Securities and Exchange Commission
Washington, DC 20549
Rule 23c-2 Notice of Intention to
Redeem Securities
of
Merrill Lynch Municipal Strategy Fund, Inc.
800 Scudders Mill Road
Plainsboro, NJ 08536
under the
Investment Company Act of 1940
Securities Act File No. 333-69867
Investment Company Act File No. 811-7203
(1) Title of the class of securities to be redeemed:
Auction Market Preferred Stock, Series A, par value of $.10 per share,
liquidation preference of $25,000 per share (the "Series A AMPS").
(2) Date on which the securities may be called or redeemed: March 23, 1999.
On January 15, 1999, Merrill Lynch Municipal Strategy Fund, Inc. (the
"Fund") will commence a tender offer for 2,000,000 shares of its
common stock (the "Tender Offer"). The Tender Offer will terminate on
February 12, 1999, unless extended. As required by the Fund's Articles
Supplementary (the "Articles Supplementary"), at the conclusion of
such tender offer, the Fund may be required to redeem shares of its
Series A AMPS in order to comply with asset coverage tests required
under the Investment Company Act of 1940, as amended, and by rating
agencies, each as detailed in the Articles Supplementary
(collectively, the "Asset Coverage Tests"). If Series A AMPS must be
redeemed, the Series A AMPS will be called for redemption pursuant to
a notice mailed to each holder of Series A AMPS to be redeemed and
published in The Wall Street Journal on or about March 2, 1999. On
such date the Fund will deposit with IBJ Schroder Bank & Trust
Company, the auction agent for the Series A AMPS (the "Auction
Agent"), cash or securities at least equal to the redemption payment
for the Series A AMPS to be redeemed along with irrevocable
instructions and authority to pay the redemption price to the holders
of such Series A AMPS in accordance with the Articles Supplementary.
Alternatively, the Fund may establish a segregated account for the
benefit of the Auction Agent with its custodian bank consisting of
cash or securities at least equal to the redemption payment in
accordance with the Articles Supplementary. Payment to the holders of
redeemed Series A AMPS will occur on or about March 23, 1999. Pursuant
to Section 4(c) of the Articles Supplementary, on the date of the
irrevocable deposit of the redemption payment with the Auction Agent,
or the establishment of the segregated account with the Fund's
custodian, the Series A AMPS relating to such deposit will no longer
be deemed outstanding.
(3) Applicable provisions of the governing instrument pursuant to which the
securities are to be redeemed:
The Series A AMPS are to be redeemed in accordance with Section 4 of
the Articles Supplementary, which document is filed as Exhibit A to
this notice and is incorporated herein by reference.
(4) The principal amount or number of shares and the basis upon which the
securities to be redeemed are to be selected:
As described above, the Fund will redeem, in whole or in part, such
number of Series A AMPS outstanding so as to comply with the Asset
Coverage Tests. The actual number of Series A AMPS cannot currently be
determined as such number is a function of the net asset value of the
common stock at the time of redemption and the number of shares of
common stock tendered in the Tender Offer.
Any Series A AMPS redeemed will be redeemed in accordance with Section
4 of the Articles Supplementary, which provides that in the event that
less than all the outstanding Series A AMPS are to be redeemed and
there is more than one holder of such shares, the shares to be
redeemed shall be selected by lot or such other method as the Fund may
deem fair and equitable.
Exhibit A: Articles Supplementary of Merrill Lynch Municipal Strategy Fund,
Inc.
<PAGE>
Signature
Pursuant to the requirements of Rule 23c-2, Merrill Lynch Municipal
Strategy Fund, Inc. has duly caused this Notice of Intention to Redeem
Securities pursuant to Rule 23c-2 under the Investment Company Act of 1940 to be
signed on its behalf by the undersigned thereunto duly authorized in the City of
Plainsboro and the State of New Jersey on this 12th day of January, 1999.
MERRILL LYNCH MUNICIPAL
STRATEGY FUND, INC.
By: /s/ Arthur Zeikel
-----------------------
Name: Arthur Zeikel
Title: President
<PAGE>
Exhibit A
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
Articles Supplementary creating five series of
Auction Market Preferred StockR
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC., a Maryland corporation
having its principal Maryland office in the City of Baltimore (the
"Corporation"), certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by article fifth of its Charter, the Board of Directors has
reclassified 40,000 authorized and unissued shares of common stock of the
Corporation as preferred stock of the Corporation and has authorized the
issuance of five series of preferred stock, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, to be designated
respectively: Auction Market Preferred Stock, Series A; Auction Market Preferred
Stock, Series B; Auction Market Preferred Stock, Series C; Auction Market
Preferred Stock, Series D; and Auction Market Preferred Stock, Series E.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each such series of preferred stock are as follows:
DESIGNATION
SERIES A: A series of 8,000 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series A." Each share of
Auction Market Preferred Stock, Series A (sometimes referred to herein as
"Series A AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series A shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series A shall be identical.
SERIES B: A series of 8,000 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series B." Each share of
Auction Market Preferred Stock, Series B (sometimes referred to herein as
"Series B AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series B shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series B shall be identical.
- ----------
...(continued)
R Registered trademark of Merrill Lynch & Co., Inc.
SERIES C: A series of 8,000 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon is
hereby designated "Auction Market Preferred Stock, Series C." Each share of
Auction Market Preferred Stock, Series C (sometimes referred to herein as
"Series C AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series C shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series C shall be identical.
SERIES D: A series of 8,000 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon is
hereby designated "Auction Market Preferred Stock, Series D." Each share of
Auction Market Preferred Stock, Series D (sometimes referred to herein as
"Series D AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series D shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series D shall be identical.
SERIES E: A series of 8,000 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon is
hereby designated "Auction Market Preferred Stock, Series E." Each share of
Auction Market Preferred Stock, Series E (sometimes referred to herein as
"Series E AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series E shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series E shall be identical.
1. Definitions. a. Unless the context or use indicates another or
-----------
different meaning or intent, in these Articles Supplementary the following terms
have the following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on
commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or "Aa" by Moody's or the equivalent of such rating by another
nationally recognized rating agency, as such rate is made available on a
discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day immediately preceding such date, or (ii) in the event that the
Federal Reserve Bank of New York does not make available such a rate, then the
arithmetic average of the Interest Equivalent of the rate on commercial paper
placed on behalf of such issuers, as quoted on a discount basis or otherwise by
Merrill Lynch, Pierce, Fenner & Smith Incorporated or its successors that are
Commercial Paper Dealers, to the Auction Agent for the close of business on the
Business Day immediately preceding such date. If one of the Commercial Paper
Dealers does not quote a rate required to determine the "AA" Composite
Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Corporation to provide such rate or rates not being supplied by
the Commercial Paper Dealer. If the number of Dividend Period Days shall be (i)
7 or more but fewer than 49 days, such rate shall be the Interest Equivalent of
the 30-day rate on such commercial paper; (ii) 49 or more but fewer than 70
days, such rate shall be the Interest Equivalent of the 60-day rate on such
commercial paper; (iii) 70 or more days but fewer than 85 days, such rate shall
be the arithmetic average of the Interest Equivalent on the 60-day and 90-day
rates on such commercial paper; (iv) 85 or more days but fewer than 99 days,
such rate shall be the Interest Equivalent of the 90-day rate on such commercial
paper; (v) 99 or more days but fewer than 120 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 90-day and 120-day rates on
such commercial paper; (vi) 120 or more days but fewer than 141 days, such rate
shall be the Interest Equivalent of the 120-day rate on such commercial paper;
(vii) 141 or more days but fewer than 162 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 120-day and 180-day rates
on such commercial paper; and (viii) 162 or more days but fewer than 183 days,
such rate shall be the Interest Equivalent of the 180-day rate on such
commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c)
of these Articles Supplementary.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.
"Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, L.P.
"Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner
& Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.
"Agent Member" means a member of the Securities Depository that will
act on behalf of a Beneficial Owner of one or more shares of AMPS or a Potential
Beneficial Owner.
"AMPS" means, as the case may be, the Auction Market Preferred Stock,
Series A; Auction Market Preferred Stock, Series B; Auction Market Preferred
Stock, Series C; Auction Market Preferred Stock, Series D; or Auction Market
Preferred Stock, Series E.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares of
AMPS of each series and Other AMPS Outstanding on such Valuation Date multiplied
by the sum of (a) $25,000 and (b) any applicable redemption premium attributable
to the designation of a Premium Call Period; (B) the aggregate amount of cash
dividends (whether or not earned or declared) that will have accumulated for
each share of AMPS and Other AMPS Outstanding, in each case, to (but not
including) the end of the current Dividend Period for each series of AMPS that
follows such Valuation Date in the event the then current Dividend Period will
end within 49 calendar days of such Valuation Date or through the 49th day after
such Valuation Date in the event the then current Dividend Period will not end
within 49 calendar days of such Valuation Date; (C) in the event the then
current Dividend Period will end within 49 calendar days of such Valuation Date,
the aggregate amount of cash dividends that would accumulate at the Maximum
Applicable Rate applicable to a Dividend Period of 28 or fewer days on any
shares of AMPS and Other AMPS Outstanding from the end of such Dividend Period
through the 49th day after such Valuation Date, multiplied by the larger of the
Moody's Volatility Factor and the S&P Volatility Factor, determined from time to
time by Moody's and S&P, respectively (except that if such Valuation Date occurs
during a Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then current Non-Payment Period Rate); (D) the amount of
anticipated expenses of the Corporation for the 90 days subsequent to such
Valuation Date; (E) the amount of the Corporation's Maximum Potential Additional
Dividend Liability as of such Valuation Date; (F) any amounts payable for shares
of Common Stock accepted for repurchase at their net asset value pursuant to
tender offers by the Corporation; and (G) any current liabilities as of such
Valuation Date to the extent not reflected in any of (i)(A) through (i)(F)
(including, without limitation, and immediately upon determination, any amounts
due and payable by the Corporation pursuant to repurchase agreements and any
amounts payable for Municipal Bonds purchased as of such Valuation Date) less
(ii) either (A) the Discounted Value of any of the Corporation's assets, or (B)
the face value of any of the Corporation's assets if such assets mature prior to
or on the date of redemption of AMPS or payment of a liability and are either
securities issued or guaranteed by the United States Government or Deposit
Securities, in both cases irrevocably deposited by the Corporation for the
payment of the amount needed to redeem shares of AMPS subject to redemption or
any of (i)(B) through (i)(G).
