer
shall give DTC notice of such change in the number of days at least 10 calendar
days prior to the rate period for which such change is to be effective. Such
notice shall be in writing and shall be forwarded by secure means to the
address set forth in paragraph 6 hereof.
17. The Issuer will notify DTC, at least 10 business days prior to the
payment date for a Gross-up Payment (as defined in the Document) in respect of
the Securities, of (i) the record date for holders of Securities entitled to
receive Gross-up Payments, (ii) the amount of Gross-up Payments payable on a
per share basis to such holders and (iii) the CUSIP number set forth on the
share certificate representing such Securities.
Notes: Very truly yours,
A. If there is a Trust Company
(as defined in this Letter of Nuveen Insured Premium Income Municipal
Representations), Trust Company Fund 2
as well as Issuer must sign this --------------------------------------------
Letter. If there is no Trust (Issuer)
Company, in signing this Letter
Issuer itself undertakes to
perform all of the By:
obligations set forth herein. -----------------------------------------
(Authorized Officer's Signature)
B. Schedule A contains statements
that DTC believes accurately
describe DTC, the method of Bankers Trust Company
effecting book-entry transfers --------------------------------------------
of securities distributed through (Trust Company)
DTC, and certain related matters.
By:
-----------------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
BY:
----------------------------------
cc: Underwriter
Underwriter's Counsel
<PAGE> 1
EXHIBIT 99.5
Nuveen California Municipal Value Fund, Inc.
NUVEEN EXCHANGE-TRADED FUNDS
(except Nuveen Municipal Value Fund, Inc.)
Terms and Conditions of the Dividend Reinvestment Plan
------------------------------------------------------
This Dividend Reinvestment Plan for the Nuveen Exchange-Traded Funds
advised by Nuveen Advisory Corp. set forth on Exhibit A attached hereto (each, a
"Fund") provides for reinvestment of Fund distributions, consisting of income
dividends, returns of capital and capital gain distributions paid by the Fund,
on behalf of Fund shareholders electing to participate in the Plan
("Participants") by United States Trust Company of New York ("U.S. Trust"), the
Plan Agent, in accordance with the following terms:
1. U.S. Trust will act as Agent for Participants and will open an
account for each Participant under the Dividend Reinvestment Plan in the same
name as the Participant's shares are registered, and will put into effect for
each Participant the distribution reinvestment option of the Plan as of the
first record date for a distribution to shareholders after U.S. Trust receives
the Participant's authorization so to do, either in writing duly executed by the
Participant or by telephone notice satisfying such reasonable requirements as
U.S. Trust and the Fund may agree. In the case of shareholders who hold shares
for others who are the beneficial owners, U.S. Trust will administer the Plan on
the basis of the number of Shares certified from time to time by the record
shareholder as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are
Participants.
2. Whenever the Fund declares a distribution payable in shares or
cash at the option of the shareholders, each Participant shall take such
distribution entirely in shares and U.S. Trust shall automatically receive such
shares, including fractions, for the Participant's account, except in
circumstances described in Paragraph 3 below. Except in such circumstances, the
number of additional shares to be credited to each Participant's account shall
be determined by dividing the dollar amount of the distribution payable on the
Participant's shares by the current market price per share on the payable date
for such distribution.
3. Should the net asset value per Fund share exceed the market price
per share on the day for which trades will settle on the payment date for such
distribution (the "Valuation Date") for a distribution payable in shares or in
cash at the option of the shareholder, or should the Fund declare a distribution
payable only in cash, each Participant shall take such distribution in cash and
U.S. Trust shall apply the amount of such distribution to the purchase on the
open market of shares of the Fund for the Participant's account. Such Plan
purchases shall be made as early as the Valuation Date, under the supervision of
the investment adviser. U.S. Trust shall
<PAGE> 2
complete such Plan purchases no more than 30 days after the Valuation Date,
except where temporary curtailment or suspension of purchases is necessary to
comply with applicable provisions of federal securities law.
4. For the purpose of this Plan, the market price of the Fund's
shares on a particular date shall be the last sale price on the Exchange where
it is traded on that date, or if there is no sale on such Exchange on that date,
then the mean between the closing bid and asked quotations for such shares on
such Exchange on such date.
5. Open-market purchases provided for above may be made on any
securities exchange where the Fund's shares are traded, in the over-the-counter
market or in negotiated transactions and may be on such terms as to price,
delivery and otherwise as U.S. Trust shall determine. Participants' funds held
uninvested by U.S. Trust will not bear interest, and it is understood that, in
any event, U.S. Trust shall have no liability in connection with any inability
to purchase shares within 30 days after the Valuation Date as herein provided,
or with the timing of any purchases affected. U.S. Trust shall have no
responsibility as to the value of the Fund's shares acquired for Participants'
accounts. U.S. Trust may commingle all Participants' amounts to be used for
open-market purchases of Fund shares and the price per share allocable to each
Participant in connection with such purchases shall be the average price
(including brokerage commissions and other related costs) of all Fund shares
purchased by U.S. Trust as Agent.
6. U.S. Trust may hold each Participant's shares acquired pursuant to
this Plan, together with the shares of other Participants, in non-certificated
form in U.S. Trust's name or that of its nominee. U.S. Trust will forward to
each Participant any proxy solicitation material and will vote any shares so
held only in accordance with proxies returned to the Fund.
7. U.S. Trust will confirm to each Participant each acquisition made
for the Participant's account as soon as practicable but not later than 60 days
after the date thereof. U.S. Trust will deliver to any Participant upon
request, without charge, a certificate or certificates for his full shares.
Although a Participant may from time to time have an undivided fractional
interest (computed to three decimal places) in a share of the Fund, and
distributions on fractional shares will be credited to the Participant's
account, no certificates for a fractional share will be issued. In the event
of termination of a Participant's account under the Plan, U.S. Trust will adjust
for any such undivided fractional interest at the market value of the Fund's
shares at the time of termination.
8. Any stock dividends or split shares distributed by the Fund on
full and fractional shares held by U.S. Trust for a Participant will be credited
to the Participant's account. In the event that the Fund makes available to its
shareholders rights to purchase additional shares or other securities, the
shares held for each Participant under the Plan will be added to other shares
held by the Participant in calculating the number of rights to be issued to that
Participant.
2
<PAGE> 3
9. U.S. Trust's service fee for handling reinvestment of
distributions pursuant hereto will be paid by the Fund. Participants will be
charged their pro rata shares of brokerage commissions on all open market
purchases.
10. Each Participant may terminate his account under the Plan by
notifying U.S. Trust of his intent so to do, such notice to be provided either
in writing duly executed by the Participant or by telephone in accordance with
such reasonable requirements as U.S. Trust and the Fund may agree. Such
termination will be effective immediately if notice is received by U.S. Trust
not less than ten days prior to any distribution record date for the next
succeeding distribution; otherwise such termination will be effective shortly
after the investment of such distribution with respect to all subsequent
distributions. The Plan may be terminated by the Fund or U.S. Trust upon at
least 90 days prior notice. Upon any termination, U.S. Trust will cause a
certificate or certificates for the full shares held for each Participant under
the Plan and cash adjustment for any fraction to be delivered to the Participant
without charge. If any Participant elects in advance of such termination to
have U.S. Trust sell part or all of his shares, U.S. Trust is authorized to
deduct from the proceeds a $2.50 fee plus the brokerage commissions incurred for
the transaction.
11. These terms and conditions may be amended or supplemented by U.S.
Trust or the Fund at any time or times but, except when necessary or appropriate
to comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to each
Participant appropriate written notice at least 90 days prior to the effective
date thereof. The amendment or supplement shall be deemed to be accepted by
each Participant unless, prior to the effective date thereof, U.S. Trust
receives notice of the termination of such Participant's account under the Plan
in accordance with the terms hereof. Any such amendment may include an
appointment by U.S. Trust in its place and stead of a successor Agent under
these terms and conditions. Upon any such appointment of any Agent for the
purpose of receiving distributions, the Fund will be authorized to pay to such
successor Agent, for each Participant's account, all dividends and distributions
payable on shares of the Fund held in the Participant's name or under the Plan
for retention or application by such successor Agent as provided in these terms
and conditions.
12. U.S. Trust shall at all times act in good faith and agree to use
its best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement and to comply with applicable law, but assumes no
responsibility and shall not be liable for loss or damage due to errors unless
such error is caused by its negligence, bad faith or willful misconduct or that
of its employees.
13. These terms and conditions shall be governed by the laws of the
State of New York.
3
<PAGE> 4
Exhibit A
Nuveen Municipal Income Fund, Inc.
Nuveen California Municipal Income Fund, Inc.
Nuveen New York Municipal Income Fund, Inc.
Nuveen Premium Income Municipal Fund, Inc.
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Municipal Market Opportunity Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Opportunity Municipal Fund, Inc.
Nuveen Premier Municipal Income Fund, Inc.
Nuveen Premier Insured Municipal Income Fund, Inc.
Nuveen Premium Income Municipal Fund 2, Inc.
Nuveen Premium Income Municipal Fund 4, Inc.
Nuveen Insured Premium Income Municipal Fund, Inc.
Nuveen Insured Premium Income Municipal Fund 2
Nuveen Select Maturities Fund
Nuveen California Municipal Value Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Insured California Premium Income Municipal Fund, Inc.
Nuveen Insured California Premium Income Municipal Fund 2, Inc.
Nuveen California Premium Income Municipal Fund
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Insured Florida Premium Income Municipal Fund
Nuveen New Jersey Investment Quality Municipal Fund, Inc.
Nuveen New Jersey Premium Income Municipal Fund, Inc.
Nuveen New York Municipal Value Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Insured New York Premium Income Municipal Fund, Inc.
Nuveen Pennsylvania Investment Quality Municipal Fund
Nuveen Pennsylvania Premium Income Municipal Fund 2
Nuveen Arizona Premium Income Municipal Fund, Inc.
Nuveen Connecticut Premium Income Municipal Fund
Nuveen Georgia Premium Income Municipal Fund
Nuveen Maryland Premium Income Municipal Fund
Nuveen Massachusetts Premium Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen Michigan Premium Income Municipal Fund, Inc.
Nuveen Missouri Premium Income Municipal Fund
Nuveen North Carolina Premium Income Municipal Fund
Nuveen Ohio Quality Income Municipal Fund, Inc.
Nuveen Texas Quality Income Municipal Fund
Nuveen Virginia Premium Income Municipal Fund
4
<PAGE> 5
Nuveen Washington Premium Income Municipal Fund
5
<PAGE> 1
EXHIBIT 99.6
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 20th day of July, 1993, by and between NUVEEN INSURED
PREMIUM INCOME MUNICIPAL FUND 2, a Massachusetts business trust (the "Fund"),
and NUVEEN ADVISORY CORP., a Delaware corporation (the "Adviser").
W I T N E S S E T H
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for,
and to manage the investment and reinvestment of the assets of the Fund in
accordance with the Fund's investment objective and policies and limitations,
and to administer the Fund's affairs to the extent requested by and subject to
the supervision of the Board of Trustees of the Fund for the period and upon
the terms herein set forth. The investment of the Fund's assets shall be
subject to the Fund's policies, restrictions and limitations with respect to
securities investments as set forth in the Fund's then current registration
statement under the Investment Company Act of 1940, and all applicable laws and
the regulations of the Securities and Exchange Commission relating to the
management of registered closed-end, diversified management investment
companies.
The Adviser accepts such employment and agrees during such period to render
such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services
<PAGE> 2
2
(other than such services, if any, provided by the Fund's transfer agent) for
the Fund, to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions,
and to assume the obligations herein set forth for the compensation herein
provided. The Adviser shall, for all purposes herein provided, be deemed to be
an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for nor represent the Fund in any
way, nor otherwise be deemed an agent of the Fund.
2. For the services and facilities described in Section 1, the Fund will pay
to the Adviser, at the end of each calendar month, an investment management fee
computed by applying the following annual rate to the average daily net assets
of the Fund:
RATE NET ASSETS
---- ----------
.6500% Up to $125 million
.6375% $125 to $250 million
.6250% $250 to $500 million
.6125% $500 million to $1 billion
.6000% $1 billion to $2 billion
.5875% $2 billion and over
For the month and year in which this Agreement becomes effective, or terminates,
there shall be an appropriate proration on the basis of the number of days that
the Agreement shall have been in effect during the month and year,
respectively. The services of the Adviser to the Fund under this Agreement are
not to be deemed exclusive, and the Adviser shall be free to render similar
services or other services to others so long as its services hereunder are not
impaired thereby.
<PAGE> 3
3
3. The Adviser shall arrange for officers or employees of the Adviser to
serve, without compensation from the Fund, as trustees, officers or agents of
the Fund, if duly elected or appointed to such positions, and subject to their
individual consent and to any limitations imposed by law.
4. Subject to applicable statutes and regulations, it is understood that
officers, trustees, or agents of the Fund are, or may be, interested in the
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested in
the Fund otherwise than as trustees, officers or agents.
5. The Adviser shall not be liable for any loss sustained by reason of the
purchase, sale or retention of any security, whether or not such purchase, sale
or retention shall have been based upon the investigation and research made by
any other individual, firm or corporation, if such recommendation shall have
been selected with due care and in good faith, except loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. The Adviser currently manages other investment accounts and funds, including
those with investment objectives similar to the Fund, and reserves the right to
manage other such accounts and funds in the future. Securities considered as
investments for the Fund may also be appropriate for other investment accounts
and funds that may be managed by the Adviser. Subject to applicable laws and
regulations, the Adviser will attempt to allocate equitably portfolio
<PAGE> 4
4
transactions among the portfolios of its other investment accounts and funds
purchasing securities whenever decisions are made to purchase or sell
securities by the Fund and one or more of such other accounts or funds
simultaneously. In making such allocations, the main factors to be considered
by the Adviser will be the respective investment objectives of the Fund and such
other accounts and funds, the relative size of portfolio holdings of the same
or comparable securities, the availability of cash for investment by the Fund
and such other accounts and funds, the size of investment commitments generally
held by the Fund and such accounts and funds, and the opinions of the persons
responsible for recommending investments to the Fund and such other accounts
and funds.