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date,
means the sixth Business Day following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim and
in aggregate), and the AMPS Basic Maintenance Amount.
"Anticipation Notes" shall mean the following Municipal Bonds: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation notes,
grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
10(a)(vii) of these Articles Supplementary.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Schroder Bank & Trust Company unless and
until another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a duly
authorized committee thereof enters into an agreement with the Corporation to
follow the Auction Procedures for the purpose of determining the Applicable Rate
and to act as transfer agent, registrar, dividend disbursing agent and
redemption agent for the AMPS and Other AMPS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of these Articles Supplementary.
"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 AMPS or a Broker-Dealer that holds AMPS for its own account.
"Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 10 of
these Articles Supplementary, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of these Articles Supplementary.
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.
"Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the
Corporation may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"Common Stock" means the common stock, par value $.10 per share, of the
Corporation.
"Corporation" means Merrill Lynch Municipal Strategy Fund, Inc., a
Maryland corporation.
"Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Corporation originally issues such share.
"Deposit Securities" means cash and Municipal Bonds rated at least A,
P-1, VMIG-1 or MIG-1 by Moody's or A, A-1+ or SP-1+ by S&P.
"Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to AMPS, has the meaning set
forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period, any 28-Day Dividend Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as may
be permitted by the Corporation that is listed as the holder of record of shares
of AMPS in the Stock Books.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of
these Articles Supplementary.
"Holder" means a Person identified as a holder of record of shares of
AMPS in the Stock Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Corporation, an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Directors of the Corporation with respect to each
series of AMPS or other AMPS, as the case may be.
"Initial Dividend Period," with respect to each series of AMPS, has the
meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.
"Initial Dividend Rate," with respect to each series of AMPS, means the
rate per annum applicable to the Initial Dividend Period for such series of AMPS
and, with respect to Other AMPS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"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.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation shall be the market
value thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value as determined by the Pricing Service using methods which include
consideration of:
yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. The Pricing Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. In the event the
Pricing Service is unable to value a security, the security shall be valued at
the lower of two dealer bids obtained by the Corporation from dealers who are
members of the National Association of Securities Dealers, Inc. and who make a
market in the security, at least one of which shall be in writing. Futures
contracts and options are valued at closing prices for such instruments
established by the exchange or board of trade on which they are traded, or if
market quotations are not readily available, are valued at fair value on a
consistent basis using methods determined in good faith by the Board of
Directors.
"Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date and assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Municipal Bond which constitutes a Moody's Eligible
Asset, the percentage determined by reference to (a) the rating by Moody's or
S&P on such Bond and (b) the Moody's Exposure Period, in accordance with the
table set forth below:
<TABLE>
<CAPTION>
Rating Category
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VM1G-1*** SP-1+***
----------------------- ---- --- -- ---- ------- --------- --------
7 weeks or less.................. 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but 154 164 173 205 235 137 149
greater than seven weeks.......
9 weeks or less but 158 169 179 209 242 138 150
greater than eight weeks.......
- ----------
* Moody's rating.
** Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by S&P.
*** Municipal Bonds rated MIG-1, VMIG-1 or P-1 or, if not rated by Moody's, rated SP-1+ or A-1+ by S&P which
do not mature or have a demand feature at par exercisable within the Moody's Exposure Period and which do not have
a long-term rating. For the purposes of the definition of Moody's Eligible Assets, these securities will have
an assumed rating of "A" by Moody's.
</TABLE>
Notwithstanding the foregoing, (i) no Moody's Discount Factor will be
applied to short-term Municipal Bonds so long as such Municipal Bonds are rated
at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at
par exercisable within the Moody's Exposure Period, and the Moody's Discount
Factor for such Bonds will be 125% if such Bonds are not rated by Moody's but
are rated A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for Municipal Bonds Sold.
"Receivables for Municipal Bonds Sold," for purposes of calculating Moody's
Eligible Assets as of any Valuation Date, means no more than the aggregate of
the following: (i) the book value of receivables for Municipal Bonds sold as of
or prior to such Valuation Date if such receivables are due within five Business
Days of such Valuation Date, and if the trades which generated such receivables
are (x) settled through clearing house firms with respect to which the
Corporation 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 Bonds 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 (x) or (y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for Municipal Bonds
Sold or a Municipal Bond that (i) pays interest in cash, (ii) is publicly rated
Baa or higher by Moody's or, if not rated by Moody's but rated by S&P, is rated
at least BBB- by S&P (provided that, for purposes of determining the Moody's
Discount Factor applicable to any such S&P-rated Municipal Bond, such Municipal
Bond (excluding any short-term Municipal Bond) will be deemed to have a Moody's
rating which is one full rating category lower than its S&P rating), (iii) does
not have its Moody's rating suspended by Moody's; and (iv) is part of an issue
of Municipal Bonds of at least $10,000,000. In addition, Municipal Bonds in the
Corporation's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:
Maximum State
Minimum Maximum or Territory
Issue Size Underlying Concentration
Rating ($ Millions) Obligor (%) (1) (%) (1) (3)
------ ------------ --------------- -----------
Aaa..................... 10 100 100
Aa...................... 10 20 60
A....................... 10 10 40
Baa..................... 10 6 20
Other (2)............... 10 4 12
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by
S&P.
(3) Territorial bonds (other than those issued by Puerto Rico and counted
collectively) are each limited to 10% of Moody's Eligible Assets. For
diversification purposes, Puerto Rico will be treated as a state.
For purposes of the maximum underlying obligor requirement described above, any
Municipal Bond 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 Bond.
When the Corporation sells a Municipal Bond and agrees to repurchase it
at a future date, the Discounted Value of such Bond will constitute a Moody's
Eligible Asset and the amount the Corporation is required to pay upon repurchase
of such Bond will count as a liability for purposes of calculating the AMPS
Basic Maintenance Amount. When the Corporation purchases a Municipal Bond and
agrees to sell it at a future date to another party, cash receivable by the
Corporation thereby will constitute a Moody's Eligible Asset if the long-term
debt of such other party is rated at least A2 by Moody's and such agreement has
a term of 30 days or less; otherwise the Discounted Value of such Bond will
constitute a Moody's Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Corporation for the payment of
dividends or redemption.
"Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.
"Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of these Articles Supplementary.
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
% Change in
Marginal Tax Moody's Volatility
Rate Factor
------------ ------------------
less than or equal to 5% 292%
greater than 5% but less than or equal to 10% 313%
greater than 10% but less than or equal to 15% 338%
greater than 15% but less than or equal to 20% 364%
greater than 20% but less than or equal to 25% 396%
greater than 25% but less than or equal to 30% 432%
greater than 30% but less than or equal to 35% 472%
greater than 35% but less than or equal to 40% 520%
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Corporation in
writing is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the
Corporation's Registration Statement on Form N-2 (File No. 811-7203) relating to
the AMPS on file with the Securities and Exchange Commission, as such
Registration Statement may be amended from time to time, as well as short-term
municipal obligations.
"Municipal Index" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Corporation which are stock, including all outstanding
shares of AMPS and Other AMPS (or such other asset coverage as may in the future
be specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are stock of a closed-end investment company as a condition of
paying dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the Corporation to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Non-Payment Period" means, with respect to each series of AMPS, any
period commencing on and including the day on which the Corporation shall fail
to (i) declare, prior to the close of business on the second Business Day
preceding any Dividend Payment Date, for payment on or (to the extent permitted
by paragraph 2(c)(i) of these Articles Supplementary) within three Business Days
after such Dividend Payment Date to the Holders as of 12:00 noon, New York City
time, on the Business Day preceding such Dividend Payment Date, the full amount
of any dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS or,
in the case of an optional redemption, the Optional Redemption Price per share,
and ending on and including the Business Day on which, by 12:00 noon, New York
City time, all unpaid cash dividends and unpaid redemption prices shall have
been so deposited or shall have otherwise been made available to Holders in
same-day funds; provided that, a Non-Payment Period shall not end unless the
Corporation shall have given at least five days' but no more than 30 days'
written notice of such deposit or availability to the Auction Agent, all
Existing Holders (at their addresses appearing in the Stock Books) and the
Securities Depository. Notwithstanding the foregoing, the failure by the
Corporation to deposit funds as provided for by clauses (ii)(A) or (ii)(B) above
within three Business Days after any Dividend Payment Date or redemption date,
as the case may be, in each case to the extent contemplated by paragraph 2(c)(i)
of these Articles Supplementary, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of AMPS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and Moody's and S&P (and any Substitute Rating Agency in lieu of
Moody's or S&P in the event either of such parties shall not rate the AMPS)
advise the Corporation in writing that such adjustment, modification, alteration
or change will not adversely affect their then current ratings on the AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.
"Notice of Redemption" means any notice with respect to the redemption
of shares of AMPS pursuant to paragraph 4 of these Articles Supplementary.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of these Articles Supplementary.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" means $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium Call
Period.
"Other AMPS" means the auction rate preferred stock of the Corporation,
other than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, shares of
AMPS theretofore issued by the Corporation except, without duplication, (A) any
shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and Deposit Securities shall have been
deposited in trust or segregated by the Corporation pursuant to paragraph 4(c)
and (B) any shares of AMPS as to which the Corporation or any Affiliate thereof
shall be an Existing Holder, provided that shares of AMPS held by an Affiliate
shall be deemed outstanding for purposes of calculating the AMPS Basic
Maintenance Amount and (ii) with respect to shares of other Preferred Stock, has
the equivalent meaning.
"Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes 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.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of AMPS but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of AMPS.
"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Corporation, including any Existing Holder, who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).
"Preferred Stock" means the preferred stock, par value $.10 per share,
of the Corporation, and includes AMPS and Other AMPS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Pricing Service" means J.J. Kenny or any pricing service designated by
the Board of Directors of the Corporation provided the Corporation obtains
written assurance from S&P and Moody's that such designation will not impair the
rating then assigned by S&P and Moody's to the AMPS.
"Quarterly Valuation Date" means the twenty-fifth day of the last month
of each fiscal quarter of the Corporation (or, if such day is not a Business
Day, the next succeeding Business Day) in each fiscal year of the Corporation,
commencing April 25, 1996.
"Receivables for Municipal Bonds Sold" for Moody's has the meaning set
forth under the definition of Moody's Discount Factor, and for S&P has the
meaning set forth under the definition of S&P Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the applicable
"AA" Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, (ii) with respect to any Short Term Dividend
Period having more than 28 but fewer than 183 days, the applicable "AA"
Composite Commercial Paper Rate, (iii) with respect to any Short Term Dividend
Period having 183 or more but fewer than 364 days, the applicable U.S. Treasury
Bill Rate and (iv) with respect to any Long Term Dividend Period, the applicable
U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Right," with respect to each series of AMPS, has the meaning set forth
in paragraph 2(e) of these Articles Supplementary and, with respect to Other
AMPS, has the equivalent meaning.
"S&P" means Standard & Poor's Ratings Group or its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any Municipal Bond which constitutes an S&P Eligible Asset, the
percentage determined by reference to (a) the rating by S&P or Moody's on such
Bond and (b) the S&P Exposure Period, in accordance with the tables set forth
below:
Rating Category
---------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------- ---- --- -- ----
40 Business Days 190% 195% 210% 250%
22 Business Days 170 175 190 230
10 Business Days 155 160 175 215
7 Business Days 150 155 170 210
3 Business Days 130 135 150 190
- ----------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Bonds will be 115%, so long as such Municipal Bonds are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable in 30
days or less, or 125% if such Municipal Bonds are not rated by S&P but are rated
VMIG-1, P-1 or MIG-1 by Moody's; provided, however, such short-term Municipal
Bonds rated by Moody's but not rated by S&P having a demand feature exercisable
in 30 days or less must be backed by a letter of credit, liquidity facility or
guarantee from a bank or other financial institution having a short-term rating
of at least A-1+ from S&P; and further provided that such short-term Municipal
Bonds rated by Moody's but not rated by S&P may comprise no more than 50% of
short-term Municipal Bonds that qualify as S&P Eligible Assets and (ii) no S&P
Discount Factor will be applied to cash or to Receivables for Municipal Bonds
Sold. "Receivables for Municipal Bonds Sold," for purposes of calculating S&P's
Eligible Assets as of any Valuation Date, means the book value of receivables
for Municipal Bonds sold as of or prior to such Valuation Date if such
receivables are due within five Business Days of such Valuation Date. For
purposes of the foregoing, Anticipation Notes rated SP-1+ or, if not rated by
S&P, rated VMIG-1 by Moody's, which do not mature or have a demand feature
exercisable in 30 days and which do not have a long-term rating, shall be
considered to be short-term Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for Municipal Bonds Sold
or a Municipal Bond that (i) is issued by any of the 50 states, the territories
and their subdivisions, counties, cities, towns, villages, and school districts,
agencies, such as authorities and special districts created by the states, and
certain federally sponsored agencies such as local housing authorities (payments
made on these bonds are exempt from regular federal income taxes and are
generally exempt from state and local taxes in the state of issuance), (ii) is
interest bearing and pays interest at least semi-annually; (iii) is payable with
respect to principal and interest in United States Dollars; (iv) is publicly
rated BBB or higher by S&P or, except in the case of Anticipation Notes that are
grant anticipation notes or bond anticipation notes which must be rated by S&P
to be included in S&P Eligible Assets, if not rated by S&P but rated by Moody's,
is rated at least A by Moody's (provided that such Moody's-rated Municipal Bonds
will be included in S&P Eligible Assets only to the extent the Market Value of
such Municipal Bonds does not exceed 50% of the aggregate Market Value of the
S&P Eligible Assets; and further provided that, for purposes of determining the
S&P Discount Factor applicable to any such Moody's-rated Municipal Bond, such
Municipal Bond will be deemed to have an S&P rating which is one full rating
category lower than its Moody's rating); (v) is not subject to a covered call or
covered put option written by the Corporation; (vi) is not part of a private
placement of Municipal Bonds; and (vii) is part of an issue of Municipal Bonds
with an original issue size of at least $20 million or, if of an issue with an
original issue size below $20 million (but in no event below $10 million), is
issued by an issuer with a total of at least $50 million of securities
outstanding. Notwithstanding the foregoing:
i. Municipal Bonds of any one issuer or guarantor (excluding bond
insurers) will be considered S&P Eligible Assets only to the extent the
Market Value of such Municipal Bonds does not exceed 10% of the
aggregate Market Value of the S&P Eligible Assets, provided that 2% is
added to the applicable S&P Discount Factor for every 1% by which the
Market Value of such Municipal Bonds exceeds 5% of the aggregate Market
Value of the S&P Eligible Assets;
ii. Municipal Bonds guaranteed or insured by any one bond insurer
will be considered S&P Eligible Assets only to the extent the Market
Value of such Municipal Bonds does not exceed 25% of the aggregate
Market Value of the S&P Eligible Assets; and
iii. Municipal Bonds issued by issuers in any one state or
territory will be considered S&P Eligible Assets only to the extent the
Market Value of such Municipal Bonds does not exceed 20% of the
aggregate Market Value of S&P Eligible Assets.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Corporation has under these Articles Supplementary to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount (as described in
paragraph 7(a) of these Articles Supplementary).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a)
of these Articles Supplementary.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Corporation in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of AMPS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
AMPS.
"Service" means the United States Internal Revenue Service.
"7-Day Dividend Period" means, with respect to Series A AMPS, Series B
AMPS and Series C AMPS, a Dividend Period consisting of seven days.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven in the case of Series A AMPS,
Series B AMPS and Series C AMPS and other than 28 in the case of Series D AMPS
and Series E AMPS), evenly divisible by seven and not fewer than seven nor more
than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven in the case of Series A AMPS, Series
B AMPS and Series C AMPS and other than 28 in the case of Series D AMPS and
Series E AMPS), evenly divisible by seven, and not fewer than seven nor more
than 364 or (ii) a specified period of one whole year or more but not greater
than five years (in each case subject to adjustment as provided in paragraph
2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of AMPS subject to such Dividend Period shall not be subject to
redemption at the option of the Corporation and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined by the Board of
Directors of the Corporation, after consultation with the Auction Agent and the
Broker-Dealers, during each year of which the shares of AMPS subject to such
Dividend Period shall be redeemable at the Corporation's option at a price per
share equal to $25,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $25,000, as determined by the Board of Directors of
the Corporation after consultation with the Auction Agent and the
Broker-Dealers.
"Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.
"Stock Register" means the register of Holders maintained on behalf of
the Corporation by the Auction Agent in its capacity as transfer agent and
registrar for the AMPS.
"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Corporation may from time to time appoint or, in
lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Corporation, to act as the substitute rating agency
or substitute rating agencies, as the case may be, to determine the credit
ratings of the shares of AMPS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30 day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any 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 Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Corporation may not utilize a successor
index to the Kenny Index unless Moody's and S&P provide the Corporation with
written confirmation that the use of such successor index will not adversely
affect the then current respective Moody's and S&P ratings of the AMPS.
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"28-Day Dividend Period" means, with respect to Series D AMPS and
Series E AMPS, a Dividend Period consisting of 28 days.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the AMPS Basic Maintenance Amount, each Business Day
commencing with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities paid
to or received from a broker (subsequent to the Initial Margin payment) from
time to time as the price of such futures contract fluctuates.
b. The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Market Value, Maximum Potential Additional Dividend Liability, Moody's
Discount Factor, Moody's Eligible Asset, Moody's Exposure Period, Moody's
Hedging Transactions, Moody's Volatility Factor, S&P Discount Factor, S&P
Eligible Asset, S&P Exposure Period, S&P Hedging Transactions, S&P Volatility
Factor, Valuation Date and Variation Margin have been determined by the Board of
Directors of the Corporation in order to obtain a "aaa" rating from Moody's and
a AAA rating from S&P on the AMPS on their Date of Original Issue; and the Board
of Directors of the Corporation shall have the authority, without shareholder
approval, to amend, alter or repeal from time to time the foregoing definitions
and the restrictions and guidelines set forth thereunder if Moody's and S&P or
any Substitute Rating Agency advises the Corporation in writing that such
amendment, alteration or repeal will not adversely affect their then current
ratings on the AMPS.
2. Dividends. a. The Holders shall be entitled to receive, when, as and
---------
if declared by the Board of Directors of the Corporation, out of funds legally
available therefor, cumulative dividends each consisting of (i) cash at the
Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f) below,
and no more, payable on the respective dates set forth below. Dividends on the
shares of AMPS so declared and payable shall be paid (i) in preference to and in
priority over any dividends declared and payable on the Common Stock, and (ii)
to the extent permitted under the Code and to the extent available, out of net
tax-exempt income earned on the Corporation's investments. To the extent
permitted under the Code, dividends on shares of AMPS will be designated as
exempt-interest dividends. For the purposes of this section, the term "net
tax-exempt income" shall exclude capital gains of the Corporation.
b. (1) Cash dividends on shares of AMPS shall accumulate from the Date
of Original Issue and shall be payable, when, as and if declared by the Board of
Directors, out of funds legally available therefor, commencing on the Initial
Dividend Payment Date with respect to each series of AMPS. Following the Initial
Dividend Payment Date for each series of AMPS, dividends on each series of AMPS
will be payable, at the option of the Corporation, either (i) with respect to
any 7-Day Dividend Period, any 28-Day Dividend Period and any Short Term
Dividend Period of 35 or fewer days on the day next succeeding the last day
thereof, or (ii) with respect to any Short Term Dividend Period of more than 35
days and with respect to any Long Term Dividend Period, monthly on the first
Business Day of each calendar month during such Short Term Dividend Period or
Long Term Dividend Period and on the day next succeeding the last day thereof
(each such date referred to in clause (i) or (ii) being herein referred to as a
"Normal Dividend Payment Date"), except that if such Normal Dividend Payment
Date is not a Business Day, then (i) the Dividend Payment Date shall be the
first Business Day next succeeding such Normal Dividend Payment Date if such
Normal Dividend Payment Date is a Monday, Tuesday, Wednesday or Thursday, or
(ii) the Dividend Payment Date shall be the first Business Day next preceding
such Normal Dividend Payment Date if such Normal Dividend Payment Date is a
Friday. Although any particular Dividend Payment Date may not occur on the
originally scheduled date because of the exceptions discussed above, the next
succeeding Dividend Payment Date, subject to such exceptions, will occur on the
next following originally scheduled date. If for any reason a Dividend Payment
Date cannot be fixed as described above, then the Board of Directors shall fix
the Dividend Payment Date. The Initial Dividend Period, 7-Day Dividend Periods,
28-Day Dividend Periods and Special Dividend Periods are hereinafter sometimes
referred to as Dividend Periods. Each dividend payment date determined as
provided above is hereinafter referred to as a "Dividend Payment Date."