7. This Agreement shall continue in effect until August 1, 1994, unless and
until terminated by either party as hereinafter provided, and shall continue in
force from year to year thereafter, but only as long as such continuance is
specifically approved, at least annually, in the manner required by the
Investment Company Act of 1940.
This Agreement shall automatically terminate in the event of its
assignment, and may be terminated at any time without the payment of any
penalty by the Fund or by the Adviser upon sixty (60) days' written notice to
the other party. The Fund may effect termination by action of the Board of
Trustees or by vote of a majority of the outstanding voting securities of the
Fund, accompanied by appropriate notice.
This Agreement may be terminated, at any time, without the payment of
any penalty, by the Board of Trustees of the Fund, or by vote of a majority of
the outstanding voting securities
<PAGE> 5
5
of the Fund, in the event that it shall have been established by a court of
competent jurisdiction that the Adviser, or any officer or director of the
Adviser, has taken any action which results in a breach of the covenants of the
Adviser set forth herein.
Termination of this Agreement shall not affect the right of the Adviser
to receive payments on any unpaid balance of the compensation, described in
Section 2, earned prior to such termination.
8. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule, or otherwise, the remainder shall not be thereby
affected.
9. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for receipt of such notice.
10. The Fund's Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts. This Agreement is executed on behalf of the
Fund by the Fund's officers as officers and not individually and the
obligations imposed upon the Fund by this Agreement are not binding upon any of
the Fund's Trustees, officers or shareholders individually but are binding only
upon the assets and property of the Fund.
<PAGE> 6
6
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year above written.
NUVEEN INSURED PREMIUM INCOME
MUNICIPAL FUND 2
by: /s/ M
--------------------------
Vice President
Attest: /s/ Larry Martin
---------------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
by: /s/ Thomas C. Spalding
----------------------------
Vice President
Attest: /s/ R. Zimmerman
---------------------------
Assistant Secretary
<PAGE> 1
EXHIBIT 99.8
DIRECTORS' DEFERRED COMPENSATION PLAN
NUVEEN OPEN-END AND CLOSED-END FUNDS
1. PURPOSE
-------
The purpose of this Plan is to provide non-interested directors of Nuveen's
existing open-end and closed-end Funds and all future such Funds (the
"Funds") the opportunity to defer all or a portion of amounts payable to
them as compensation for services rendered as members of the Board of
Directors of each of the Funds ("directors' fees").
2. ELIGIBILITY
-----------
Any non-interested director for one or more of the Funds shall be eligible
to participate under this Plan. "Director" shall mean any person duly
elected as a member of the Board of Directors or Board of Trustees of any
of the Funds at the annual meeting of shareholders thereof. "Non-
interested director" shall mean any director who is not an "interested
person" of John Nuveen & Co. Incorporated or any affiliate thereof within
the meaning of Section 2(a)(19) of the Investment Company Act of 1940.
3. DEFERRAL OF DIRECTORS' FEES
---------------------------
Each non-interested director may elect to have all of his director's fee
for one or more of the Funds for any calendar year deferred under this
Plan. Such election shall be made by such director by the execution of a
written election to participate prior to the beginning of the calendar year
during which the director wishes to begin deferral, except that for any
person who is nominated as a non-interested director of any of the Funds
and was not a director on the December 31st immediately prior to his
election may, at any time prior to commencement of his term, elect to defer
all or any portion of the director's fee to which he may thereafter be
entitled with respect to the calendar year in which he is so elected. All
elections to defer directors' fees shall be made by the execution of a
Participation Agreement in the form attached to this Plan and made a part
hereof. A participating director's election to defer a particular year's
fee shall not be subject to amendment or withdrawal unless the amendment or
withdrawal is executed prior to the beginning of the calendar year in which
the fee is accrued. An election, once made, shall be irrevocable for the
next calendar year and shall continue in effect for subsequent years during
the deferral period until changed prospectively by the participating
director. Each non-interested director may elect to defer until the end of
a specified calendar year or until he or she is no longer a director of the
Funds. A director will be deemed to have elected to defer until the first
to occur of such events if he or she checks both such options in the
deferral period section of the Participation Agreement.
4. STATUS OF DEFERRED ACCOUNTS
---------------------------
Each of the Funds shall establish on its books a deferred liability
directors account for each participating director to accurately reflect its
liability to each such director. Title to, and beneficial ownership of,
any assets which each such Fund may earmark to pay the amount deferred
hereunder, shall at all times remain in such Fund and neither the
participating director nor any beneficiary of such director shall have any
property interest whatsoever in any specific assets of such Fund. Amounts
credited to such accounts shall not be construed to be held in trust or
escrow or in any form of asset segregation, it being understood that the
participating director's only interest hereunder is a contractual right to
receive the payments credited to his or her deferred liability directors
account. No director or any other person acquiring the right to receive
payments from any of the Funds under this Plan shall have greater rights
than the right of an unsecured general creditor of such Fund. Within a
reasonable time after each calendar year, each participating director shall
receive a statement from each Fund in which he has elected to defer
director's fees detailing the amount of director's fees credited to such
director's account during the prior calendar
<PAGE> 2
year, the amount of earnings credited thereto and the total amount credited
to such director's account as of the preceding December 31.
5. EARNINGS
--------
With respect to each Fund in which the director has elected to defer
director's fees and which has an accrued balance, on the last day of each
calendar quarter earnings at the average net earnings rate for that
calendar quarter on the shares of each such Fund shall be credited to the
deferred liability directors account for such Fund. The Administrators are
empowered to change the rate of earnings to be credited to deferred
liability directors accounts to a rate equivalent to the prevailing 90-day
U.S. Treasury bill rate at the beginning of each calendar quarter.
6. PAYMENT OF DEFERRED AMOUNTS
---------------------------
All payments of deferred amounts under this Plan, together with earnings
accrued thereon, shall be made in cash out of the general assets of the
applicable Fund. Payment shall be made as specified by the director in his
Participation Agreement.
7. PAYMENT IN DISCRETION OF ADMINISTRATORS
---------------------------------------
Amounts deferred hereunder, together with interest accrued thereon, may
become payable in the discretion of the Administrators:
A. to the participating director in the event of such director's total
disability. Such disability shall be deemed to have occurred if the
Administrators find on the basis of medical evidence satisfactory to
them that the participating director is prevented from engaging in any
suitable gainful employment or occupation and that such disability
will be permanent and continuous during the remainder of his or her
life;
B. to the participating director or any beneficiary entitled to receive
payment hereunder to alleviate demonstrated financial hardship. For
this purpose, hardship refers to circumstances beyond the control of
and severely affecting the director's or beneficiary's financial
affairs or clearly endangering his or her family with present or
impending want or privation. Any such payment shall be limited to an
amount necessary to relieve the immediate needs created by such
hardship.
8. ADMINISTRATORS
--------------
The Administrators of this Plan shall consist of the individuals holding
the office of Chairman of the Board, President and Executive Vice President
of the Funds and such other person or persons as the Board of Directors of
the Funds may, from time to time, designate except that no participating
director may serve as an Administrator. A majority of the Administrators
shall constitute a quorum for the transaction of business.
9. ACCELERATION OF PAYMENTS
------------------------
A. In the event of the liquidation, dissolution or winding up of a Fund
or the distribution of all or substantially all of a Fund's assets and
property to its shareholders (for this purpose a sale, conveyance or
transfer of a Fund's assets to a trust, partnership, association or
another corporation in exchange for cash, shares or other securities
with the transfer being made subject to, or with the assumption by the
transferee of, the liabilities of such Fund shall not be deemed a
termination of such Fund or such a distribution), the entire unpaid
balance of the deferred liability directors accounts of the Fund shall
be paid in a lump sum as of the effective date thereof.
B. The Administrators of the Plan are empowered to accelerate the payment
of deferred amounts to all participating directors and beneficiaries
in the event that there is a change in law which would
2
<PAGE> 3
have the effect of working a financial hardship on participating
directors if such acceleration did not occur.
10. AMENDMENT OR TERMINATION
------------------------
The Board of Directors of each Fund may in its sole discretion amend or
terminate this Plan at any time. No amendment or termination shall
adversely affect any then existing deferred amounts or rights under this
Plan.
11. MISCELLANEOUS
-------------
The rights and benefits of participating directors under this Plan and any
other person or persons to whom payments may be made pursuant to the Plan
shall not be subject to alienation, assignment, pledge, transfer or other
disposition, except as otherwise provided by law. Participation in this
Plan by any director shall not confer any right to be nominated for
election or re-election to the Board of Directors of any of the Funds.
3
<PAGE> 1
EXHIBIT 99.9.1
EXCHANGE TRADED FUND CUSTODY AGREEMENT
THIS AGREEMENT is made this 21st day of July, 1993 by and between
NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2, (the "Fund"), and UNITED STATES
TRUST COMPANY OF NEW YORK, a New York State chartered bank and trust company
("U.S. Trust").
W I T N E S S E T H
WHEREAS, the Fund is registered as a closed-end diversified, management
investment company under the Investment Company Act of 1940, as amended ("the
1940 Act"); and
WHEREAS, the Fund desires to retain U.S. Trust to serve as the Fund's
custodian and U.S. Trust is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints U.S. Trust to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. U.S. Trust accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as
provided in Section 23 of this Agreement.
2. DELIVERY OF DOCUMENTS. The Fund has furnished U.S. Trust with
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the
appointment of U.S. Trust as Custodian of the portfolio securities, cash and
other property of the Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Fund's officers and/or the persons authorized to sign
Proper Instructions, as hereinafter defined, on behalf of the Fund;
1
<PAGE> 2
(c) The Fund's Declaration of Trust filed with the Commonwealth of
Massachusetts and all amendments thereto (such Declaration of Trust as
currently in effect and as amended from time to time, is herein called the
("Declaration");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws"),
(e) Resolutions of the Fund's Board of Trustees appointing the
investment advisor of the Fund and resolutions of the Fund's Board of Trustees
and the Fund's Shareholders approving the proposed Investment Advisory
Agreement between the Fund and the advisor (the "Advisory Agreement");
(f) The Advisory Agreement
(g) The Fund's Notification of Registration filed pursuant to Section
8(a) of the 1940 Act, as filed with the SEC; and
(h) The Fund's Registration Statement on Form N-2 under the 1940 Act
and the Securities Act of 1933, as amended ("the 1933 Act") as filed with the
SEC; and
(i) The Fund's most recent prospectus including all amendments and
supplements thereto (the "Prospectus").
Upon request the Fund will furnish U.S. Trust with copies of all
amendments of or supplements to the foregoing, if any. The Fund will also
furnish U.S. Trust upon request with a copy of the opinion of counsel for the
Fund with respect to the validity of the Shares and the status of such Shares
under the 1933 Act filed with the SEC, and any other applicable federal law or
regulation.
3. DEFINITIONS.
(a) "Authorized Person". As used in this Agreement, the term
"Authorized Person" means the Fund's President, Treasurer and any other person,
whether or not any such person is an officer or employee of the Fund, duly
authorized by the Board of Trustees of the Fund to give Proper Instructions on
behalf of the Fund as set forth in resolutions of the Fund's Board of Trustees.
2
<PAGE> 3
(b) "Book-Entry System". As used in this Agreement, the term
"Book-Entry System" means a book-entry system authorized by the U.S. Department
of Treasury, its successor or successors and its nominee or nominees.
(c) Proper Instructions. Proper Instructions as used herein means a
writing signed or initialled by two or more persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if U.S. Trust reasonably believes them
to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board of Trustees of the
Fund accompanied by a detailed description of procedures approved by the Board
of Trustees, Proper Instructions may include communications effected directly
between electromechanical or electronic devices provided that the Board of
Trustees and U.S. Trust are satisfied that such procedures afford adequate
safeguards for the Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by U.S. Trust pursuant to any
three-party agreement which requires a segregated asset account in accordance
with Section 9.
(d) "Property". The term "Property", as used in this Agreement, means:
(i) any and all securities and other property of the Fund
which the Fund may from time to time deposit, or cause to be
deposited, with U.S. Trust or which U.S. Trust may from time
to time hold for the Fund;
(ii) all income in respect of any such securities or other
property;
(iii) all proceeds of the sales of any of such securities or
other property; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by U.S. Trust from time to time from
or on behalf of the Fund.
3
<PAGE> 4
(e) "Securities Depository". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee
or nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of a
resolution of the Company's Board of Trustees approving deposits by U.S. Trust
therein.
4. DELIVERY AND REGISTRATION OF THE PROPERTY. The Fund will deliver
or cause to be delivered to U.S. Trust all securities and all monies owned by
it, including payments of interest, principal and capital distributions and
cash received for the issuance of its Shares, at any time during the period of
this Agreement, except for securities and monies to be delivered to any
subcustodian appointed pursuant to Section 7 hereof. U.S. Trust will not be
responsible for such securities and such monies until actually received by it.
All securities delivered to U.S. Trust or to any such subcustodian (other than
in bearer form) shall be registered in the name of the Fund or in the name of a
nominee of the Fund or in the name of U.S. Trust or any nominee of U.S. Trust
(with or without indication of fiduciary status) or in the name of any
subcustodian or any nominee of such subcustodian appointed pursuant to
Paragraph 7 hereof or shall be properly endorsed and in form for transfer
satisfactory to U.S. Trust.
5. VOTING RIGHTS. With respect to all securities, however registered,
it is understood that the voting and other rights and powers shall be exercised
by the Fund. U.S. Trust's only duty shall be to mail for delivery on the next
business day to the Fund any documents received, including proxy statements and
offering circulars, with any proxies for securities registered in a nominee
name executed by such nominee. Where warrants, options, tenders or other
securities have fixed expiration dates, the Fund understands that in order for
U.S. Trust to act, U.S. Trust must receive the Fund's instructions at its
offices in New York, addressed as U.S. Trust may from time to time request, by
no later than noon (NY City time) at least one business day prior to the last
scheduled date to act with respect
4
<PAGE> 5
thereto (or such earlier date or time as U.S. Trust may reasonably notify the
Fund). Absent U.S. Trust's timely receipt of such instructions, such
instruments will expire without liability to U.S. Trust.
6. RECEIPT AND DISBURSEMENT OF MONEY.
(a) U.S. Trust shall open and maintain a custody account for the Fund,
subject only to draft or order by U.S. Trust acting pursuant to the terms of
this Agreement, and shall hold in such account, subject to the provisions
hereof, all cash received by it from or for the Fund other than cash maintained
by the Fund in a bank account established and used in accordance with Rule
17f-3 under the 1940 Act. Funds held by U.S. Trust for the Fund may be
deposited by it to its credit at U.S. Trust in the Banking Department of U.S.
Trust or in such other banks or trust companies as it may in its discretion
deem necessary or desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the 1940 Act, and that
each such bank or trust company shall be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by U.S. Trust in
its capacity as Custodian and shall be withdrawable by U.S. Trust only in that
capacity.
(b) Upon receipt of Proper Instructions (which may be continuing
instructions as deemed appropriate by the parties) U.S. Trust shall make
payments of cash to, or for the account of, the Fund from such cash only (i)
for the purchase of securities, options, futures contracts or options on
futures contracts for the Fund as provided in Section 13 hereof; (ii) in the
case of a purchase of securities effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section 8
hereof; (iii) in the case of repurchase agreements entered into between the
Fund and U.S. Trust, or another bank, or a broker-dealer which is a member of
The National Association of Securities Dealers, Inc. ("NASD"), either (a)
against delivery of the securities either in certificate form or through an
entry crediting U.S. Trust's account at the Federal Reserve Bank with such
securities or (b) against delivery of the receipt evidencing purchase by the
Fund of securities owned by
5
<PAGE> 6
U.S. Trust along with written evidence of the agreement by U.S. Trust to
repurchase such securities from the Fund, (iv) for transfer to a time deposit
account of the Fund in any bank, whether domestic or foreign; such transfer may
be effected prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund; (v) for the
payment of dividends or other distributions on shares declared pursuant to the
governing documents of the Fund, or for the payment of interest, taxes,
administration, distribution or advisory fees or expenses which are to be borne
by the Fund under the terms of this Agreement, any Advisory Agreement, or any
administration agreement; (vi) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by the Fund and held
by or to be delivered to U.S. Trust; (vii) to a subcustodian pursuant to
Section 7 hereof; (viii) for such common expenses incurred by the Fund in the
ordinary course of its business, including but not limited to printing and
mailing expenses, legal fees, accountants fees, exchange fees. Or (ix) for any
other proper purpose, but only upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of Trustees or of
the Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
(c) U.S. Trust is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for the
Fund.
6A. ADVANCES BY CUSTODIAN. The Fund may from time to time purchase
securities for settlement payable in "next day" funds and provide for payment
for such transactions by selling securities for settlement in "same day" funds
settling on the day after settlement of the Fund's purchase transaction. Under
these circumstances the Fund may require the Custodian to advance funds in
amounts not exceeding 20% of the value of the Fund's assets at the time of the
advance funds in amounts not exceeding 20% of the value of the Fund's assets at
the time of the advance for payment of the securities purchase
6
<PAGE> 7
transaction, and the Custodian shall recover an amount equal to its advance,
without interest, from the proceeds of the securities sale. In addition to the
foregoing, the Custodian may from time to time agree to advance cash to the
Fund, without interest, for the Fund's other proper corporate purposes. If the
Custodian advances cash for any purpose, the Fund shall and hereby does grant
to the Custodian a security interest in Fund securities equal in value to the
amount of the cash advance but in no event shall the value of securities in
which a security interest has been granted exceed 20% of the value of the
Fund's total assets at the time of the pledge; should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize available
cash to reasonably dispose of any securities in which it has a security
interest to the extent necessary to obtain reimbursement.
7. RECEIPT AND DELIVERY OF SECURITIES.
(a) Except as provided by Section 8 hereof, U.S. Trust shall hold and
physically segregate all securities and noncash Property received by it for the
Fund. All such securities and non-cash Property are to be held or disposed of
by U.S. Trust for the Fund pursuant to the terms of this Agreement. In the
absence of Proper Instructions accompanied by a certified resolution
authorizing the specific transaction by the Fund's Board, U.S. Trust shall have
no power or authority to withdraw, deliver, assign, hypothecate, pledge or
otherwise dispose of any such securities and investments, except in accordance
with the express terms provided for in this Agreement. In no case may any
trustee, officer, employee or agent of the Fund withdraw any securities. In
connection with its duties under this Section 7, U.S. Trust may, at its own
expense, enter into subcustodian agreements with other banks or trust companies
for the receipt of certain securities and cash to be held by U.S. Trust for the
account of the Fund pursuant to this Agreement; provided that each such bank or
trust company has an aggregate capital, surplus and undivided profits, as shown
by its last published report, of not less than twenty million dollars
($20,000,000) and that such bank or trust company agrees with U.S. Trust to
comply with all relevant provisions of the 1940 Act and applicable rules and
regulations
7
<PAGE> 8
thereunder. U.S. Trust will be liable for acts or omissions of any
subcustodian. U.S. Trust shall employ sub-custodians upon receipt of Proper
Instructions, but only in accordance with an applicable vote by the Board of
Trustees of the Fund.
(b) Promptly after the close of business on each day U.S. Trust shall
furnish the Fund with confirmations and a summary of all transfers to or from
the account of the Fund during said day. Where securities are transferred to
the account of the Fund established at a Securities Depository or Book Entry
System pursuant to Section 8 hereof, U.S. Trust shall also by book-entry or
otherwise identify as belonging to such Fund the quantity of securities in a
fungible bulk of securities registered in the name of U.S. Trust (or its
nominee) or shown in U.S. Trust's account on the books of a Securities
Depository or Book-Entry System. At least monthly and from time to time, U.S.
Trust shall furnish the Fund with a detailed statement of the Property held for
the Fund under this Agreement.
8. USE OF SECURITIES DEPOSITORY OR BOOK-ENTRY SYSTEM. The Fund shall
deliver to U.S. Trust a certified resolution of the Board of Trustees of the
Fund approving, authorizing and instructing U.S. Trust on a continuous and
ongoing basis until instructed to the contrary by Proper Instructions actually
received by U.S. Trust (i) to deposit in a Securities Depository or Book-Entry
System all securities of the Fund eligible for deposit therein and (ii) to
utilize a Securities Depository or Book-Entry System to the extent possible in
connection with the performance of its duties hereunder, including without
limitation settlements of purchases and sales of securities by the Fund, and
deliveries and returns of securities collateral in connection with borrowings.
Without limiting the generality of such use, it is agreed that the following
provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or Book-Entry System will at all times (1) be represented in an
account of U.S. Trust in the Securities Depository or Book Entry System (the
"Account") and (2) be segregated from any assets and cash controlled by
U.S. Trust in other than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities. U.S. Trust will effect
8
<PAGE> 9
payment for securities and receive and deliver securities in accordance with
accepted industry practices as set forth in (b) below, unless the Fund has
given U.S. Trust Proper Instructions to the contrary. The records of U.S. Trust
with respect to securities of the Fund maintained in a Securities Depository or
Book Entry System shall identify by book-entry those securities belonging to the
Fund.
(b) U.S. Trust shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities Depository or Book
Entry System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of U.S. Trust to reflect such
payment and transfer for the account of the Fund. Upon receipt of Proper
Instructions, U.S. Trust shall transfer securities sold for the account of the
Fund upon (i) receipt of advice from the Securities Depository or Book Entry
System that payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of U.S. Trust to reflect such
transfer and payment for the account of the Fund. Copies of all advices from
the Securities Depository or Book Entry System of transfers of securities for
the account of the Fund shall identify the Fund, be maintained for the Fund by
U.S. Trust and be provided to the Fund at its request. Upon request, U.S. Trust
shall furnish the Fund confirmation of each transfer to or from the account of
the Fund in the form of a written advice or notice and shall furnish to the
Fund copies of daily transaction sheets reflecting each day's transactions in a
Securities Depository or Book Entry System for the account of the Fund.
(c) U.S. Trust shall provide the Fund with any report obtained by U.S.
Trust on the Securities Depository or Book Entry System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the Securities Depository or Book Entry System;
(d) All Books and records maintained by U.S. Trust which relate to
the Fund participation in a Securities Depository or Book-Entry System will at
all times during U.S. Trust's regular business hours be open to the inspection
of the Fund's duly authorized
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<PAGE> 10
employees or agents, and the Fund will be furnished with all information in
respect of the services rendered to it as it may require.
(e) Anything to the contrary in this Agreement notwithstanding, U.S.
Trust shall be liable to the Fund for any loss or damage to the Fund resulting
from any negligence, misfeasance or misconduct of U.S. Trust or any of its
agents or of any of its or their employees in connection with its or their use
of the Securities Depository or Book Entry Systems or from failure of U.S.
Trust or any such agent to enforce effectively such rights as it may have
against such Securities Depository or Book Entry System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of U.S. Trust with
respect to any claim against the Securities Depository or Book Entry System or
any other person which U.S. Trust may have as a consequence of any such loss or
damage if and to the extent that the Fund has not been made whole for any such
loss or damage.
9. SEGREGATED ACCOUNT. U.S. Trust shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by U.S. Trust
pursuant to Section 8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, U.S. Trust and a brokerdealer registered under the
Securities and Exchange Act of 1934 and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the Fund,
(iii) for the purposes of compliance by the Fund with the procedures required
by Investment Company Act Release No. 10666, or any subsequent release or
releases of the
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Securities and Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of Trustees
or of the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper corporate
purposes.
10. INSTRUCTIONS CONSISTENT WITH THE DECLARATION, ETC.
(a) Unless otherwise provided in this Agreement, U.S. Trust shall act
only upon Proper Instructions. U.S. Trust may assume that any Proper
Instruction received hereunder are not in any way inconsistent with any
provision of the Declaration or By-Laws or any vote or resolution of the Fund's
Board of Trustees or any committee thereof. U.S. Trust shall be entitled to
rely upon any Proper Instructions actually received by U.S. Trust pursuant to
this Agreement. The Fund agrees that U.S. Trust shall incur no liability in
acting in good faith upon Proper Instructions given to U.S. Trust, except to
the extent such liability was incurred as a result of U.S. Trust's negligence
or willful misconduct. In accord with instructions from the Fund, as required
by accepted industry practice or as U.S. Trust may elect in effecting the
execution of Fund instructions, advances of cash or other Property made by U.S.
Trust, arising from the purchase, sale, redemption, transfer or other
disposition of Property of the Fund, or in connection with the disbursement of
funds to any party, or in payment of fees, expenses, claims or liabilities owed
to U.S. Trust by the Fund, or to any other party which has secured judgment in
a court of law against the Fund which creates an overdraft in the accounts or
overdelivery of Property, shall be deemed a loan by U.S. Trust to the Fund,
payable on demand, bearing interest at such rate customarily charged by U.S.
Trust for similar loans.
(b) The Fund agrees that test arrangements, authentication methods or
other security devices to be used with respect to instructions which the Fund
may give by
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telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess,
or through an electronic instruction system, shall be processed in accordance
with terms and conditions for the use of such arrangements, methods or devices
as U.S. Trust may put into effect and modify from time to time. The Fund shall
safeguard any test keys, identification codes or other security devices which
U.S. Trust makes available to the Fund and agrees that the Fund shall be
responsible for any loss, liability or damage incurred by U.S. Trust or by the
Fund as a result of U.S. Trust's acting in accordance with instructions from
any unauthorized person using the proper security device except to the extent
such loss, liability or damage was incurred as a result of U.S. Trust's
negligence or willful misconduct. U.S. Trust may electronically record, but
shall not be obligated to so record, any instructions given by telephone and
any other telephone discussions with respect to the Fund. In the event that the
Fund uses U.S. Trust's Asset Management system or any successor electronic
communications or information system, the Fund agrees that U.S. Trust is not
responsible for the consequences of the failure of that system to perform for
any reason, beyond the reasonable control of U.S. Trust, or the failure of any
communications carrier, utility, or communications network. In the event that
system is inoperable, the Fund agrees that it will accept the communication of
transaction instructions by telephone, facsimile transmission on equipment
compatible to U.S. Trust's facsimile receiving equipment or by letter, at no
additional charge to the Fund.
(c) U.S. Trust shall transmit promptly to the Fund all written
information (including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund and the maturity of
futures contracts purchased or sold by the Fund) received by U.S. Trust from
issuers of the securities being held for the Fund. With respect to tender or
exchange offers, U.S. Trust shall transmit promptly by facsimile to the Fund
all written information received by U.S. Trust from issuers of the securities
whose tender or exchange is sought and from the party (or his agents) making
the tender or exchange offer. If the Fund desires to
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take action with respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall notify U.S. Trust at least three business
days prior to the date on which U.S. Trust is to take such action or upon the
date such notification is first received by the Fund, if later. If any Property
registered in the name of a nominee of U.S. Trust is called for partial
redemption by the issuer of such property, U.S. Trust is authorized to allot
the called portion to the respective beneficial holders of the Property in such
manner deemed to be fair and equitable by U.S. Trust in its sole discretion.
11. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. U.S. Trust is authorized
to take the following action without Proper Instructions:
(a) COLLECTION OF INCOME AND OTHER PAYMENTS. U.S. Trust shall:
(i) collect and receive on a timely basis for the account of the
Fund, all income and other payments and distributions, including
(without limitation) stock dividends, rights, warrants and similar
items, included or to be included in the Property of the Fund, and
promptly advise the Fund of such receipt and shall credit such
income, as collected, to the Fund. From time to time, U.S. Trust
may elect, but shall not be obligated, to credit the account with
interest, dividends or principal payments on payable or
contractual settlement date, in anticipation of receiving same
from a payor, central depository, broker or other agent employed
by the Fund or U.S. Trust. Any such crediting and posting shall be
at the Fund's sole risk, and U.S. Trust shall be authorized to
reverse any such advance posting in the event it does not receive
good funds from any such payor, central depository, broker or
agent of the Customer. U.S. Trust agrees to promptly notify the
Fund of the reversal of any such advance posting.
(ii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the
same day as received;
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(iii) receive and hold for the account of the Fund all securities
received by the Fund as a result of a stock dividend, share
split-up or reorganization, merger, recapitalization, readjustment
or other rearrangement or distribution of rights or similar
securities issued with respect to any portfolio securities of the
Fund held by U.S. Trust hereunder;
(iv) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed or
retired, or otherwise become payable on the date such securities
become payable;
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income and
other payments and the endorsement for collection of checks,
drafts and other negotiable instruments; (vi) to effect an
exchange of the securities where the par value is changed, and to
surrender securities at maturity or upon an earlier call for
redemption, or when securities otherwise become payable, against
payment therefore in accordance with accepted industry practice.