(2) Each dividend shall be paid to the Holders as they appear in
the Stock Register as of 12:00 noon, New York City time, on the Business Day
preceding the 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 as they appear on the Stock Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Directors of the Corporation.
c. (1) During the period from and including the first Date of Original
Issue for each series of AMPS to but excluding the Initial Dividend Payment Date
for each series of AMPS (the "Initial Dividend Period"), the Applicable Rate
shall be the Initial Dividend Rate. Commencing on the Initial Dividend Payment
Date for each series of AMPS, the Applicable Rate for each subsequent dividend
period (hereinafter referred to as a "Subsequent Dividend Period"), which
Subsequent Dividend Period shall commence on and include a Dividend Payment Date
and shall end on and include the calendar day prior to the next Dividend Payment
Date (or last Dividend Payment Date in a Dividend Period if there is more than
one Dividend Payment Date), shall be equal to the rate per annum that results
from implementation of the Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period in the case of Series A AMPS, Series B
AMPS and Series C AMPS and a 28-Day Dividend Period in the case of Series D AMPS
and Series E AMPS, provided that if the preceding Dividend Period for Series D
AMPS or Series E AMPS is a Special Dividend Period of less than 28 days, the
Dividend Period commencing during a Non-Payment Period will be the same length
as such preceding Dividend Period. Except in the case of the willful failure of
the Corporation to pay a dividend on a Dividend Payment Date or to redeem any
shares of AMPS on the date set for such redemption, any amount of any dividend
due on any Dividend Payment Date (if, prior to the close of business on the
second Business Day preceding such Dividend Payment Date, the Corporation has
declared such dividend payable on such Dividend Payment Date to the Holders of
such shares of AMPS as of 12:00 noon, New York City time, on the Business Day
preceding such Dividend Payment Date) or redemption price with respect to any
shares of AMPS not paid to such Holders when due may be paid to such Holders in
the same form of funds by 12:00 noon, New York City time, on any of the first
three Business Days after such Dividend Payment Date or due date, as the case
may be, provided that, such amount is accompanied by a late charge calculated
for such period of non-payment at the Non-Payment Period Rate applied to the
amount of such non-payment based on the actual number of days comprising such
period divided by 365. In the case of a willful failure of the Corporation to
pay a dividend on a Dividend Payment Date or to redeem any shares of AMPS on the
date set for such redemption, the preceding sentence shall not apply and the
Applicable Rate for the Dividend Period commencing during the Non-Payment Period
resulting from such failure shall be the Non-Payment Period Rate. For the
purposes of the foregoing, payment to a person in same-day funds on any Business
Day at any time shall be considered equivalent to payment to such person in New
York Clearing House (next-day) funds at the same time on the preceding Business
Day, and any payment made after 12:00 noon, New York City time, on any Business
Day shall be considered to have been made instead in the same form of funds and
to the same person before 12:00 noon, New York City time, on the next Business
Day.
(2) The amount of cash dividends per share of any series of AMPS
payable (if declared) on the Initial Dividend Payment Date, each 7-Day Dividend
Period, each 28-Day Dividend Period and each Short Term Dividend Period shall be
computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and the denominator of
which will be 365, multiplying the amount so obtained by $25,000, and rounding
the amount so obtained to the nearest cent. During any Long Term Dividend
Period, the amount of cash dividends per share of AMPS payable (if declared) on
any Dividend Payment Date shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction, the numerator of which will be such
number of days in such part of such Dividend Period that such share was
outstanding and for which dividends are payable on such Dividend Payment Date
and the denominator of which will be 360, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent.
(3) With respect to each Dividend Period that is a Special Dividend
Period, the Corporation may, at its sole option and to the extent permitted by
law, by telephonic and written notice (a "Request for Special Dividend Period")
to the Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of AMPS be a number of days (other than seven in
the case of Series A AMPS, Series B AMPS and Series C AMPS and other than 28 in
the case of Series D AMPS and Series E AMPS), evenly divisible by seven, and not
fewer than seven nor more than 364 in the case of a Short Term Dividend Period
or one whole year or more but not greater than five years in the case of a Long
Term Dividend Period, specified in such notice, provided that the Corporation
may not give a Request for Special Dividend Period of greater than 28 days (and
any such request shall be null and void) unless, for any Auction occurring after
the initial Auction, Sufficient Clearing Bids were made in the last occurring
Auction and unless full cumulative dividends, any amounts due with respect to
redemptions, and any Additional Dividends payable prior to such date have been
paid in full. Such Request for Special Dividend Period, in the case of a Short
Term Dividend Period, shall be given on or prior to the second Business Day but
not more than seven Business Days prior to an Auction Date for a series of AMPS
and, in the case of a Long Term Dividend Period, shall be given on or prior to
the second Business Day but not more than 28 days prior to an Auction Date for
the AMPS. Upon receiving such Request for Special Dividend Period, the
Broker-Dealer(s) shall jointly determine whether, given the factors set forth
below, it is advisable that the Corporation issue a Notice of Special Dividend
Period for the series of AMPS as contemplated by such Request for Special
Dividend Period and the Optional Redemption Price of the AMPS during such
Special Dividend Period and the Specific Redemption Provisions and shall give
the Corporation and the Auction Agent written notice (a "Response") of such
determination by no later than the second Business Day prior to such Auction
Date. In making such determination the Broker-Dealer(s) will consider (1)
existing short-term and long-term market rates and indices of such short-term
and long-term rates, (2) existing market supply and demand for short-term and
long-term securities, (3) existing yield curves for short-term and long-term
securities comparable to the AMPS, (4) industry and financial conditions which
may affect the AMPS, (5) the investment objective of the Corporation, and (6)
the Dividend Periods and dividend rates at which current and potential
beneficial holders of the AMPS would remain or become beneficial holders. If the
Broker-Dealer(s) shall not give the Corporation and the Auction Agent a Response
by such second Business Day or if the Response states that given the factors set
forth above it is not advisable that the Corporation give a Notice of Special
Dividend Period for the series of AMPS, the Corporation may not give a Notice of
Special Dividend Period in respect of such Request for Special Dividend Period.
In the event the Response indicates that it is advisable that the Corporation
give a Notice of Special Dividend Period for the series of AMPS, the Corporation
may by no later than the second Business Day prior to such Auction Date give a
notice (a "Notice of Special Dividend Period") to the Auction Agent, the
Securities Depository and each Broker-Dealer which notice will specify (i) the
duration of the Special Dividend Period, (ii) the Optional Redemption Price as
specified in the related Response and (iii) the Specific Redemption Provisions,
if any, as specified in the related Response. The Corporation shall also provide
a copy of such Notice of Special Dividend Period to Moody's and S&P. The
Corporation shall not give a Notice of Special Dividend Period and, if the
Corporation has given a Notice of Special Dividend Period, the Corporation is
required to give telephonic and written notice of its revocation (a "Notice of
Revocation") to the Auction Agent, each Broker-Dealer, and the Securities
Depository on or prior to the Business Day prior to the relevant Auction Date if
(x) either the 1940 Act AMPS Asset Coverage is not satisfied or the Corporation
shall fail to maintain S&P Eligible Assets and Moody's Eligible Assets each with
an aggregate Discounted Value at least equal to the AMPS Basic Maintenance
Amount, in each case on each of the two Valuation Dates immediately preceding
the Business Day prior to the relevant Auction Date on an actual basis and on a
pro forma basis giving effect to the proposed Special Dividend Period (using as
a pro forma dividend rate with respect to such Special Dividend Period the
dividend rate which the Broker-Dealers shall advise the Corporation is an
approximately equal rate for securities similar to the AMPS with an equal
dividend period), provided that, in calculating the aggregate Discounted Value
of Moody's Eligible Assets for this purpose, the Moody's Exposure Period shall
be deemed to be one week longer, (y) sufficient funds for the payment of
dividends payable on the immediately succeeding Dividend Payment Date have not
been irrevocably deposited with the Auction Agent by the close of business on
the third Business Day preceding the related Auction Date or (z) the
Broker-Dealer(s) jointly advise the Corporation that after consideration of the
factors listed above they have concluded that it is advisable to give a Notice
of Revocation. The Corporation shall also provide a copy of such Notice of
Revocation to Moody's and S&P. If the Corporation is prohibited from giving a
Notice of Special Dividend Period as a result of any of the factors enumerated
in clause (x), (y) or (z) above or if the Corporation gives a Notice of
Revocation with respect to a Notice of Special Dividend Period for any series of
AMPS, the next succeeding Dividend Period for that series will be a 7-Day
Dividend Period in the case of Series A AMPS, Series B AMPS and Series C AMPS
and a 28-Day Dividend Period in the case of Series D AMPS and Series E AMPS,
provided that if the then current Dividend Period for Series D AMPS or Series E
AMPS is a Special Dividend Period of less than 28 days, the next succeeding
Dividend Period for such series of AMPS will be the same length as such current
Dividend Period. In addition, in the event Sufficient Clearing Bids are not made
in the applicable Auction or such Auction is not held for any reason, such next
succeeding Dividend Period will be a 7-Day Dividend Period (in the case of
Series A AMPS, Series B AMPS and Series C AMPS) or a 28-Day Dividend Period (in
the case of Series D AMPS and Series E AMPS) and the Corporation may not again
give a Notice of Special Dividend Period for the AMPS (and any such attempted
notice shall be null and void) until Sufficient Clearing Bids have been made in
an Auction with respect to a 7-Day Dividend Period (in the case of Series A
AMPS, Series B AMPS and Series C AMPS) or a 28-Day Dividend Period (in the case
of Series D AMPS and Series E AMPS).
d. (1) Holders shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the shares of AMPS (except for
Additional Dividends as provided in paragraph 2(e) hereof and additional
payments as provided in paragraph 2(f) hereof). Except for the late charge
payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment on the
shares of AMPS that may be in arrears.