If any Property registered in the name of a nominee of U.S. Trust
is called for partial redemption by the issuer of such property,
U.S. Trust is authorized to allot the called portion to the
respective beneficial holders of the Property in such manner
deemed to be fair and equitable by U.S. Trust in its sole
discretion.
(b) Miscellaneous Transactions. U.S. Trust is authorized to deliver or
cause to be delivered Property against payment or other consideration or
written receipt therefore for examination by a dealer selling for the account
of the Fund in accordance with street delivery custom.
12. TRANSACTIONS REQUIRING INSTRUCTIONS. In addition to the actions
requiring Proper Instructions set forth herein, upon receipt of Proper
Instructions and not otherwise, U.S. Trust, directly or through the use of a
Securities Depository or Book-Entry System, shall:
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(a) Execute and deliver to such persons as may be designated in such
Proper Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
issuer of securities or corporation, or the exercise of any conversion
privilege;
(c) Deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any issuer of securities or corporation, against receipt of such
certificates of deposit, interim receipts or other instruments or documents,
and cash, if any, as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by the Fund; provided, however, that securities shall be released only upon
payment to U.S. Trust of the monies borrowed, or upon receipt of adequate
collateral as agreed upon by the Fund and U.S. Trust which may be in the
form of cash or obligations issued by the U.S. government, its agencies or
instrumentalities, except that in cases where additional collateral is required
to secure a borrowing already made, subject to proper prior authorization,
further securities may be released for that purpose; and pay such loan upon
redelivery to it of the securities pledged or hypothecated therefore and upon
surrender of the note or notes evidencing the loan; and
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<PAGE> 16
(f) Deliver securities in accordance with the provisions of
any agreement among the Fund, U.S. Trust and a brokerdealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Funds;
(g) Deliver securities in accordance with the provisions of any
agreement among the Fund, U.S. Trust and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund; and
(h) Deliver securities against payment of other consideration or
written receipt therefor for transfer of securities into the name of the Fund
or U.S. Trust or a nominee of either, or for exchange or securities for a
different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to U.S. Trust;
(i) Exchange securities in temporary form for securities in definitive
form;
(j) Surrender, in connection with their exercise, warrants, rights or
similar securities, provided that in each case, the new securities and cash, if
any, are to be delivered to U.S. Trust;
(k) Deliver securities upon receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
(l) Deliver securities pursuant to any other proper corporate purpose,
but only upon receipt of, in addition to Proper Instructions, a certified copy
of a resolution of the Board of Trustees or of the Executive Committee signed
by an officer of the Funds and certified by the Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting
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<PAGE> 17
forth the purpose for which such delivery is to be made, declaring such purpose
to be a proper corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
13. PURCHASE OF SECURITIES. Promptly after each purchase of
securities, options, futures contracts or options on futures contracts by the
investment advisor, the Fund shall deliver to U.S. Trust (as Custodian) Proper
Instructions specifying with respect to each such purchase: (a) the name of the
issuer and the title of the securities, (b) the number of shares of the
principal amount purchased and accrued interest, if any, (c) the dates of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made and (g) the Fund name. U.S. Trust shall upon
receipt of securities purchased by or for the Fund registered in the name of
the Fund or in the name of a nominee of U.S. Trust or of the Fund or in proper
form for transfer or upon receipt of evidence of title to options, futures
contracts or options on futures contracts purchased by the Fund, pay out of the
monies held for the account of the Fund the total amount payable to the person
from whom or the broker through whom the purchase was made, provided that the
same conforms to the total amount payable as set forth in such Proper
Instructions. Except as specifically stated otherwise in this Agreement, in any
and every case where payment for purchase of securities for the account of the
Fund is made by U.S. Trust in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund to so pay in
advance, U.S. Trust shall be absolutely liable to the Fund for such securities
to the same extent as if the securities had been received by U.S. Trust.
14. SALE OF SECURITIES. Promptly after each sale of securities by the
Fund at the instruction of the investment advisor, the Fund shall deliver to
U.S. Trust (as Custodian) Proper Instructions, specifying with respect to each
such sale; (a) the name of the issuer and the title of the security, (b) the
number of shares or principal amount sold, and accrued interest, if any, (c)
the date of sale, (d) the sale price per unit, (e) the total amount payable to
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<PAGE> 18
the Fund upon such sale, (f) the name of the broker through whom or the person
to whom the sale was made and (g) the Fund name. U.S. Trust shall deliver the
securities upon receipt of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in
such Proper Instructions. Subject to the foregoing, U.S. Trust may accept
payment in such form as shall be satisfactory to it, and may deliver securities
and arrange for payment in accordance with the customs prevailing among dealers
in securities.
15. AUTHORIZED SHARES. The Fund has an unlimited number of authorized
shares.
16. RECORDS. The books and records pertaining to the Fund which are in
the possession of U.S. Trust shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act, as
amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representative, shall have access to such books
and records at all times during U.S. Trust's normal business hours, and such
books and records shall be surrendered to the Fund promptly upon request. Upon
reasonable request of the Fund, copies of any such books and records shall be
provided by U.S. Trust to the Fund or the Fund's authorized representative at
the Fund's expense.
17. COOPERATION WITH ACCOUNTANTS. U.S. Trust shall cooperate with the
Fund's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure
that the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's Form N-2, Form N-SAR and other reports to the
Securities and Exchange Commission and with respect to any other requirement of
such Commission.
18. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. U.S. Trust
shall provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system, internal
accounting control and
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procedures for safeguarding securities, futures contracts and options on
futures contracts, including securities deposited and/or maintained in a
Securities Depository or Book Entry System, relating to the services provided
by U.S. Trust under this Contract; such reports, shall be of sufficient scope
and in sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so state.
19. CONFIDENTIALITY. U.S. Trust agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the
Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to the advisors and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Fund, which approval shall not be unreasonably withheld and may not be withheld
where U.S. Trust may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Fund. Nothing contained
herein, however, shall prohibit U.S. Trust from advertising or soliciting the
public generally with respect to other products or services, regardless of
whether such advertisement or solicitation may include prior, present or
potential Shareholders of the Fund.
20. EQUIPMENT FAILURES. In the event of equipment failures beyond U.S.
Trust's control, U.S. Trust shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall not have
liability with respect thereto. U.S. Trust shall enter into and shall maintain
in effect with appropriate parties one or more agreements making reasonable
provisions for back up emergency use of electronic data processing equipment to
the extent appropriate equipment is available.
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<PAGE> 20
21. RIGHT TO RECEIVE ADVICE.
(a) Advice of Fund. If U.S. Trust shall be in doubt as to any action
to be taken or omitted by it, it may request, and shall receive, from the Fund
clarification or advice.
(b) Advice of Counsel. If U.S. Trust shall be in doubt as to any
question of law involved in any action to be taken or omitted by U.S. Trust, it
may request advice at its own cost from counsel of its own choosing (who may be
counsel for the Fund or U.S. Trust, at the option of U.S. Trust).
(c) Conflicting Advice. In case of conflict between directions or
advice received by U.S. Trust pursuant to subparagraph (a) of this paragraph
and advice received by U.S. Trust pursuant to subparagraph (b) of this
paragraph, U.S. Trust shall be entitled to rely on and follow the advice
received pursuant to the latter provision alone.
(d) Protection of U.S. Trust. U.S. Trust shall be protected in any
action or inaction which it takes or omits to take in reliance on any
directions or advice received pursuant to subparagraphs (a) or (b) of this
section which U.S. Trust, after receipt of any such directions or advice, in
good faith believes to be consistent with such directions or advice. However,
nothing in this paragraph shall be construed as imposing upon U.S. Trust any
obligation (i) to seek such directions or advice, or (ii) to act in accordance
with such directions or advice when received, unless, under the terms of
another provision of this Agreement, the same is a condition to U.S. Trust's
properly taking or omitting to take such action. Nothing in this subsection
shall excuse U.S. Trust when an action or omission on the part of U.S. Trust
constitutes willful misfeasance, bad faith, negligence or reckless disregard by
U.S. Trust of its duties under this Agreement.
22. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Fund
assumes full responsibility for insuring that the contents of each Prospectus
of the Fund complies with all applicable requirements of the 1933 Act, the 1940
Act, and any laws, rules and regulations of governmental authorities having
jurisdiction.
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<PAGE> 21
23. COMPENSATION. As compensation for the services rendered by U.S.
Trust during the term of this Agreement, the Fund will pay to U.S. Trust, in
addition to reimbursement of its out-of-pocket expenses, monthly fees as
outlined in Exhibit A.
24. INDEMNIFICATION. The Fund, as sole owner of the Property, agrees
to indemnify and hold harmless U.S. Trust and its nominees from all taxes,
charges, expenses, assessments, claims, and liabilities (including, without
limitation, liabilities arising under the 1933 Act, the Securities Exchange Act
of 1934, the 1940 Act, and any state and foreign securities and blue sky laws,
all as or to be amended from time to time) and expenses, including (without
limitation) attorney's fees and disbursements (hereafter "liabilities and
expenses"), arising directly or indirectly from any action or thing which U.S.
Trust takes or does or omits to take or do (i) at the request or on the
direction of or in reliance on the advice of the Fund, or (ii) upon Proper
Instructions, provided, that neither U.S. Trust nor any of its nominees or
sub-custodians shall be indemnified against any liability to the Fund or to its
Shareholders (or any expenses incident to such liability) arising out of (x)
U.S. Trust's or such nominee's or sub-custodian's own willful misfeasance, bad
faith, negligence or reckless disregard of its duties under this Agreement or
any agreement between U.S. Trust and any nominee or subcustodian or (y) U.S.
Trust's own negligent failure to perform its duties under this Agreement. U.S.
Trust similarly agrees to indemnify and hold harmless the fund from all
liabilities and expenses arising directly or indirectly from U.S. Trust's or
such nominee's or sub-custodian's willful misfeasance, bad faith, negligence or
reckless disregard in performing its duties under this agreement. In the event
of any advance of cash for any purpose made by U.S. Trust resulting from orders
or Proper Instructions of the Fund, or in the event that U.S. Trust or its
nominee or subcustodian shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's or
sub-custodian's own negligent action, negligent failure to act, willful
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<PAGE> 22
misconduct, or reckless disregard, the Fund shall promptly reimburse U.S. Trust
for such advance of cash or such taxes, charges, expenses, assessments claims
or liabilities.
25. RESPONSIBILITY OF U.S. TRUST. In the performance of its duties
hereunder, U.S. Trust shall be obligated to exercise care and diligence and to
act in good faith to insure the accuracy and completeness of all services
performed under this Agreement. U.S. Trust shall be responsible for its own
negligent failure or that of any subcustodian it shall appoint to perform its
duties under this Agreement but to the extent that duties, obligations and
responsibilities are not expressly set forth in this Agreement, U.S. Trust
shall not be liable for any act or omission which does not constitute willful
misfeasance, bad faith, or negligence on the part of U.S. Trust or such
subcustodian or reckless disregard of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, U.S. Trust in connection with its duties
under this Agreement shall, so long as and to the extent it is in the exercise
of reasonable care, not be under any duty or obligation to inquire into and
shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any advice, direction, notice or other instrument
which conforms to the applicable requirements of this Agreement, if any, and
which U.S. Trust believes to be genuine, (b) the validity of the issue of any
securities purchased or sold by the Fund, the legality of the purchase or sale
thereof or the propriety of the amount paid or received therefor, (c) the
legality of the issue or sale of any Shares, or the sufficiency of the amount
to be received therefor, (d) the legality of the redemption of any Shares, or
the propriety of the amount to be paid therefor, (e) the legality of the
declaration or payment of any dividend or distribution on Shares, of (f) delays
or errors or loss of data occurring by reason of circumstances beyond U.S.
Trust's control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown (except as provided
in Section 20), flood or catastrophe, acts of God, insurrection, war, riots, or
failure of the mail, transportation, communication or power supply.
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<PAGE> 23
26. COLLECTION OF INCOME. U.S. Trust shall collect on a timely basis
all income and other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by U.S. Trust or its agent
thereof and shall credit such income, as collected, to the Fund's custodian
account. Without limiting the generality of the foregoing, U.S. Trust shall
detach and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when due on
securities held hereunder. Income due the Fund on securities loaned pursuant
to the provisions of Section 9 shall be the responsibility of the Fund. U.S.
Trust will have no duty or responsibility in connection therewith, other than
to provide the Fund with such information or data as may be necessary to assist
the Fund in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.
27. OWNERSHIP CERTIFICATES FOR TAX PURPOSES. U.S. Trust shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
securities of the Fund held by it and in connection with transfers of
securities.
28. EFFECTIVE PERIOD: TERMINATION AND AMENDMENT.
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that U.S. Trust shall not act under Section 8 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees of the Fund has approved the initial use of a
particular Securities Depository or Book Entry
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<PAGE> 24
System and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by the Fund
of such Securities Depository and/or Book Entry System, as required in each
case by Rule 17f-4 under the Investment Company Act of 1940, as amended;
provided further, however, that the Fund shall not amend or terminate this
Agreement in contravention of any applicable federal or state regulations, or
any provision of the Declaration of Trust, and further provided, that the Fund
may at any time by action of its Board of Trustees (i) substitute another bank
or trust company for U.S. Trust by giving notice as described above to U.S.
Trust, or (ii) immediately terminate this Agreement in the event of the
appointment of a conservator or receiver for U.S. Trust by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to U.S. Trust
such compensation as may be due as of the date of such termination and shall
likewise reimburse U.S. Trust for its costs, expenses and disbursements.
29. SUCCESSOR CUSTODIAN.
If a successor custodian shall be appointed by the Board of Trustees of
the Fund, U.S. Trust shall, upon termination, deliver to such successor
custodian at the office of the custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities Depository or Book Entry System.
If no such successor custodian shall be appointed, U.S. Trust shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
U.S. Trust on or before the date when such termination shall be come effective,
then U.S. Trust shall have the right to
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<PAGE> 25
deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, doing business in New York, New York, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by U.S. Trust and all instruments held by U.S. Trust relative
thereto and all other property held by it under this Agreement and to transfer
to an account of such successor custodian all of the Fund's securities held in
any Securities Depository or Book Entry System. Thereafter, such bank or trust
company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of U.S. Trust after the date of termination hereof owing to failure
of the Fund to procure the certified copy of the vote referred to or of the
Board of Trustees to appoint a successor custodian, U.S. Trust shall be
entitled to fair compensation for its services during such period as U.S. Trust
retains possession of such securities, funds and other properties and the
provisions of this Contract relating to the duties and obligations of U.S.
Trust shall remain in full force and effect.
30. NOTICES. All notices and other communications (collectively
referred to as "Notice" or "Notices") in this section hereunder shall be in
writing and shall be first sent by telegram, cable, telex, or facsimile sending
device and thereafter by overnight mail for delivery on the next business day.
Notices shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114
West 47th Street, New York, New York, 10036-1532, facsimile number (212)
852-1488; (b) if to the Fund, at the address of the Fund Attention: Portfolio
Manager, facsimile number (312) 917-8211; or (c) if to neither of the
foregoing, at such other address as shall have been notified to the sender of
any such Notice or other communication. Notices sent by overnight mail shall
be deemed to have been given the next business day. Notices sent by messenger
shall be deemed to have been given on the day delivered, and notices sent by
confirming telegram, cable, telex or facsimile sending device shall be deemed
to
25
<PAGE> 26
have been given immediately. All postage, cable, telegram, telex and facsimile
sending device charges arising from the sending of a Notice hereunder shall be
paid by the sender.
31. FURTHER ACTIONS. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
32. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
33. MISCELLANEOUS. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
successors.
34. The Fund's Declaration of Trust is on file with the Secretary of
the Commonwealth of Massachusetts. This agreement is executed on behalf of
the Fund by the Fund's officers as officers and not individually and the
obligations imposed upon the Fund by this Agreement are not binding upon any
of the Fund's Trustees, officers or shareholders individually but are binding
only upon the assets and property of the Fund.
26
<PAGE> 27
EXHIBIT A
CUSTODY SERVICE FEE
ADMINISTRATION AND MAINTENANCE FEE
.01375% (1 3/8 Basis Points) on first $10 billion
.00875% (7/8 Basis Point) on second $10 billion
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
UNITED STATES TRUST
COMPANY OF NEW YORK
Attest: Jacqueline Binder By: Peter C. Arrighetti
---------------------------- -------------------------------
JACQUELINE BINDER PETER C. ARRIGHETTI
VICE PRESIDENT SENIOR VICE PRESIDENT
NUVEEN INSURED PREMIUM
INCOME MUNICIPAL FUND 2
Attest: Larry W. Martin By: O. Walter Renfftlen
---------------------------- -------------------------------
LARRY W. MARTIN O. WALTER RENFFTLEN
ASSISTANT GENERAL COUNSEL VICE PRESIDENT &
CONTROLLER
27
<PAGE> 28
EXHIBIT A
CUSTODY SERVICE FEE
Administration and Maintenance Fee
.01375% (1 3/8 Basis Points) on first $10 billion
.00875% (7/8 Basis Point) on second $10 billion
.0075% (3/4 Basis Point) on third $10 billion
.00625% (5/8 Basis Point) on remainder
Transaction Fees
$15.00 Per Book Entry Transaction
$25.00 Per Physical Transaction
$35.00 Per Future Contract or Option Wire
$8.00 Per Wire Transfer
NOTES:
1. Schedule should be applied to total assets for all
Exchange Traded Funds.
2. Add $5.00 per book entry transaction and physical
transaction if U.S. Trust inputs trades.
3. Contract expires on 12/31/95.
BALANCES
1. During each month, daily net overdrafts are offset by daily net cash
balances dollar for dollar with no penalty or charge for daily net
overdrafts.
2. At the end of each month, the net overdraft for the month incurs an
overdraft charge computed as follows:
Net monthly overdraft - days in month x 1.10 x average
fed funds rate x days in month = overdraft charge
-------------
365
3. Net credit balance at month end carries forward and is eligible for offset
with overdrafts in the next month. The carryforward net credit balance
incurs a 10% reduction. Carryforward balances expire at the end of each
calendar quarter for "fully invested funds"; for new funds not fully
invested, the credit balance carries forward until the fund becomes fully
invested.
4. Nuveen Institutional Advisory Corp. or Nuveen Advisory Corp. will be
responsible for promptly advising U.S. Trust of the date a new fund becomes
fully invested.
5. FDIC charges will be applied to any positive balance which remains in a
portfolio at quarter end.
Quarter end positive balance - 100 x .23 - 4
6. Overdrafts are permissible only as a means of compensating for positive
balances.
7. Due to FDIC capitalization requirements, overdrafts are not permissible on
June 30th and December 31st.
<PAGE> 29
[THE CHASE MANHATTAN BANK, N.A. LETTERHEAD]
[CHASE LOGO]
April 16, 1996
Mr. Giff Zimmerman
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606
Dear Giff:
On September 2, 1995, The United States Trust Company of New York (UST) was
merged into Chase Manhattan Bank, N.A. (Chase). As a result of this
transaction, Chase succeeded by operation of law, all rights and
responsibilities of UST under all Transfer Agency, Custodian and Fund Accounting
agreements between US Trust and John Nuveen & Co.'s managed investment
companies.
Sincerely,
/s/ Andrew Massa
Andrew M. Massa
Vice President
<PAGE> 1
EXHIBIT 99.9.2
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, made this 21st day of July, 1993 by and between, NUVEEN
INSURED PREMIUM INCOME MUNICIPAL FUND 2, a Massachusetts business trust (the
"Fund"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York State
chartered bank and trust company ("U.S. Trust").
WITNESSETH:
WHEREAS, the Fund is a registered closed-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to hire U.S. Trust to provide the Fund with
certain accounting services, and U.S. Trust is willing to provide such services
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. APPOINTMENT. The Fund hereby appoints U.S. Trust to provide the
accounting services hereinafter set forth to the Fund, and U.S. Trust
accepts such appointment and agrees to provide such services, under the terms
and conditions set forth herein.
2. CALCULATION OF NET ASSET VALUE. U.S. Trust will calculate the Fund's
daily net asset value and the daily per-share net asset value in accordance with
the Fund's effective Registration Statement on Form N-2 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
including its current prospectus. If so directed, U.S. Trust shall also
calculate daily the net income of the Fund and shall advise the Fund daily of
the total amounts of such net income and, if instructed in writing by an
officer of the Fund to do so, of the division of such net income among its
various components.
1
<PAGE> 2
3. BOOKS AND RECORDS. U.S. Trust will (a) maintain such books and records
as are necessary to enable it to perform its duties under this Agreement; (b)
prepare and maintain complete, accurate and current all records with respect to
the Fund required to be maintained by the Fund under the Internal Revenue Code
of 1986, as amended (the "Code"), and under the 1940 Act and the applicable
rules and regulations thereunder; (c) at the Fund's expense, retain and preserve
said records in the manner and for the periods prescribed in the Code and such
rules and regulations; and (d) assist to the extent requested by the Fund in the
preparation of reports to the Fund's shareholders, the Fund's Registration
Statement and reports and filings required pursuant to the Code or the 1940 Act
and the rules and regulations thereunder.
U.S. Trust hereby acknowledges and agrees that all records prepared and
maintained by U.S. Trust pursuant to this paragraph 3 which are required to be
maintained by the Fund under the Code and the 1940 Act ("Required Records") are
the property of the Fund. If this agreement is terminated, all Required Records
shall be delivered, at the Fund's expense, to the Fund or any such person
designated by the Fund, and U.S. Trust shall be relieved of responsibility for
the preparation and maintenance of any Required Records delivered to the Fund
or any such person.
4. COOPERATION WITH ACCOUNTANTS. U.S. Trust shall cooperate with the
Fund's independent public accountants and shall take all reasonable
action in the performance of its obligation under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their unqualified opinion where required for any document for the
Fund.
5. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. U.S. Trust shall
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants relating to the services provided by
U.S. Trust under this Contract; such reports, shall be of sufficient scope and
in sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material
2
<PAGE> 3
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
6. FEES AND CHARGES. In consideration of services rendered pursuant to
this Agreement, the Fund shall pay to U.S. Trust a fee in accordance with the
schedule attached hereto (Exhibit A) and shall promptly reimburse U.S. Trust for
any out-of-pocket expenses and advances payable by the Fund in accordance with
Paragraph 6.
7. EXPENSES. The expenses connected with the performance of this
Agreement shall be allocated between the Fund and U.S. Trust as follows:
(a) U.S. Trust shall furnish, at its expense and without cost to the
Fund, (i) the services of its personnel to the extent required to carry out its
obligations under this Agreement, and (ii) use of data processing equipment.
(b) All costs and expenses not expressly assumed by U.S. Trust under
Paragraph 7 (a) of this Agreement shall be paid by the Fund, including but not
limited to costs and expenses for pricing service fees; necessary outside
record storage; media for storage or records (e.g., microfilm, microfiche); and
any and all assessments, taxes or levies assessed on U.S. Trust for services
provided under this Agreement.
8. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. Except as
otherwise provided in this Agreement and except for the accuracy of
information furnished to it by U.S. Trust, the Fund assumes full responsibility
of the preparation, contents and distribution of each prospectus of the Fund,
and for compliance with all applicable requirements of the 1940 Act, the
Securities Act and any laws, rules and regulations of governmental authorities
having jurisdiction over the Fund.
9. CONFIDENTIALITY. U.S. Trust agrees to treat all records and other
information relative to the Fund as proprietary information of the Fund and, on
behalf of itself and its employees, to keep confidential all such information,
except after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where U.S.
Trust may be exposed to civil
3
<PAGE> 4
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities or when so requested
by the Fund.
10. REFERENCES TO U.S. TRUST. The Fund shall not circulate any
printed matter which contains any reference to U.S. Trust without the prior
written approval of U.S. Trust, except solely such printed matter as merely
identifies U.S. Trust as Accounting and Pricing Services Agent. The Fund will
submit printed matter requiring approval to U.S. Trust in draft form, allowing
sufficient time for review by U.S. Trust and its counsel prior to any deadline
for printing.
11. FORCE MAJEURE: EQUIPMENT FAILURES.
(a) If U.S. Trust shall be delayed in its performance of
services or prevented entirely or in part from performing services because of
causes or events beyond its control, including and without limitation, acts of
God, interruption of power problems, legal action, present or future law,
governmental order, rule or regulation, or shortage of suitable parts,
materials, labor or transportation, then such delay or nonperformance shall be
excused and a reasonable time for performance in connection with this Agreement
shall be extended to include the period of such delay or nonperformance.
(b) In the event of equipment failures beyond U.S. Trust's
control, U.S. Trust shall take all steps necessary to minimize service
interruptions but shall have no liability with respect thereto. U.S. Trust
shall endeavor to enter into one or more agreements making provision for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available.
12. INDEMNIFICATION OF U.S. TRUST.
(a) U.S. Trust, its directors, officers, employees,
shareholders, and agents shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
performance of this Agreement, except a loss resulting from a breach of
fiduciary duty or a loss resulting from willful misfeasance, bad faith or
negligence
4
<PAGE> 5
on the part of U.S. Trust in the performance of its obligations and duties
under this Agreement.
(b) Notwithstanding any other provision of this Agreement, the Fund
shall indemnify and hold harmless U.S. Trust, its directors, officers,
employees, shareholders, and agents from and against any and all claims,
demands, expenses and liabilities (whether with or without basis in fact or
law) of any and every nature which U.S. Trust may sustain or incur or which be
asserted against U.S. Trust by any person by reason of, or as a result of any
action taken or omitted to be taken by U.S. Trust in connection with its
appointment, in good faith, in reliance upon any law, act, regulation or
official interpretation of same even though the same may have been altered,
changed, amended or repealed subsequent to the date of U.S. Trust's actions in
reliance there on. However, indemnification under this subparagraph shall not
apply to actions or omissions of U.S. Trust or its directors, officers,
employees, shareholders, agents, or subcontractors in cases of its or their own
negligence, willful misconduct, bad faith, or reckless disregard of its or
their own duties hereunder.
13. TERM: TERMINATION. (a) The provisions of this Agreement shall be
effective as of July 21st, 1993, shall continue in force from year to year
thereafter, but only so long as such continuance is approved by U.S. Trust and
the Fund. (b) Either party may terminate this Agreement on any date by giving
the other party at least ninety (90) days prior written notice of such
termination specifying the date fixed therefore. (c) In the event that in
connection with termination of this Agreement a successor to any of U.S.
Trust's duties or responsibilities under this Agreement is designated by the
Fund by written notice to U.S. Trust, U.S. Trust shall, promptly upon such
termination and at the expense of the Fund, transfer all Required Records and
shall cooperate in the transfer of such duties and responsibilities, including
provision for assistance from the U.S. Trust's cognizant personnel in the
establishment of books, records, and other data by such successor.
14. ASSIGNMENT. Except as hereinafter provided, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written
5
<PAGE> 6
consent of the other party. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and
assignees. U.S. Trust may, without further consent on the part of the Fund,
subcontract for the performance hereof with third parties who are subsidiaries
or other affiliates of U.S. Trust; provided, however, that U.S. Trust shall be
as fully responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions and shall be responsible
for its choice of subcontractors.
15. SERVICES FOR OTHERS. Nothing in this Agreement shall prevent U.S.
Trust or any affiliated person (as defined in the Act) of U.S. Trust from
providing services for any other person, firm or corporation (including other
investment companies).
16. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
17. SEVERABILITY. In the event any provision of this Agreement is
determined to be void or unenforceable, such determination shall not affect the
remainder of this Agreement, which shall continue to be in force.
18. GOVERNING LAWS. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws (other than the
laws governing conflict-of-law matters) of The State of New York.
19. NOTICES. Any notice or demand given in connection with any
agreement, document or instrument executed pursuant hereto shall be deemed to
have been sufficiently given or served for all purposes if sent by certified or
registered mail, postage and charges prepaid, to the following addresses: if to
the Fund, at 333 West Wacker Drive, Chicago, IL 60606, Attention: O.W.