(2) For so long as any share of AMPS is Outstanding, the Corporation
shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of AMPS as to dividends or upon
liquidation) in respect of the Common Stock or any other stock of the
Corporation ranking junior to or on a parity with the shares of AMPS as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Stock or any other
such junior stock (except by conversion into or exchange for stock of the
Corporation ranking junior to the shares of AMPS as to dividends and upon
liquidation) or any other such Parity Stock (except by conversion into or
exchange for stock of the Corporation ranking junior to or on a parity with the
shares of AMPS as to dividends and upon liquidation), unless (A) immediately
after such transaction, the Corporation shall have S&P Eligible Assets and
Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount and the Corporation shall
maintain the 1940 Act AMPS Asset Coverage, (B) full cumulative dividends on
shares of AMPS and shares of Other AMPS due on or prior to the date of the
transaction have been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, (C)
any Additional Dividend required to be paid under paragraph 2(e) below on or
before the date of such declaration or payment has been paid and (D) the
Corporation has redeemed the full number of shares of AMPS required to be
redeemed by any provision for mandatory redemption contained herein.
e. Each dividend shall consist of (i) cash at the Applicable Rate, (ii)
an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the share or shares of AMPS
on which the dividend was paid. The Corporation shall cause to be maintained a
record of each Right received by the respective Holders. A Right may not be
transferred other than by operation of law. If the Corporation retroactively
allocates any net capital gains or other income subject to regular Federal
income taxes to shares of AMPS without having given advance notice thereof to
the Auction Agent as described in paragraph 2(f) hereof solely by reason of the
fact that such allocation is made as a result of the redemption of all or a
portion of the outstanding shares of AMPS or the liquidation of the Corporation
(the amount of such allocation referred to herein as a "Retroactive Taxable
Allocation"), the Corporation will, within 90 days (and generally within 60
days) after the end of the Corporation's fiscal year for which a Retroactive
Taxable Allocation is made, provide notice thereof to the Auction Agent and to
each holder of a Right applicable to such shares of AMPS (initially Cede & Co.
as nominee of the Depository Trust Company) during such fiscal year at such
holder's address as the same appears or last appeared on the Stock Books of the
Corporation. The Corporation will, within 30 days after such notice is given to
the Auction Agent, pay to the Auction Agent (who will then distribute to such
holders of Rights), out of funds legally available therefor, an amount equal to
the aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question.
An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars from the
aggregate of both the Retroactive Taxable Allocations and the Additional
Dividend to be equal to the dollar amount of the dividends which would have been
received by such holder if the amount of the aggregate Retroactive Taxable
Allocations would have been excludable from the gross income of such holder.
Such Additional Dividend shall be calculated (i) without consideration being
given to the time value of money; (ii) assuming that no holder of shares of AMPS
is subject to the Federal alternative minimum tax with respect to dividends
received from the Corporation; and (iii) assuming that each Retroactive Taxable
Allocation would be taxable in the hands of each holder of shares of AMPS at the
greater of: (x) the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (y) the maximum
marginal regular Federal corporate income tax rate applicable to ordinary income
or capital gains depending on the taxable character of the distribution
(disregarding in both (x) and (y) the effect of any state or local taxes and the
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets).
f. Except as provided below, whenever the Corporation intends to
include any net capital gains or other income subject to regular Federal income
taxes in any dividend on shares of AMPS, the Corporation will notify the Auction
Agent of the amount to be so included at least five Business Days prior to the
Auction Date on which the Applicable Rate for such dividend is to be
established. The Corporation may also include such income in a dividend on
shares of a series of AMPS without giving advance notice thereof if it increases
the dividend by an additional amount calculated as if such income was a
Retroactive Taxable Allocation and the additional amount was an Additional
Dividend, provided that the Corporation will notify the Auction Agent of the
additional amounts to be included in such dividend at least five Business Days
prior to the applicable Dividend Payment Date.
g. No fractional shares of AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or winding up
------------------
of the Corporation, whether voluntary or involuntary, the Holders shall be
entitled to receive, out of the assets of the Corporation available for
distribution to shareholders, before any distribution or payment is made upon
any Common Stock or any other capital stock ranking junior in right of payment
upon liquidation to the AMPS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to date of
distribution, and after such payment the holders of AMPS will be entitled to no
other payments other than Additional Dividends as provided in paragraph 2(e)
hereof. If upon any liquidation, dissolution or winding up of the Corporation,
the amounts payable with respect to the AMPS and any other Outstanding class or
series of Preferred Stock of the Corporation ranking on a parity with the AMPS
as to payment upon liquidation are not paid in full, the Holders and the holders
of such other class or series will share ratably in any such distribution of
assets in proportion to the respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the Holders will not be entitled to any further
participation in any distribution of assets by the Corporation except for any
Additional Dividends. A consolidation, merger or statutory share exchange of the
Corporation with or into any other corporation or entity or a sale, whether for
cash, shares of stock, securities or properties, of all or substantially all or
any part of the assets of the Corporation shall not be deemed or construed to be
a liquidation, dissolution or winding up of the Corporation.
4. Redemption. a. Shares of AMPS shall be redeemable by the Corporation
----------
as provided below:
(1) To the extent permitted under the 1940 Act and Maryland law,
upon giving a Notice of Redemption, the Corporation at its option may
redeem shares of AMPS, in whole or in part, out of funds legally
available therefor, at the Optional Redemption Price per share, on any
Dividend Payment Date; provided that no share of AMPS may be redeemed
at the option of the Corporation during (i) the Initial Dividend Period
with respect to a series of shares or (ii) a Non-Call Period to which
such share is subject. In addition, holders of AMPS which are redeemed
shall be entitled to receive Additional Dividends to the extent
provided herein. The Corporation may not give a Notice of Redemption
relating to an optional redemption as described in this paragraph
4(a)(i) unless, at the time of giving such Notice of Redemption, the
Corporation 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 due to Holders by reason of
the redemption of their shares of AMPS on such redemption date.
(2) The Corporation shall redeem, out of funds legally available
therefor, at the Mandatory Redemption Price per share, shares of AMPS
to the extent permitted under the 1940 Act and Maryland law, on a date
fixed by the Board of Directors, if the Corporation fails to maintain
S&P Eligible Assets and Moody's Eligible Assets each with an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount as provided in paragraph 7(a) or to satisfy the 1940 Act AMPS
Asset Coverage as provided in paragraph 6 and such failure is not cured
on or before the AMPS Basic Maintenance Cure Date or the 1940 Act Cure
Date (herein collectively referred to as a "Cure Date"), as the case
may be. In addition, holders of AMPS so redeemed shall be entitled to
receive Additional Dividends to the extent provided herein. The number
of shares of AMPS to be redeemed shall be equal to the lesser of (i)
the minimum number of shares of AMPS the redemption of which, if deemed
to have occurred immediately prior to the opening of business on the
Cure Date, together with all shares of other Preferred Stock subject to
redemption or retirement, would result in the Corporation having S&P
Eligible Assets and Moody's Eligible Assets each with an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the case
may be, on such Cure Date (provided that, if there is no such minimum
number of shares of AMPS and shares of other Preferred Stock the
redemption of which would have such result, all shares of AMPS and
shares of other Preferred Stock then Outstanding shall be redeemed),
and (ii) the maximum number of shares of AMPS, together with all shares
of other Preferred Stock subject to redemption or retirement, that can
be redeemed out of funds expected to be legally available therefor on
such redemption date. In determining the number of shares of AMPS
required to be redeemed in accordance with the foregoing, the
Corporation shall allocate the number required to be redeemed which
would result in the Corporation having S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount or satisfaction of the
1940 Act AMPS Asset Coverage, as the case may be, pro rata among shares
of AMPS of all series, Other AMPS and other Preferred Stock subject to
redemption pursuant to provisions similar to those contained in this
paragraph 4(a)(ii); provided that, shares of AMPS which may not be
redeemed at the option of the Corporation due to the designation of a
Non-Call Period applicable to such shares (A) will be subject to
mandatory redemption only to the extent that other shares are not
available to satisfy the number of shares required to be redeemed and
(B) will be selected for redemption in an ascending order of
outstanding number of days in the Non-Call Period (with shares with the
lowest number of days to be redeemed first) and by lot in the event of
shares having an equal number of days in such Non-Call Period. The
Corporation shall effect such redemption on a Business Day which is not
later than 35 days after such Cure Date, except that if the Corporation
does not have funds legally available for the redemption of all of the
required number of shares of AMPS and shares of other Preferred Stock
which are subject to mandatory redemption or the Corporation otherwise
is unable to effect such redemption on or prior to 35 days after such
Cure Date, the Corporation shall redeem those shares of AMPS which it
is unable to redeem on the earliest practicable date on which it is
able to effect such redemption out of funds legally available therefor.
b. Notwithstanding any other provision of this paragraph 4, no shares
of AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Stock shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption thereof would result
in the Corporation's failure to maintain Moody's Eligible Assets or S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount. In the event that less than all the outstanding shares
of a series of AMPS are to be redeemed and there is more than one Holder, the
shares of that series of AMPS to be redeemed shall be selected by lot or such
other method as the Corporation shall deem fair and equitable.
c. Whenever shares of AMPS are to be redeemed, the Corporation, not
less than 17 nor more than 30 days prior to the date fixed for redemption, shall
mail a notice ("Notice of Redemption") by first-class mail, postage prepaid, to
each Holder of shares of AMPS to be redeemed and to the Auction Agent. The
Corporation shall cause the Notice of Redemption to also be published in the
eastern and national editions of The Wall Street Journal. The Notice of
Redemption shall set forth (i) the redemption date, (ii) the amount of the
redemption price, (iii) the aggregate number of shares of AMPS of such series to
be redeemed, (iv) the place or places where shares of AMPS of such series are to
be surrendered for payment of the redemption price, (v) a statement that
dividends on the shares to be redeemed shall cease to accumulate on such
redemption date (except that holders may be entitled to Additional Dividends)
and (vi) the provision of these Articles Supplementary pursuant to which such
shares are being redeemed. No defect in the Notice of Redemption or in the
mailing or publication thereof shall affect the validity of the redemption
proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent, or segregated in an account at the Corporation's custodian
bank for the benefit of the Auction Agent, Deposit Securities (with a right of
substitution) having an aggregate Discounted Value (utilizing in the case of S&P
an S&P Exposure Period of 22 Business Days) equal to the redemption payment for
the shares of AMPS as to which such Notice of Redemption has been given with
irrevocable instructions and authority to pay the redemption price to the
Holders of such shares, then upon the date of such deposit or, if no such
deposit is made, then upon such date fixed for redemption (unless the
Corporation shall default in making the redemption payment), all rights of the
Holders of such shares as shareholders of the Corporation by reason of the
ownership of such shares will cease and terminate (except their right to receive
the redemption price in respect thereof and any Additional Dividends, but
without interest), and such shares shall no longer be deemed outstanding. The
Corporation shall be entitled to receive, from time to time, from the Auction
Agent the interest, if any, on such Deposit Securities deposited with it and the
Holders of any shares so redeemed shall have no claim to any of such interest.