Renfftlen, Vice President, or at any other address or addresses designated by
the Fund to U.S. Trust in writing; and if to U.S. Trust, to it at 114 West 47th
Street, New York, NY 10036, or at any other address or addresses designated by
U.S. Trust to the Fund in writing.
6
<PAGE> 7
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. The Fund's Declaration of Trust is on file with the Secretary of
the Commonwealth of Massachusetts. This agreement is executed on behalf of the
Fund by the Fund's officers as officers and not individually and the
obligations imposed upon the fund by this Agreement are not binding upon any of
the Fund's Trustees, officers or shareholders individually but are binding only
upon the assets and property of the Fund.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year second above written.
UNITED STATES TRUST
COMPANY OF NEW YORK
Attest: /s/ Jacqueline Binder By: /s/ Peter C. Arrighetti
------------------------- ---------------------------
Jacqueline Binder Peter C. Arrighetti
Vice President Senior Vice President
NUVEEN INSURED PREMIUM
INCOME MUNICIPAL FUND 2
Attest: /s/ Larry W. Martin By: /s/ O. Walter Renfftlen
-------------------------- ----------------------------
Larry W. Martin O. Walter Renfftlen
Assistant General Council Vice President & Controller
8
<PAGE> 9
EXHIBIT A
FUND ACCOUNTING FEE
$28,200 PER ANNUM
<PAGE> 10
[THE CHASE MANHATTAN BANK, N.A. LETTERHEAD]
April 16, 1996
Mr. Giff Zimmerman
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606
Dear Giff:
On September 2, 1995, The United States Trust Company of New York (UST) was
merged into Chase Manhattan Bank, N.A. (Chase). As a result of this
transaction, Chase succeeded by operation of law, all rights and
responsibilities of UST under all Transfer Agency, Custodian and Fund
Accounting agreements between US Trust and John Nuveen & Co.'s managed
investment companies.
Sincerely,
Andrew M. Massa
Andrew M. Massa
Vice President
<PAGE> 1
EXHIBIT 99.9.3
SHAREHOLDER TRANSFER SERVICES AGREEMENT
This Agreement is made this 20th day of July, 1993 by and between
United States Trust Company of New York ("U.S. Trust"), a New York corporation,
and Nuveen Insured Premium Income Municipal Fund 2 (the "Fund"), a closed-end
investment company organized under the laws of the Commonwealth of
Massachusetts as a business trust.
I. SERVICES
Commencing on July 22, 1993, and in accordance with procedures
established from time to time by the Fund and U.S. Trust, U.S. Trust shall
perform the (i) account maintenance services, (ii) mailing and reporting
services, (iii) dividend and distribution payment services, (iv) dividend
reinvestment plan services, and (v) recordkeeping services (collectively, the
"Standard Services") in connection with Fund's Common Shares, par value $.01
per share (the "Shares"), as more fully described herein.
A. Account Maintenance Services. U.S. Trust shall perform transfer
agent, registrar and other account maintenance services in connection with the
Shares. Such services are composed of (i) registering Share transfers on the
Fund's records of the holders of Shares (the "Shareholders") upon receipt of
instructions from the transferor and documentation in proper form to effect a
transfer of Shares; (ii) cancelling the certificates* representing such Shares,
if any, and if so requested, countersigning, registering, issuing and mailing
by insured first
* All references to certificates will include book entry services.
<PAGE> 2
class mail new certificates for the same or a smaller whole number of Shares;
(iii) issuing replacement certificates in lieu of certificates which have been
lost, stolen or destroyed upon receipt of a properly executed affidavit with
respect to such loss, theft or destruction and a lost certificate bond in form
satisfactory to U.S. Trust; (iv) combining certificates into large
denominations; (v) maintaining stop-transfer orders, including placing and
removing the same; (vi) processing new Shareholder accounts; (vii) posting
address changes, and (viii) researching and responding to Shareholder
inquiries. Shares will be transferred and new certificates issued in transfer
upon surrender of the old certificates in form deemed by U.S. Trust to be
properly endorsed for transfer accompanied by delivery of such documents as
U.S. Trust may deem necessary to evidence the authority of the person making
the transfer and payment of any applicable stock transfer taxes. U.S. Trust
reserves the right to refuse to transfer shares until it is satisfied that the
endorsement or signature on the certificate or any other document is valid and
genuine, and for that purpose it will require a signature guarantee by a
commercial bank or trust company having its principal office or correspondent
in the City of New York, by a member firm of a major stock exchange or by a
guarantor previously approved by U.S. Trust.
B. Mailing List and Reporting Services. Mailing list and reporting
services provided to the Fund are composed of (i) annual preparation of a list
of Shareholders owning Fund
<PAGE> 3
Shares, (ii) semi-annual distribution of a report to Shareholders, (iii) mailing
proxies, (iv) receiving and tabulating proxies and mailing shareholder reports
to current shareholders, (v) certifying share vote totals, (vi) assisting with
Annual Meeting of Shareholders.
C. Dividend and Distribution Payment Services.
(1) Upon the declaration of any dividend or distribution payable
either in Shares or cash, the Fund shall notify U.S. Trust in writing setting
forth the date of payment (the "Payment Date") of such dividend or
distribution, the record date as of which Shareholders entitled to payment
thereof shall be determined (the "Record Date"), and the amount payable per
Share to Shareholders of record as of the Record Date. In the case of dividends
at regular intervals, such notification may be a standing notification setting
forth the method of calculating such dividends and the Fund or its agent shall
advise U.S. Trust of the amount of such dividend at the appropriate intervals.
U.S. Trust shall notify the Fund and the entity then acting as the custodian
(which entity may be U.S. Trust) for the portfolio securities and cash of the
Fund (the "Custodian") of the amount of cash required to pay the dividend or
distribution so that the Fund may instruct the Custodian to make sufficient
funds available on or before the Payment Date. Upon receipt of such funds from
the Custodian, U.S. Trust shall prepare and mail to Shareholders who are not
participants in the DRP (as hereinafter defined in accordance
<PAGE> 4
with the terms of Section D), at their addresses as they appear on the records
maintained by U.S. Trust or pursuant to any written order of a Shareholder on
file with U.S. Trust, checks representing any dividends or distributions to
which they are entitled, and an accompanying distribution statement.
(2) In addition to the foregoing, dividend and distribution payment
services are composed of (i) inserting an enclosure supplied by the Fund with
each dividend or distribution check (all checks to be drawn on United States
Trust Company of New York with good funds in-house on mailing date); (ii)
replacing lost dividend checks; (iii) providing photocopies of cancelled checks
when requested by Shareholders; (iv) reconciling paid and outstanding checks;
(v) coding as "undeliverable" certain accounts to suppress mailing of dividend
checks to same; (vi) processing and recordkeeping of accumulated uncashed
dividends; (vii) furnishing requested dividend and distribution information to
Shareholders; and (viii) performing the following duties required by the
Interest and Dividend Tax Compliance Act of 1983:
-- Withholding taxes from Shareholders who are not in compliance
with its provisions;
-- Reconciling and reporting taxes withheld to the Internal
Revenue Service, including complying with additional 1099
reporting requirements;
-- Responding to Shareholder inquiries regarding regulations
promulgated pursuant to the Act;
<PAGE> 5
- Notifying Shareholders who have had taxes withheld of the procedures
to be followed to curtail future withholding; and
- Adjusting Shareholder account records to reflect subsequent
compliance.
D. Dividend Reinvestment Plan Service. (1) U.S. Trust will act as
agent for Shareholders under the Dividend Reinvestment Plan (the "DRP"), a copy
of which is attached hereto as Exhibit A.
E. Record Keeping Services.
(1) U.S. Trust shall keep records relating to the Standard Services to
be performed hereunder, in such form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the rules promulgated thereunder, U.S. Trust agrees that all such
records prepared or maintained by U.S. Trust relating to the services to be
performed by U.S. Trust hereunder are the property of the Fund and will be
preserved for the periods prescribed under Rule 31a-2 of said rules and made
available in accordance with such section and rules. U.S. Trust shall forthwith
upon the Fund's demand surrender promptly to the Fund and cease to retain in
its files those records and documents created and maintained by U.S. Trust
pursuant to this Agreement.
(2) U.S. Trust and the Fund agree that all books, records, information
and data pertaining to the business of the
<PAGE> 6
other party which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required by law.
(3) In case of any requests or demands for the inspection of the
Shareholder records of the Fund, U.S. Trust will endeavor to notify the Fund
and to secure instructions from an authorized officer of the Fund as to such
inspection. U.S. Trust reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
II. SHARE CERTIFICATES
The Fund shall supply U.S. Trust with sufficient blank Share
certificates. Such blank Share certificates shall be properly signed, manually
or by facsimile signature, by the duly authorized officers of the Fund, and
shall bear the seal or a facsimile thereof of the Fund. Notwithstanding the
death, resignation or removal of any officer of the Fund authorized to sign
such share certificates, U.S. Trust may continue to countersign certificates
which bear the manual or facsimile signature of such officer until otherwise
directed by the Fund. U.S. Trust shall establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of share
certificates and facsimile signature imprinting devices, if any,
<PAGE> 7
and for the preparation or use and for keeping account of such certificates and
devices. U.S. Trust hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
III. FEES AND EXPENSES
For the services to be performed by U.S. Trust pursuant to this
Agreement, the Fund shall pay to U.S. Trust all fees and expenses described
herein:
A. Shareholder Service Fee. The Fund shall pay U.S. Trust an annual
service fee (the "Shareholder Service Fee") for each Shareholder account, as
described more fully in Exhibit B hereto. For purposes of this Section A, a
"Shareholder account" is an account holding at least a fraction of a Share. The
Shareholder Service Fee is prorated and payable monthly based on the total
number of accounts on the system on the last day of each month.
B. Out-of-Pocket Expenses. The Fund agrees to reimburse U.S. Trust
for any and all out of pocket expenses as described and listed in Exhibit "B".
<PAGE> 8
C. Additional Services. The Fund may request additional processing,
special reports, changes in its DRP, or other additional services. The Fund
shall submit such requests for additional services in writing together with
such specifications as may be reasonably required by U.S. Trust, and U.S. Trust
shall respond to such requests in the form of a price quotation. The Fund's
written acceptance of the quotation must be received prior to implementation of
such request.
D. Terms of Payment. All fees, out-of-pocket expenses, or additional
charges of U.S. Trust shall be billed on a monthly basis and shall be due and
payable within 15 days after receipt of the invoice. U.S. Trust will render,
after the close of each month in which services have been furnished, a
statement reflecting all of the charges for such month.
E. Taxes. In addition to any other charges specified hereunder, the
Fund shall pay any sales tax, use tax, transfer tax, excise tax, tariff, duty,
or any other tax or payment in lieu thereof imposed by any governmental
authority or agency as a direct result of the provision by U.S. Trust of goods
or services hereunder, except for taxes based on U.S. Trust's net income.
<PAGE> 9
IV. REPRESENTATIONS AND WARRANTIES
A. U.S. Trust. U.S. Trust represents and warrants to the Fund that:
(1) It is a corporation duly organized and existing and in good
standing under the laws of the State of New York as a trust company pursuant to
Article III of the New York Banking Law;
(2) It is empowered under applicable laws and by its organization
certificate and by-laws to enter into and perform this Agreement;
(3) All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement; and
(4) Its entering into this Agreement shall not cause a material breach
or be in material conflict with any other agreement or obligation of U.S. Trust.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
B. The Fund. The Fund represents and warrants to U.S. Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(2) It is empowered under applicable laws and by its Declaration of
Trust and by-laws (the "Organizational Documents")
<PAGE> 10
to enter into and perform this Agreement;
(3) All requisite proceedings have been taken to authorize it to enter
into and perform this Agreement;
(4) It is a closed-end investment company registered under the
Investment Company Act of 1940, as amended;
(5) Its entering into this Agreement shall not cause a material breach
or be in material conflict with any other agreement or obligation of the Fund;
and
(6) A registration statement on Form N-2 (including a prospectus), as
amended, is currently effective and will remain effective, and all necessary
filings under the securities laws of the states have been made.
V. DOCUMENTS FURNISHED BY THE FUND
A. Initially Furnished Documents. The Fund has furnished to U.S.
Trust the following documents:
(1) A copy of the Organizational Documents of the Fund, attached
hereto as Exhibit C;
(2) A specimen certificate representing outstanding Shares in the form
approved by the Board of the Fund, attached hereto as Exhibit D; and
(3) Copies of the Fund's registration statement on Form N-2 as amended
and declared effective by the Securities and Exchange Commission, attached
hereto as Exhibit E.
<PAGE> 11
B. Prospectively Furnished Documents. The Fund shall furnish the
following documents upon request by U.S. Trust:
(1) Copies of all amendments to the Organizational Documents of the
Fund;
(2) Copies of all post-effective amendments to the Fund's registration
statement on Form N-2; and
(3) Such other certificates, documents and opinions as U.S. Trust
shall deem to be appropriate or necessary for the proper performance of its
duties hereunder.
VI. INDEMNIFICATION
A. Fund Indemnification Obligation. U.S. Trust shall not be
responsible for, and the Fund shall indemnify and hold U.S. Trust harmless from
any and all losses, damages, costs, charges, reasonable attorneys' fees,
payments, expenses and liability arising out of or attributable to:
(1) All actions of U.S. Trust or its agents or subcontractors required
to be taken pursuant to this Agreement unless such actions are taken in bad
faith or with negligence or willful misconduct;
(2) The Fund's refusal or failure to comply with the terms of this
Agreement, or the Fund's lack of good faith, negligence or willful misconduct,
or the breach of any representation or warranty of the Fund hereunder;
<PAGE> 12
(3) The reliance on or use by U.S. Trust or its agents or
subcontractors of information, records or documents which are received by U.S.
Trust or its agents or subcontractors and furnished to it by or on behalf of
the Fund, and which have been prepared or maintained by the Fund or any other
person or firm (other than U.S. Trust or its agents or subcontractors) on
behalf of the Fund;
(4) The reliance on, or the carrying out by U.S. Trust or its agents
or subcontractors of, any instructions or requests of the Fund or recognition
by U.S. Trust of any Share certificates which are reasonably believed to bear
the proper manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar;
(5) The offer or sale of Shares by the Fund in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state, or in violation of any stop order or other
determination or ruling by any federal agency or any state agency with respect
to the offer or sale of such Shares in such state.
B. U.S. Trust Indemnification Obligation. U.S. Trust shall indemnify
and hold the Fund harmless from and against any and all losses, damages, costs,
charges, reasonable attorney's fees, payments, expenses and liability arising
out of or attributable to U.S. Trust's refusal or failure to comply with the
<PAGE> 13
terms of this Agreement, or U.S. Trust's lack of good faith, negligence or
willful misconduct, or the breach of any representation or warranty of U.S.
Trust hereunder.
C. Claims. Upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion and shall keep the other
party advised with respect to all developments concerning such claim, but the
failure to give such notice shall not affect rights to indemnification
hereunder except to the extent that the indemnifying party demonstrates actual
damage caused by such failure. The party who may be required to indemnify shall
have the option to participate with the party seeking indemnification in the
defense of such claim but not to control such defense. The party seeking
indemnification shall in no case confess any claim or make any compromise in
any case in which the other party may be required to indemnify it, except with
the indemnifying party's prior written consent.
D. Force Majeure. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
interruption of electrical power or other utilities, equipment or transmission
failure or damage reasonably beyond its control, or other causes reasonably
beyond its control, such party shall not be liable to the other for any damages
resulting from such failure to perform, or otherwise from such causes. U.S.
Trust shall use all reasonable efforts to
<PAGE> 14
minimize the likelihood of all damage, loss of data, delays and errors
resulting from uncontrollable events, and should such damage, loss of data,
delays or errors occur, U.S. Trust shall use its reasonable efforts to mitigate
the effects of such occurrence.
VII. TERM AND TERMINATION
A. Notice. This Agreement shall remain in effect until terminated by
either party, without penalty, upon 90 days' prior written notice.
B. Breach. This Agreement may be terminated by either party if the
other party is in material breach of this Agreement. In order to so terminate
this Agreement, written notice shall be given to an officer of the other party
of the non-breaching party's intention to terminate due to a failure to comply
with, or breach of, a material term or condition of this Agreement. Said written
notice shall specifically state the material term or condition claimed to be
breached and shall provide at least 15 days in which to correct such alleged
breach. If such breach is not corrected in the time period allowed, then the
party giving notice may terminate this Agreement immediately, upon written
notice.
C. Expenses. Should this Agreement be terminated, all out-of-pocket
expenses reasonably incurred by U.S. Trust in
<PAGE> 15
connection with the movement of records and materials to its successor or to
the Fund shall be borne by the Fund.
VIII. USE OF U.S. TRUST NAME
The Fund shall not use U.S. Trust's name in any prospectus, Shareholder
report, advertisement or other material relating to the Fund, other than for
the purpose of merely identifying and describing the functions of U.S. Trust
hereunder, in a manner not approved by U.S. Trust in writing prior to such use;
provided, however, that U.S. Trust shall consent to all uses of its name
required by the Securities and Exchange Commission, any state securities
commission, or any federal or state regulatory authority; and provided,
further, that in no case will such approval be unreasonably withheld.
XI. ASSIGNMENT
Except as hereunder provided, neither this Agreement nor any rights or
obligations hereunder may be assigned by either party without the written
consent of the other party. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
U.S. Trust may, with the Fund's consent, subcontract for the performance hereof
with third parties, or subsidiaries or other affiliates of U.S. Trust;
provided, however, that U.S. Trust shall be as fully responsible to the Fund
for the acts and omissions of
<PAGE> 16
any subcontractor as it is for its own acts and omissions and shall be
responsible for its choice of subcontractor.
X. CONFIDENTIALITY
The information contained in this Agreement is confidential and
proprietary in nature. By receiving this Agreement, the Fund agrees that none
of its trustees, officers, employees, or agents, without the prior written
consent of U.S. Trust, will divulge, furnish or make accessible to any third
party, except as required by law or any regulatory authority or as permitted by
the next sentence, any part of this Agreement or information in connection
therewith which has been or may be made available to it. The Fund agrees that
it will limit access to the Agreement and such information to only those
officers or employees with responsibilities for analyzing the Agreement, to its
counsel, to such independent consultants hired expressly for the purpose of
assisting in such analysis, and to governmental agencies. In addition, the Fund
agrees that any persons to whom such information is properly disclosed shall be
informed of the confidential nature of the Agreement and the information
relating thereto, and shall be directed to treat the same appropriately. The
terms set forth in this Article X shall continue without termination.
<PAGE> 17
XI. MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute the entire Agreement between the parties hereto and supersede any
prior oral or written Agreement with respect to the subject matter hereof. This
Agreement may not be amended or modified in any manner except by a written
instrument executed by both parties.
The Fund's Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts. This agreement is executed on behalf of the Fund
by the Fund's officers as officers and not individually and the
obligations imposed upon the Fund by this agreement are not binding upon any of
the Fund's Trustees, officers or shareholders 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
executed by their officers thereunto duly authorized as of the date first above
written.
UNITED STATES TRUST COMPANY NUVEEN INSURED PREMIUM INCOME
OF NEW YORK MUNICIPAL FUND 2
By /s/ Andrew Masse By /s/ Anna R. Kucinskis
--------------------------- ---------------------------
Name Andrew Masse Name Anna R. Kucinskis
------------------------- -------------------------
Title Senior Vice President Title Vice President
------------------------ ------------------------
<PAGE> 18
EXHIBIT B
Shareholder Service Fee
$8.00 Per Shareholder Account
$ .50 Per Month Per Account in the Dividend Reinvestment Program
$1.00 Per Certificate Issued During IPO Period
$ .15 Per Certificate Issued After IPO Period
Note: Fee does not include out-of-pocket expenses:
Blank Certificates Proxy
Check Stock Forms/Stationery
Postage Envelopes
Telephone Expense
<PAGE> 19
[THE CHASE MANHATTAN BANK, N.A. LETTERHEAD]
April 16, 1996
Mr. Giff Zimmerman
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606
Dear Giff:
On September 2, 1995, The United States Trust Company of New York (UST) was
merged into Chase Manhattan Bank, N.A. (Chase). As a result of this
transaction, Chase succeeded by operation of law, all rights and
responsibilities of UST under all Transfer Agency, Custodian and Fund
Accounting agreements between US Trust and John Nuveen & Co.'s managed
investment companies.
Sincerely,
Andrew M. Massa
Andrew M. Massa
Vice President
<PAGE> 1
EXHIBIT 99.11.1
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
(312) 609-7500
June 11, 1996
Nuveen Insured Premium
Income Municipal Fund 2
333 West Wacker Drive
Chicago, Illinois 60606
RE: NUVEEN INSURED PREMIUM INCOME MUNICIPAL FUND 2
REGISTRATION STATEMENT ON FORM N-14
(REGISTRATION NO. 333-03257 AND 811-7792)
Ladies and Gentlemen:
We are acting as counsel for Nuveen Insured Premium Income Municipal Fund
2, a Massachusetts business trust (the "Fund"), in connection with the Fund's
filing of a registration statement on Form N-14 (the "Registration Statement")
with the Securities and Exchange Commission covering the registration of up to
18,000,000 common shares, $.01 par value per share, of the Fund and 4,400 shares
of Municipal Auction Rate Cumulative Preferred Shares, Series T and Series TH,
with a par value of $.01 per share and a liquidation preference of $25,000 per
share (the "MuniPreferred"), of the Fund (collectively, the "Shares"), pursuant
to the proposed reorganization of the Fund and Nuveen Insured Premium Income
Municipal Fund, Inc., a Minnesota corporation (the "Acquired Fund"), as
described in the Registration Statement and pursuant to that certain Agreement
and Plan of Reorganization and Liquidation entered into between the Fund and
the Acquired Fund as of May 1, 1996 (the "Agreement").
In that capacity, we have examined such business trust records,
certificates and other documents, and have made such other factual and legal
investigations as we have deemed necessary and appropriate for the purposes of
this opinion. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as certified copies or
photocopies and the authenticity of the originals of such latter documents.
Insofar as this opinion pertains to matters governed by the laws of the
Commonwealth of Massachusetts, we are relying, with your consent, upon the
opinion of Bingham, Dana & Gould dated June 11, 1996, which opinion is
satisfactory in substance and form to us.
<PAGE> 2
VEDDER PRICE
Nuveen Insured Premium
Income Municipal Fund 2
June 11, 1996
Page 2
Based upon the foregoing, it is our opinion that:
(1) The Fund is a Massachusetts business trust duly
organized and validly existing under the laws of the
Commonwealth of Massachusetts.
(2) The Shares, when issued and delivered by the Fund
pursuant to, and upon satisfaction of the conditions
and covenants contained in the Agreement (including
without limitation the adoption of an amendment to the
Fund's Statement Establishing and Fixing the Rights and
Preferences of the MuniPreferred by the Board of
Trustees of the Fund and the filing thereof with the
proper governmental authorities and the approval of the
issuance of the Shares and/or the proposed
reorganization by the shareholders of the Fund and/or
the Acquired Fund as described in the Registration
Statement), will be legally issued, fully paid and
non-assessable, except that, as set forth in the
Registration Statement, shareholders of the Fund may
under certain circumstances be held personally liable
for its obligations.
We hereby consent to the filing of this opinion as Exhibit 11.1 to
the Registration Statement and to the references to us under the captions
"Proposal No. 1 - The Reorganization - Tax Consequences of the
Reorganization," "Additional Information About the Funds - Tax Matters
Associated with Investment in the Funds" and "Legal Opinions" in the
Joint Proxy Statement - Prospectus contained in the Registration
Statement.
Respectfully submitted,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE> 1
EXHIBIT 99.11.2
Bingham, Dana & Gould LLP
150 Federal Street
Boston, Massachusetts 02110
(617) 951-8000
June 11, 1996
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, IL 60601-1003
Re: Nuveen Insured Premium Income Municipal Fund 2
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to Nuveen Insured
Premium Income Municipal Fund 2, a Massachusetts business trust (the
"Fund"), in connection with the Fund's Registration Statement on Form
N-14 filed with the Securities and Exchange Commission on May 6, 1996
(the "Original Filing"), as such Registration Statement is proposed to be
amended by Pre-Effective Amendment No. 1 filed with the Securities and
Exchange Commission on or about June 12, 1996 ("Amendment No. 1") (as
proposed to be amended, the "Registration Statement"), with respect to its
Common Shares, par value $.01 per share (the "Common Shares") and its
Municipal Auction Rate Cumulative Preferred Shares, Series T and TH
(the "Preferred Shares," such Preferred Shares and Common Shares referred
to herein collectively as the "Shares") to be issued in exchange for
substantially all of the assets of Nuveen Insured Premium Income Municipal
Fund, Inc., a Minnesota corporation (the "Acquired Fund"), as described in
the Registration Statement. You have requested that we deliver this
opinion to you, as special counsel to the Fund, for use by you in
connection with your opinion to the Fund with respect to the Shares.
In connection with the furnishing of this opinion, we have examined
the following documents:
(a) a certificate of the Secretary of State of the
Commonwealth of Massachusetts as to the existence of the Fund;
<PAGE> 2
Vedder, Price, Kaufman & Kammholz
June 11, 1996
Page 2
(b) a copy, certified by the Secretary of State of the
Commonwealth of Massachusetts, of the Fund's Declaration of Trust and
of all amendments thereto on file in the office of the Secretary of
State (the "Declaration");
(c) a copy, certified by the Secretary of State of the
Commonwealth of Massachusetts, of the Fund's Statement Establishing
and Fixing the Rights and Preferences of Municipal Auction Rate
Cumulative Preferred Shares, and of all amendments thereto on file in
the office of the Secretary of State (the "Statement");
(d) a certificate executed by an appropriate officer of the
Fund, certifying as to, and attaching copies of, the Fund's
Declaration, By-Laws, and Statement and certain resolutions adopted by
the Trustees of the Fund;
(e) a conformed copy of the Original Filing;
(f) a printer's proof dated June 11, 1996 of Amendment No.1;
and
(g) a COPY of the Agreement and Plan of Reorganization and
Liquidation entered into by the Fund and the Acquired Fund providing
for (a) the acquisition by the Fund of substantially all of the assets
of the Acquired Fund in exchange for the Shares and the Fund's
assumption of substantially all of the liabilities of the Acquired
Fund and (b) the pro rata distribution of the Common Shares and the
Preferred Shares to the respective holders of the common and preferred
shares of the Acquired Fund in liquidation of the Acquired Fund, in
the form included in the printer's proof referred to in paragraph (f)
above (the "Agreement and Plan of Reorganization").
In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all the documents reviewed by us as copies,
including conformed copies, the authenticity and completeness of all original
documents reviewed by us in original or copy form and the legal competence of
each individual executing any document. We have assumed that Amendment No. 1
to the Registration Statement as filed with the Securities and Exchange
Commission will be in substantially the form of the printer's proof referred to
in paragraph (f) above, and that the Agreement and Plan of Reorganization has
been duly completed, executed and delivered in substantially the form of the
copy referred to in paragraph (g) above. We have also assumed that an
amendment to the Statement designating the Series T and TH Preferred Shares
with such rights and
<PAGE> 3
Vedder, Price, Kaufamn & Kammholz
June 11, 1996
Page 3
preferences as are described in the Registration Statement (such Statement
as amended thereby referred to herein as the "Amended Statement") will be
duly filed in the appropriate governmental offices.
This opinion is based entirely on our review of the documents listed
above and such investigation of law as we have deemed necessary or
appropriate. We have made no other review or investigation of any kind
whatsoever, and we have assumed, without independent inquiry, the accuracy
of the information set forth in such documents.
This opinion is limited solely to the internal substantive laws of the
Commonwealth of Massachusetts as applied by courts located in such
Commonwealth, except that we express no opinion as to any Massachusetts
securities law.
We understand that all of the foregoing assumptions and limitations
are acceptable to you.
Based upon and subject to the foregoing, please be advised that it is
our opinion that:
1. The Fund is duly organized and existing under the Fund's
Declaration of Trust and the laws of the Commonwealth of Massachusetts as a
voluntary association with transferable shares of beneficial interest
commonly referred to as a "Massachusetts business trust."