In case the Holder of any shares, so called for redemption shall not claim the
redemption payment for his shares within one year after the date of redemption,
the Auction Agent shall, upon demand, pay over to the Corporation such amount
remaining on deposit and the Auction Agent shall thereupon be relieved of all
responsibility to the Holder of such shares called for redemption and such
Holder thereafter shall look only to the Corporation for the redemption payment.
5. Voting Rights. a. General. Except as otherwise provided in the
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Charter or By-Laws, each Holder of shares of AMPS shall be entitled to one vote
for each share held on each matter submitted to a vote of shareholders of the
Corporation, and the holders of outstanding shares of Preferred Stock, including
AMPS, and of shares of Common Stock shall vote together as a single class;
provided that, at any meeting of the shareholders of the Corporation held for
the election of directors, the holders of outstanding shares of Preferred Stock,
including AMPS, shall be entitled, as a class, to the exclusion of the holders
of all other securities and classes of capital stock of the Corporation, to
elect two directors of the Corporation. Subject to paragraph 5(b) hereof, the
holders of outstanding shares of capital stock of the Corporation, including the
holders of outstanding shares of Preferred Stock, including AMPS, voting as a
single class, shall elect the balance of the directors.
b. Right to Elect Majority of Board of Directors. During any period in
---------------------------------------------
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Stock, would constitute a majority of the Board
of Directors as so increased by such smallest number; and the holders of shares
of Preferred Stock shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation), to elect such smallest number of additional directors,
together with the two directors that such holders are in any event entitled to
elect. A Voting Period shall commence:
(1) if at any time accumulated dividends (whether or not
earned or declared, and whether or not funds are then legally
available in an amount sufficient therefor) on the outstanding
shares of AMPS equal to at least two full years' dividends shall
be due and unpaid and sufficient cash or specified securities
shall not have been deposited with the Auction Agent for the
payment of such accumulated dividends; or
(2) if at any time holders of any other shares of Preferred
Stock are entitled to elect a majority of the directors of the
Corporation under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
c. Right to Vote with Respect to Certain Other Matters. So long as any
---------------------------------------------------
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue (other than with respect to the issuance of the AMPS authorized
hereby), or increase the authorized or issued aggregate stated capital amount of
(other than with respect to the issuance of the AMPS authorized hereby), any
class or series of stock ranking prior to or on a parity with any series of
Preferred Stock with respect to payment of dividends or the distribution of
assets on liquidation, or increase the authorized aggregate stated capital
amount of AMPS or any other Preferred Stock, or (ii) amend, alter or repeal the
provisions of the Charter, whether by merger, consolidation or otherwise, so as
to adversely affect any of the contract rights expressly set forth in the
Charter of holders of shares of AMPS or any other Preferred Stock. To the extent
permitted under the 1940 Act, in the event shares of more than one series of
AMPS are outstanding, the Corporation shall not approve any of the actions set
forth in clause (i) or (ii) which adversely affects the contract rights
expressly set forth in the Charter of a Holder of shares of a series of AMPS
differently than those of a Holder of shares of any other series of AMPS without
the affirmative vote of the holders of at least a majority of the shares of AMPS
of each series adversely affected and outstanding at such time (each such
adversely affected series voting separately as a class). The Corporation shall
notify Moody's and S&P ten Business Days prior to any such vote described in
clause (i) or (ii). Unless a higher percentage is provided for under the
Charter, the affirmative vote of the holders of a majority of the outstanding
shares of Preferred Stock, including AMPS, voting together as a single class,
will be required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act. The class vote of holders
of shares of Preferred Stock, including AMPS, described above will in each case
be in addition to a separate vote of the requisite percentage of shares of
Common Stock and shares of Preferred Stock, including AMPS, voting together as a
single class necessary to authorize the action in question.
d. Voting Procedures.
------------------
(1) As soon as practicable after the accrual of any right of
the holders of shares of Preferred Stock to elect additional
directors as described in paragraph 5(b) above, the Corporation
shall call a special meeting of such holders and instruct the
Auction Agent to mail 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
Corporation fails to send such notice to the Auction Agent or if
the Corporation does not call such a special meeting, it may be
called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such
special meeting shall be the close of business on the fifth
Business Day preceding the day on which such notice is mailed. At
any such special meeting and at each meeting held during a Voting
Period, such Holders, voting together as a class (to the
exclusion of the holders of all other securities and classes of
capital stock of the Corporation), shall be entitled to elect the
number of directors prescribed in paragraph 5(b) above. At any
such meeting or adjournment thereof in the absence of a quorum, a
majority of such holders present in person or by proxy shall have
the power to adjourn the meeting without notice, other than by an
announcement at the meeting, to a date not more than 120 days
after the original record date.
(2) For purposes of determining any rights of the Holders to
vote on any matter or the number of shares required to constitute
a quorum, whether such right is created by these Articles
Supplementary, by the other provisions of the Charter, by statute
or otherwise, a share of AMPS which is not Outstanding shall not
be counted.
(3) The terms of office of all persons who are directors of
the Corporation at the time of a special meeting of Holders and
holders of other Preferred Stock to elect directors shall
continue, notwithstanding the election at such meeting by the
Holders and such other holders of the number of directors that
they are entitled to elect, and the persons so elected by the
Holders and such other holders, together with the two incumbent
directors elected by the Holders and such other holders of
Preferred Stock and the remaining incumbent directors elected by
the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Corporation.
(4) Simultaneously with the expiration of a Voting Period, the
terms of office of the additional directors elected by the
Holders and holders of other Preferred Stock pursuant to
paragraph 5(b) above shall terminate, the remaining directors
shall constitute the directors of the Corporation and the voting
rights of the Holders and such other holders to elect additional
directors pursuant to paragraph 5(b) above shall cease, subject
to the provisions of the last sentence of paragraph 5(b).
e. Exclusive Remedy. Unless otherwise required by law, the Holders of
----------------
shares of AMPS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of AMPS shall have no
preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of AMPS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.
f. Notification to S&P and Moody's. In the event a vote of Holders of
-------------------------------
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify S&P and Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote is
taken, notify S&P and Moody's of the result of such vote.
6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of
----------------------------
the last Business Day of each month in which any share of AMPS is outstanding,
the 1940 Act AMPS Asset Coverage.
7. AMPS Basic Maintenance Amount. a. The Corporation 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 AMPS Basic Maintenance Amount and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Corporation will use its best efforts to alter
the composition of its portfolio to reattain a Discounted Value at least equal
to the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance
Cure Date.
b. On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Corporation fails to satisfy the AMPS
Basic Maintenance Amount, the Corporation shall complete and deliver to the
Auction Agent, and Moody's and S&P, as the case may be, a complete AMPS Basic
Maintenance Report as of the date of such failure, 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 Corporation mails to the Auction Agent for delivery on the next Business Day
the complete AMPS Basic Maintenance Report. The Corporation will deliver an AMPS
Basic Maintenance Report to the Auction Agent and Moody's and S&P, as the case
may be, on or before 5:00 p.m., New York City time, on the third Business Day
after a Valuation Date on which the Corporation cures its failure to maintain
Moody's Eligible Assets or S&P Eligible Assets, as the case may be, with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or on which the Corporation fails to maintain Moody's Eligible Assets or
S&P Eligible Assets, as the case may be, with an aggregate Discounted Value
which exceeds the AMPS Basic Maintenance Amount by 5% or more. The Corporation
will also deliver an AMPS Basic Maintenance Report to the Auction Agent, Moody's
and S&P as of each Quarterly Valuation Date on or before the third Business Day
after such date. Additionally, on or before 5:00 p.m., New York City time, on
the third Business Day after the first day of a Special Dividend Period, the
Corporation will deliver an AMPS Basic Maintenance Report to S&P and the Auction
Agent. The Corporation shall also provide Moody's and S&P with an AMPS Basic
Maintenance Report when specifically requested by either Moody's or S&P. A
failure by the Corporation to deliver an AMPS Basic Maintenance Report under
this paragraph 7(b) shall be deemed to be delivery of an AMPS Basic Maintenance
Report indicating the Discounted Value for S&P Eligible Assets and Moody's
Eligible Assets of the Corporation is less than the AMPS Basic Maintenance
Amount, as of the relevant Valuation Date.
c. Within ten Business Days after the date of delivery of an AMPS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Corporation during the quarter ending on such Quarterly Valuation Date),
(ii) that, in such Report (and in such randomly selected Report), the
Corporation correctly determined the assets of the Corporation which constitute
S&P Eligible Assets or Moody's Eligible Assets, as the case may be, at such
Quarterly Valuation Date in accordance with these Articles Supplementary, (iii)
that, in such Report (and in such randomly selected Report), the Corporation
determined whether the Corporation had, at such Quarterly Valuation Date (and at
the Valuation Date addressed in such randomly selected Report) in accordance
with these Articles Supplementary, S&P Eligible Assets of an aggregate
Discounted Value at least equal to the AMPS Basic Maintenance Amount and Moody's
Eligible Assets of an aggregate Discounted Value at least equal to the AMPS
Basic Maintenance Amount, (iv) with respect to the S&P ratings on Municipal
Bonds, the issuer name, issue size and coupon rate listed in such Report, that
the Independent Accountant has requested that S&P verify such information and
the Independent Accountant shall provide a listing in its letter of any
differences, (v) with respect to the Moody's ratings on Municipal Bonds, the
issuer name, issue size and coupon rate listed in such Report, that such
information has been verified by Moody's (in the event such information is not
verified by Moody's, the Independent Accountant will inquire of Moody's what
such information is, and provide a listing in its letter of any differences),
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculating the Market Value) provided by the custodian of the
Corporation's assets to the Corporation for purposes of valuing securities in
the Corporation's portfolio, the Independent Accountant has traced the price
used in such Report to the bid or mean price listed in such Report as provided
to the Corporation and verified that such information agrees (in the event such
information does not agree, the Independent Accountant will provide a listing in
its letter of such differences) and (vii) with respect to such confirmation to
Moody's, that the Corporation has satisfied the requirements of paragraph 9(b)
of these Articles Supplementary (such confirmation is herein called the
"Accountant's Confirmation").
d. Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above relating to any Valuation Date on which the Corporation
failed to maintain S&P Eligible Assets with an aggregate Discounted Value and
Moody's Eligible Assets with an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount, and relating to the AMPS Basic
Maintenance Cure Date with respect to such failure, the Independent Accountant
will provide to the Auction Agent, S&P and Moody's an Accountant's Confirmation
as to such AMPS Basic Maintenance Report.
e. If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Corporation 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
Corporation, and the Corporation shall accordingly amend and deliver the AMPS
Basic Maintenance Report to the Auction Agent, S&P and Moody's promptly
following receipt by the Corporation 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 the shares of AMPS, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such Date of Original Issue. Within five Business Days
of such Date of Original Issue, the Independent Accountant will confirm in
writing to S&P and Moody's (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the aggregate Discounted Value of S&P
Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets
reflected thereon equals or exceeds the AMPS Basic Maintenance Amount reflected
thereon. Also, on or before 5:00 p.m., New York City time, on the first Business
Day after shares of Common Stock are repurchased by the Corporation, the
Corporation will complete and deliver to S&P and Moody's an AMPS Basic
Maintenance Report as of the close of business on such date that Common Stock is
repurchased.
g. For so long as the shares of AMPS are rated by S&P and Moody's, as
of the termination of a tender offer by the Corporation for shares of the Common
Stock, the Corporation shall have S&P Eligible Assets and Moody's Eligible
Assets having an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount calculated as if the shares of Common Stock so tendered
had been accepted for repurchase by the Corporation.
h. For so long as shares of AMPS are rated by Moody's, in managing the
Corporation's portfolio, the Adviser will not alter the composition of the
Corporation's portfolio if, in the reasonable belief of the Adviser, the effect
of any such alteration would be to cause the Corporation to have Moody's
Eligible Assets with an aggregate Discounted Value, as of the immediately
preceding Valuation Date, less than the AMPS 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 Moody's Eligible
Assets exceeded the AMPS Basic Maintenance Amount by five percent or less, the
Adviser will not alter the composition of the Corporation's portfolio in a
manner reasonably expected to reduce the aggregate Discounted Value of Moody's
Eligible Assets unless the Corporation shall have confirmed that, after giving
effect to such alteration, the aggregate Discounted Value of Moody's Eligible
Assets would exceed the AMPS Basic Maintenance Amount.
8. Certain Other Restrictions and Requirements.
-------------------------------------------
a. For so long as any shares of AMPS are rated by S&P, the Corporation
will not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not impair
the ratings then assigned to the shares of AMPS by S&P, except that the
Corporation may purchase or sell futures contracts based on the Bond Buyer
Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds or
Notes ("Treasury Bonds") and write, purchase or sell put and call options on
such contracts (collectively, "S&P Hedging Transactions"), subject to the
following limitations:
(1) the Corporation will not engage in any S&P Hedging
Transaction based on the Municipal Index (other than transactions
which terminate a futures contract or option held by the
Corporation by the Corporation's taking an opposite position
thereto ("Closing Transactions")), which would cause the
Corporation at the time of such transaction to own or have sold
the least of (A) more than 1,000 outstanding futures contracts
based on the Municipal Index, (B) outstanding futures contracts
based on the Municipal Index exceeding in number 25% of the
quotient of the Market Value of the Corporation's total assets
divided by $100,000 or (C) outstanding futures contracts based on
the Municipal Index exceeding in number 10% of the average number
of daily traded futures contracts based on the Municipal Index in
the 30 days preceding the time of effecting such transaction as
reported by The Wall Street Journal;
(2) the Corporation will not engage in any S&P Hedging
Transaction based on Treasury Bonds (other than Closing
Transactions) which would cause the Corporation at the time of
such transaction to own or have sold the lesser of (A)
outstanding futures contracts based on Treasury Bonds and on the
Municipal Index exceeding in number 25% of the quotient of the
Market Value of the Corporation's total assets divided by
$100,000 or (B) outstanding futures contracts based on Treasury
Bonds exceeding in number 10% of the average number of daily
traded futures contracts based on Treasury Bonds in the 30 days
preceding the time of effecting such transaction as reported by
The Wall Street Journal;
(3) the Corporation will engage in Closing Transactions to
close out any outstanding futures contract which the Corporation
owns or has sold or any outstanding option thereon owned by the
Corporation in the event (A) the Corporation does not have S&P
Eligible Assets with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount on two consecutive
Valuation Dates and (B) the Corporation is required to pay
Variation Margin on the second such Valuation Date;
(4) the Corporation will engage in a Closing Transaction to
close out any outstanding futures contract or option thereon in
the month prior to the delivery month under the terms of such
futures contract or option thereon unless the Corporation holds
the securities deliverable under such terms; and
(5) when the Corporation writes a futures contract or option
thereon, it will either maintain an amount of cash, cash
equivalents or short-term, fixed-income securities in a
segregated account with the Corporation's custodian, so that the
amount so segregated plus the amount of Initial Margin and
Variation Margin held in the account of or on behalf of the
Corporation's broker with respect to such futures contract or
option equals the Market Value of the futures contract or option,
or, in the event the Corporation writes a futures contract or
option thereon which requires delivery of an underlying security,
it shall hold such underlying security in its portfolio.
For purposes of determining whether the Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of
the aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Corporation plus
(ii) 25% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on Treasury Bonds which contracts are owned
by the Corporation.
b. For so long as any shares of AMPS are rated by Moody's, the
Corporation will not buy or sell futures contracts, write, purchase or sell call
options on futures contracts or purchase put options on futures contracts or
write call options (except covered call options) on portfolio securities unless
it receives written confirmation from Moody's that engaging in such transactions
would not impair the ratings then assigned to the shares of AMPS by Moody's,
except that the Corporation may purchase or sell exchange-traded futures
contracts based on the Municipal Index or Treasury Bonds and purchase, write or
sell exchange-traded put options on such futures contracts and purchase, write
or sell exchange-traded call options on such futures contracts (collectively,
"Moody's Hedging Transactions"), subject to the following limitations:
(1) the Corporation will not engage in any Moody's Hedging
Transaction based on the Municipal Index (other than Closing
Transactions) which would cause the Corporation at the time of
such transaction to own or have sold (A) outstanding futures
contracts based on the Municipal Index exceeding in number 10% of
the average number of daily traded futures contracts based on the
Municipal Index in the 30 days preceding the time of effecting
such transaction as reported by The Wall Street Journal or (B)
outstanding futures contracts based on the Municipal Index having
a Market Value exceeding the Market Value of all Municipal Bonds
constituting Moody's Eligible Assets owned by the Corporation
(other than Moody's Eligible Assets already subject to a Moody's
Hedging Transaction);
(2) the Corporation will not engage in any Moody's Hedging
Transaction based on Treasury Bonds (other than Closing
Transactions) which would cause the Corporation at the time of
such transaction to own or have sold (A) outstanding futures
contracts based on Treasury Bonds having an aggregate Market
Value exceeding 40% of the aggregate Market Value of Moody's
Eligible Assets owned by the Corporation and rated Aa by Moody's
(or, if not rated by Moody's but rated by S&P, rated AAA by S&P)
or (B) outstanding futures contracts based on Treasury Bonds
having an aggregate Market Value exceeding 80% of the aggregate
Market Value of all Municipal Bonds constituting Moody's Eligible
Assets owned by the Corporation (other than Moody's Eligible
Assets already subject to a Moody's Hedging Transaction) and
rated Baa or A by Moody's (or, if not rated by Moody's but rated
by S&P, rated A or AA by S&P) (for purposes of the foregoing
clauses (i) and (ii), the Corporation shall be deemed to own the
number of futures contracts that underlie any outstanding options
written by the Corporation);
(3) the Corporation will engage in Closing Transactions to
close out any outstanding futures contract based on the Municipal
Index if the amount of open interest in the Municipal Index as
reported by The Wall Street Journal is less than 5,000;
(4) the Corporation will engage in a Closing Transaction to
close out any outstanding futures contract by no later than the
fifth Business Day of the month in which such contract expires
and will engage in a Closing Transaction to close out any
outstanding option on a futures contract by no later than the
first Business Day of the month in which such option expires;
(5) the Corporation will engage in Moody's Hedging
Transactions only with respect to futures contracts or options
thereon having the next settlement date or the settlement date
immediately thereafter;
(6) the Corporation will not engage in options and futures
transactions for leveraging or speculative purposes and will not
write any call options or sell any futures contracts for the
purpose of hedging the anticipated purchase of an asset prior to
completion of such purchase; and
(7) the Corporation will not enter into an option or futures
transaction unless, after giving effect thereto, the Corporation
would continue to have Moody's Eligible Assets with an aggregate
Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Corporation is obligated to deliver or receive pursuant to an
outstanding futures contract or option shall be as follows: (i) assets subject
to call options written by the Corporation which are either exchange-traded and
"readily reversible" or which expire within 49 days after the date as of which
such valuation is made shall be valued at the lesser of (a) Discounted Value and
(b) the exercise price of the call option written by the Corporation; (ii)
assets subject to call options written by the Corporation not meeting the
requirements of clause (i) of this sentence shall have no value; (iii) assets
subject to put options written by the Corporation shall be valued at the lesser
of (A) the exercise price and (B) the Discounted Value of the subject security;
(iv) futures contracts shall be valued at the lesser of (A) settlement price and
(B) the Discounted Value of the subject security, provided that, if a contract
matures within 49 days after the date as of which such valuation is made, where
the Corporation is the seller the contract may be valued at the settlement price
and where the Corporation is the buyer the contract may be valued at the
Discounted Value of the subject securities and (v) where delivery may be made to
the Corporation with any security of a class of securities, the Corporation
shall assume that it will take delivery of the security with the lowest
Discounted Value.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the following amounts shall be subtracted from
the aggregate Discounted Value of the Moody's Eligible Assets held by the
Corporation: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Corporation is the
seller under a futures contract, 10% of the settlement price of the futures
contract; (iv) where the Corporation is the purchaser under a futures contract,
the settlement price of assets purchased under such futures contract; (v) the
settlement price of the underlying futures contract if the Corporation writes
put options on a futures contract; and (vi) 105% of the Market Value of the
underlying futures contracts if the Corporation writes call options on a futures
contract and does not own the underlying contract.