2. The Shares, when issued and sold in accordance with the Fund's
Declaration, Amended Statement and By-Laws and for the consideration
described in the Agreement and Plan of Reorganization, will be legally
issued, fully paid and non-assessable, except that, as set forth in the
Registration Statement, shareholders of the Fund may under certain
circumstances be held personally liable for its obligations.
<PAGE> 4
Vedder, Price, Kaufman & Kammholz
June 11, 1996
Page 4
We herby consent to your reliance on this opinion in connection with
your opinion to the Fund with respect to the Shares, to the reference to
our name in the Registration Statement under the heading "Legal Opinions"
and to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
BINGHAM, DANA & GOULD LLP
<PAGE> 1
EXHIBIT 99.12
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
(312) 609-7500
June 11, 1996
Nuveen Insured Premium Income Nuveen Insured Premium Income
Municipal Fund 2 Municipal Fund, Inc.
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed reorganization ("Reorganization") of Nuveen
Insured Premium Income Municipal Fund, Inc., a Minnesota corporation ("Acquired
Fund"), into Nuveen Insured Premium Income Municipal Fund 2, a Massachusetts
business trust ("Acquiring Fund"). The Reorganization contemplates the
acquisition by the Acquiring Fund of substantially all the assets of the
Acquired Fund in exchange for voting shares of beneficial interest ("shares")
of the Acquiring Fund and the assumption of the Acquired Fund's liabilities.
Thereafter, the shares of the Acquiring Fund will be distributed to the
shareholders of the Acquired Fund and the Acquired Fund will be completely
liquidated and terminated. The foregoing will be accomplished pursuant to an
Agreement and Plan of Reorganization and Liquidation, dated as of May 1, 1996
(the "Plan"), entered into by the Acquired Fund and the Acquiring Fund.
In rendering this opinion, we have reviewed and relied upon statements made
to us by certain of your officers. We have also examined certificates of such
officers and such other agreements, documents, and corporate records that have
been made available to us and such other matters as we have deemed relevant for
purposes of this opinion. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies and the authenticity of the originals of such latter documents.
Our opinion is based, in part, on the assumption that the proposed
Reorganization described herein will occur in accordance with the agreements
and the facts and representations set forth or referred to in this opinion
letter, and that such facts and representations are accurate as of the date
hereof and will be accurate on the effective date of such Reorganization (the
"Effective Time"). We have undertaken no independent investigation of the
accuracy of the facts and representations set forth or referred to herein.
<PAGE> 2
June 11, 1996
Page 2
For the purposes indicated above, and based upon the facts, assumptions and
conditions as set forth below, and the representations made to us by duly
authorized officers of the Acquired Fund and the Acquiring Fund in a letter
dated June 11, 1996, it is our opinion that:
1. The acquisition by the Acquiring Fund of substantially all the assets
of the Acquired Fund in exchange solely for Acquiring Fund shares and the
assumption by the Acquiring Fund of the Acquired Fund's liabilities, if any,
followed by the distribution by the Acquired Fund of the Acquiring Fund
shares to the shareholders of the Acquired Fund in exchange for their
Acquired Fund shares in complete liquidation of the Acquired Fund, will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended (the "Code"), and the Acquiring
Fund and the Acquired Fund each will be "a party to a reorganization" within
the meaning of Section 368(b) of the Code;
2. The Acquired Fund's shareholders will recognize no gain or loss upon
the exchange of all of their Acquired Fund shares for Acquiring Fund shares in
complete liquidation of the Acquired Fund, except with respect to cash
received for a fractional Acquiring Fund common share, if any (Code Section
354(a)(1));
3. No gain or loss will be recognized by the Acquired Fund upon the
transfer of substantially all its assets to the Acquiring Fund in exchange
solely for Acquiring Fund shares and the assumption by the Acquiring Fund of
the Acquired Fund's liabilities, if any, and with respect to the subsequent
distribution of those Acquiring Fund shares to the Acquired Fund shareholders
in complete liquidation of the Acquired Fund (Code Section 361);
4. No gain or loss will be recognized by the Acquiring Fund upon the
acquisition of substantially all the Acquired Fund's assets in exchange
solely for Acquiring Fund shares and the assumption of the Acquired Fund's
liabilities, if any (Code Section 1032(a));
5. The basis of the assets acquired by the Acquiring Fund will be, in each
instance, the same as the basis of those assets when held by the Acquired
Fund immediately before the transfer, and the holding period of such assets
acquired by the Acquiring Fund will include the holding period thereof when
held by the Acquired Fund (Code Sections 362(b) and 1223(2));
<PAGE> 3
June 11, 1996
Page 3
6. The basis of the Acquiring Fund shares to be received by the Acquired
Fund's shareholders upon liquidation of the Acquired Fund will be, in each
instance, the same as the basis of the Acquired Fund shares surrendered in
exchange therefor, decreased by any cash received and increased by the amount
of gain recognized on the exchange (Code Section 358(a)(1)); and
7. The holding period of the Acquiring Fund shares to be received by the
Acquired Fund's shareholders will include the period during which the
Acquired Fund shares to be surrendered in exchange therefor were held,
provided such Acquired Fund shares were held as capital assets by those
shareholders on the date of the exchange (Code Section 1223(1)).
FACTS
Our opinion is based upon the above referenced representations and the
following facts and assumptions, any alteration of which could adversely affect
our conclusions.
The Acquired Fund has been registered and operated since it commenced
operations as a diversified, closed-end, management investment company under
the Investment Company Act of 1940, 15 U.S.C. Section 80a, et seq. (the "1940
Act"). Its common shares are traded on the New York Stock Exchange. The
Acquired Fund also currently has outstanding Municipal Auction Rate Cumulative
Preferred Shares, Series T and Series TH ("Acquired Fund MuniPreferred"). The
Acquired Fund has qualified and will qualify as a regulated investment company
under Section 851 of the Code for each of its taxable years, and has
distributed and will distribute all or substantially all its income so that it
and its shareholders have been and will be taxed in accordance with Section 852
of the Code.
The Acquiring Fund has also been registered and operated since it commenced
operations as a diversified, closed-end, management investment company under
the 1940 Act. It has qualified as a regulated investment company under Section
851 of the Code for each of its taxable years, will so qualify for its current
taxable year, and has distributed and will distribute all or substantially all
its income so that it and its shareholders have been and will be taxed in
accordance with Section 852 of the Code. The Acquiring Fund's common shares
are traded on the New York Stock Exchange. In addition to its common shares,
the Acquiring Fund will also issue in the Reorganization Municipal Auction Rate
Cumulative Preferred Shares, Series T and Series TH ("Acquiring Fund
MuniPreferred").
<PAGE> 4
June 11, 1996
Page 4
Upon satisfaction of certain terms and conditions set forth in the Plan on or
before the closing date, the following will occur: (a) the Acquiring Fund will
acquire substantially all the assets of the Acquired Fund in exchange for the
Acquiring Fund's assumption of substantially all the liabilities of the
Acquired Fund and the issuance of Acquiring Fund shares to such Acquired Fund;
(b) the Acquiring Fund shares will be distributed to the shareholders of the
Acquired Fund; and (c) the Acquired Fund will be dissolved and liquidated. The
assets of the Acquired Fund to be acquired by the Acquiring Fund consist
primarily of bonds whose interest is exempt from federal income taxation, cash
and other securities held in the Acquired Fund's portfolio.
The value of the Acquired Fund's assets to be acquired and the liabilities to
be assumed by the Acquiring Fund and the net asset value per Acquiring Fund
common share to be issued by the Acquiring Fund will be determined by The Chase
Manhattan Bank, N.A. ("Chase"), the custodian for each of the Funds, as of the
Effective Time. Net asset value per Acquiring Fund common share shall be
computed by dividing the value of the Acquiring Fund's total assets, less
liabilities and less the liquidation value of all outstanding preferred shares
of the Acquiring Fund and any accumulated and unpaid dividends thereon, by the
number of Acquiring Fund common shares outstanding. In determining net asset
value per Acquiring Fund common share and the value of the Acquired Fund's
assets, Chase will utilize the valuations of portfolio securities furnished by
a pricing service approved by the Board of Directors of the Acquired Fund and
the Board of Trustees of the Acquiring Fund.
As soon as practicable after the Effective Time, the Acquired Fund will be
liquidated and will distribute the newly issued Acquiring Fund common shares it
receives pro rata to its common shareholders of record, and the shares of
Acquiring Fund MuniPreferred it receives pro rata to its preferred shareholders
of record, in exchange for such shareholders' interests in such Acquired Fund.
Such liquidation and distribution will be accomplished by opening accounts on
the books of the Acquiring Fund in the names of the shareholders of the
Acquired Fund and transferring to those shareholder accounts the Acquiring Fund
common shares, or the shares of Acquiring Fund MuniPreferred, as the case may
be. Each common shareholder account would represent the respective pro rata
number of newly issued Acquiring Fund common shares (rounded down, in the case
of fractional Acquiring Fund common shares, to the next largest number of whole
Acquiring Fund common shares) due such Acquired Fund common shareholder. No
fractional Acquiring Fund common shares will be issued. In lieu thereof,
pursuant to the Plan, the Acquired Fund's transfer agent will aggregate all
fractional Acquiring Fund common shares and sell the resulting whole Acquiring
Fund common shares on the New York Stock Exchange for the account of all
shareholders
<PAGE> 5
June 11, 1996
Page 5
of fractional interests, and each such shareholder will be entitled to his or
her pro rata share of the proceeds of such sale upon surrender of his or her
Acquired Fund common share certificates. Because the number of shares of
Acquiring Fund MuniPreferred to be issued to the Acquired Fund is equal to the
number of outstanding shares of the Acquired Fund's MuniPreferred, each
preferred shareholder of the Acquired Fund will receive one share of Acquiring
Fund MuniPreferred for each share of Acquired Fund MuniPreferred held by him or
her.
As a result of the Reorganization, every common shareholder of the Acquired
Fund will own Acquiring Fund common shares that, except for cash payments
received in lieu of fractional Acquiring Fund common shares, would have an
aggregate per share net asset value immediately after the Effective Time equal
to the aggregate per share net asset value of that shareholder's Acquired Fund
common shares immediately prior to the Effective Time. Since the Acquiring
Fund common shares issued to the common shareholders of the Acquired Fund would
be issued at net asset value in exchange for the net assets of such Acquired
Fund having a value equal to the aggregate per share net asset value of those
Acquiring Fund common shares so issued, the net asset value of the Acquiring
Fund common shares should remain virtually unchanged by the Reorganization.
The shares of Acquiring Fund MuniPreferred issued pursuant to the
Reorganization rank on a parity with each other and with each other series of
Acquiring Fund preferred shares as to the payment of dividends and the
distribution of assets upon liquidation. All shares of Acquiring Fund
MuniPreferred carry one vote per share on all matters on which such shares are
entitled to be voted. Shares of Acquiring Fund MuniPreferred will be, when
issued, fully paid and generally nonassessable, and have no pre-emptive,
conversion or exchange rights or rights to cumulative voting.
In approving the Reorganization, the Board of Trustees of the Acquiring Fund
and the Board of Directors of the Acquired Fund each identified certain
benefits that are likely to result from combining the funds, including lower
expenses per common share, greater efficiency and flexibility in portfolio
management and a more liquid trading market for the common shares of the
combined fund. Each Board also considered the possible risks and costs of
combining the funds and determined that the Reorganization is likely to provide
benefits to the shareholders of each fund that outweigh the costs incurred.
<PAGE> 6
June 11, 1996
Page 6
CONCLUSION
Based on the foregoing, it is our opinion that the acquisition by the
Acquiring Fund, pursuant to the Plan, of substantially all the assets and
liabilities of the Acquired Fund in exchange for voting shares of the Acquiring
Fund will qualify as a reorganization under Code Section 368(a)(1)(C).
Our opinions set forth above with respect to (1) the nonrecognition of gain
or loss to the Acquired Fund and the Acquiring Fund, (2) the basis and holding
period of the assets received by the Acquiring Fund, (3) the nonrecognition of
gain or loss to the Acquired Fund's shareholders upon the receipt of the
Acquiring Fund shares, and (4) the basis and holding period of the Acquiring
Fund shares received by the Acquired Fund's shareholders, follow as a matter of
law from the opinion that the acquisition under the Plan will qualify as a
reorganization under Code Section 368(a)(1)(C).
The opinions expressed in this letter are based on the Code, the Income Tax
Regulations promulgated by the Treasury Department thereunder and judicial
authority reported as of the date hereof. We have also considered the position
of the Internal Revenue Service (the "Service") reflected in published and
private rulings. Although we are not aware of any pending changes to these
authorities that would alter our opinions, there can be no assurances that
future legislative or administrative changes, court decisions or Service
interpretations will not significantly modify the statements or opinions
expressed herein.
Our opinions are limited to those federal income tax issues specifically
considered herein and are addressed to and are only for the benefit of the
Acquired Fund and Acquiring Fund. We do not express any opinion as to any
other federal income tax issues, or any state or local law issues, arising from
the transactions contemplated by the Plan. Although the discussion herein is
based upon our best interpretation of existing sources of law and expresses
what we believe a court would properly conclude if presented with these issues,
no assurance can be given that such interpretations would be followed if they
were to become the subject of judicial or administrative proceedings.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the captions "Proposal
No. 1 - The Reorganization - Tax Consequences of the Reorganization", "Legal
Opinions" and "Additional Information About the Funds - Tax Matters Associated
with Investment in the Funds" in the Joint Proxy Statement - Prospectus
contained in such Registration
<PAGE> 7
June 11, 1996
Page 7
Statement. In giving such consent, we do not thereby concede that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE> 1
EXHIBIT 99.14
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 15, 1995 for Nuveen Insured Premium Income
Municipal Fund, Inc. and Nuveen Insured Premium Income Municipal Fund 2 in the
Registration Statement (Form N-14) and related Prospectus of Nuveen Insured
Premium Income Municipal Fund 2 filed with the Securities and Exchange
Commission in this Pre-Effective Amendment No. 1 to the Registration Statement
under the Securities Act of 1933 (Registration No. 33-03257).
ERNST & YOUNG LLP
Chicago, Illinois
June 10, 1996