c. For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a fixed
price at a future date beyond customary settlement time (other than such
contracts that constitute Moody's Hedging Transactions that are permitted under
paragraph 8(b) of these Articles Supplementary), except that the Corporation may
enter into such contracts to purchase newly-issued securities on the date such
securities are issued ("Forward Commitments"), subject to the following
limitations:
(1) the Corporation will maintain in a segregated account with
its custodian cash, cash equivalents or short-term, fixed-income
securities rated P-1, MIG-1 or VMIG-1 by Moody's and maturing
prior to the date of the Forward Commitment with a Market Value
that equals or exceeds the amount of the Corporation's
obligations under any Forward Commitments to which it is from
time to time a party or long-term fixed income securities with a
Discounted Value that equals or exceeds the amount of the
Corporation's obligations under any Forward Commitment to which
it is from time to time a party; and
(2) the Corporation will not enter into a Forward Commitment
unless, after giving effect thereto the Corporation would
continue to have Moody's Eligible Assets with an aggregate
Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments
to which the Corporation is a party and of all securities deliverable to the
Corporation pursuant to such Forward Commitments shall be zero.
d. For so long as shares of AMPS are rated by S&P or Moody's,
the Corporation will not, unless it has received written confirmation from S&P
and/or Moody's, as the case may be, that such action would not impair the
ratings then assigned to shares of AMPS by S&P and/or Moody's, as the case may
be, (i) borrow money except for the purpose of clearing transactions in
portfolio securities (which borrowings shall under any circumstances be limited
to the lesser of $10 million and an amount equal to 5% of the Market Value of
the Corporation's assets at the time of such borrowings and which borrowings
shall be repaid within 60 days and not be extended or renewed and shall not
cause the aggregate Discounted Value of Moody's Eligible Assets and S&P Eligible
Assets to be less than the AMPS Basic Maintenance Amount), (ii) engage in short
sales of securities, (iii) lend any securities, (iv) issue any class or series
of stock ranking prior to or on a parity with the AMPS with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the Corporation, (v) reissue any AMPS previously purchased or
redeemed by the Corporation, (vi) merge or consolidate into or with any other
corporation or entity, (vii) change the Pricing Service or (viii) engage in
reverse repurchase agreements. Furthermore, for so long as the shares of AMPS
are rated by S&P and Moody's, at the time the Corporation accepts shares of
Common Stock for repurchase in a tender offer, it shall have Deposit Securities
maturing, or the irrevocable sale of which are due for settlement with a
counterparty rated A-1 or better in the case of S&P and P-1 or better in the
case of Moody's, within three Business Days of such date of acceptance in an
amount at least equal to the shares of Common Stock accepted for repurchase in
such tender offer; otherwise the Corporation will not accept such shares for
repurchase. Also, for so long as the shares of AMPS are rated by S&P and
Moody's, the Corporation will provide, within five Business Days after the end
of each calendar month, a report to S&P and Moody's as to the number and dollar
amount of shares of Common Stock sold including shares sold pursuant to
reinvestment of dividends and the number, dollar amount and repurchase price of
shares of Common Stock repurchased pursuant to a tender offer. Such report also
shall provide the names of any counterparties to which Deposit Securities were
sold in conjunction with the satisfaction of the requirement of having Deposit
Securities when the Corporation accepts shares of Common Stock in a tender offer
as set forth above. For so long as the shares of AMPS are rated by S&P and
Moody's, the Corporation will provide notice to S&P and Moody's of the
cancellation of any tender offers for its Common Stock within three Business
Days of such cancellation.
9. Notice. All notices or communications, unless otherwise specified
------
in the By-Laws of the Corporation or these Articles Supplementary, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.
10. Auction Procedures. a. Certain definitions. As used in this
------------------- --------------------
paragraph 10, the following terms shall have the following meanings, unless the
context otherwise requires:
(1) "AMPS" means the shares of AMPS being auctioned pursuant
to this paragraph 10.
(2) "Auction Date" means the first Business Day preceding the
first day of a Dividend Period.
(3) "Available AMPS" has the meaning specified in paragraph
10(d)(i) below.
(4) "Bid" has the meaning specified in paragraph 10(b)(i)
below.
(5) "Bidder" has the meaning specified in paragraph 10(b)(i)
below.
(6) "Hold Order" has the meaning specified in paragraph
10(b)(i) below.
(7) "Maximum Applicable Rate" for any Dividend Period will be
the Applicable Percentage of the Reference Rate. The Applicable
Percentage will be determined based on (i) the lower of the
credit rating or ratings assigned on such date to such shares by
Moody's and S&P (or if Moody's or S&P or both shall not make such
rating available, the equivalent of either or both of such
ratings by a Substitute Rating Agency or two Substitute Rating
Agencies or, in the event that only one such rating shall be
available, such rating) and (ii) whether the Corporation has
provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or other taxable
income will be included in such dividend on shares of AMPS as
follows:
<TABLE>
<CAPTION>
Credit Ratings Applicable Applicable
Percentage of Percentage of
- ----------------------------------------------------- Reference Rate - Reference
Moody's S&P No Notification Notification
- ------------------------ ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Corporation shall take all reasonable action necessary to enable
S&P and Moody's to provide a rating for each series of AMPS. If either S&P or
Moody's shall not make such a rating available, or neither S&P nor Moody's shall
make such a rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated
or its affiliates and successors, after consultation with the Corporation, shall
select a nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations to act as a Substitute Rating Agency
or Substitute Rating Agencies, as the case may be.
(8) "Order" has the meaning specified in paragraph 10(b)(i)
below.
(9) "Sell Order" has the meaning specified in paragraph
10(b)(i) below.
(10) "Submission Deadline" means 1:00 P.M., New York City
time, on any Auction Date or such other time on any Auction Date
as may be specified by the Auction Agent from time to time as the
time by which each Broker-Dealer must submit to the Auction Agent
in writing all orders obtained by it for the Auction to be
conducted on such Auction Date.
(11) "Submitted Bid" has the meaning specified in paragraph
10(d)(i) below.
(12) "Submitted Hold Order" has the meaning specified in
paragraph 10(d)(i) below.
(13) "Submitted Order" has the meaning specified in paragraph
10(d)(i) below.
(14) "Submitted Sell Order" has the meaning specified in
paragraph 10(d)(i) below.
(15) "Sufficient Clearing Bids" has the meaning specified in
paragraph 10(d)(i) below.
(16) "Winning Bid Rate" has the meaning specified in paragraph
10(d)(i) below.
b. Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(1) Unless otherwise permitted by the Corporation, Beneficial
Owners and Potential Beneficial Owners may only participate in Auctions through
their Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves 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. A Broker-Dealer may also hold shares of AMPS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(i) each Beneficial Owner may submit to its Broker-Dealer
information as to:
i. the number of Outstanding shares, if any, of AMPS held by
such Beneficial Owner which such Beneficial Owner desires to
continue to hold without regard to the Applicable Rate for the
next succeeding Dividend Period;
ii. the number of Outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold, provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the rate per
annum specified by such Beneficial Owner; and/or
iii. the number of Outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner offers to
sell without regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose
of conducting a competitive Auction, shall contact Potential
Beneficial Owners, including Persons that are not Beneficial
Owners, on such list to determine the number of Outstanding
shares, if any, of AMPS which each such Potential Beneficial
Owner offers to purchase, provided that the Applicable Rate
for the next succeeding Dividend Period 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 the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order". Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented thereby.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable offer
to sell:
(1) the number of Outstanding shares of AMPS specified in
such Bid if the Applicable Rate determined on such Auction Date
shall be less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of
AMPS to be determined as set forth in paragraph 10(e)(i)(D) if
the Applicable Rate determined on such Auction Date shall be
equal to the rate per annum specified therein; or
(3) a lesser number of Outstanding shares of AMPS to be
determined as set forth in paragraph 10(e)(ii)(C) if such
specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of AMPS specified in
such Sell Order; or
(2) such number or a lesser number of Outstanding shares of
AMPS to be determined as set forth in paragraph 10(e)(ii)(C) if
Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of Outstanding shares of AMPS specified in
such Bid if the Applicable Rate determined on such Auction Date
shall be higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of
AMPS to be determined as set forth in paragraph 10(e)(i)(E) if
the Applicable Rate determined on such Auction Date shall be
equal to the rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Corporation) 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
specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of Outstanding shares of AMPS that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS
subject to any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS
subject to any Bid placed by such Existing Holder and the rate
per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of AMPS
subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per annum
specified in such Potential Holder's Bid.
(ii) If any rate per annum 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%.
(iii) If an Order or Orders covering all of the Outstanding shares of
AMPS held by an Existing Holder are not submitted to the Auction Agent prior to
the Submission Deadline, the Auction Agent shall deem a Hold Order (in the case
of an Auction relating to a Dividend Period which is not a Special Dividend
Period) and a Sell Order (in the case of an Auction relating to a Special
Dividend Period) to have been submitted on behalf of such Existing Holder
covering the number of Outstanding shares of AMPS held by such Existing Holder
and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of Outstanding shares of AMPS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of Outstanding
shares of AMPS held by such Existing Holder; provided that if more than
one Hold Order is submitted on behalf of such Existing Holder and the
number of shares of AMPS subject to such Hold Orders exceeds the number
of Outstanding shares of AMPS held by such Existing Holder, the number
of shares of AMPS subject to each of such Hold Orders shall be reduced
pro rata so that such Hold Orders, in the aggregate, will cover exactly
the number of Outstanding shares of AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number of Outstanding
shares of AMPS held by such Existing Holder over the number of shares
of AMPS subject to any Hold Order referred to in paragraph 10(c)(iv)(A)
above (and if more than one Bid submitted on behalf of such Existing
Holder specifies the same rate per annum and together they cover more
than the remaining number of shares that can be the subject of valid
Bids after application of paragraph 10(c)(iv)(A) above and of the
foregoing portion of this paragraph 10(c)(iv)(B) to any Bid or Bids
specifying a lower rate or rates per annum, the number of shares
subject to each of such Bids shall be reduced pro rata so that such
Bids, in the aggregate, cover exactly such remaining number of shares);
and the number of shares, if any, subject to Bids not valid under this
paragraph 10(c)(iv)(B) shall be treated as the subject of a Bid by a
Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of Outstanding shares of AMPS held by such
Existing Holder over the number of shares of AMPS subject to Hold
Orders referred to in paragraph 10(c)(iv)(A) and Bids referred to in
paragraph 10(c)(iv)(B); provided that if more than one Sell Order is
submitted on behalf of any Existing Holder and the number of shares of
AMPS subject to such Sell Orders is greater than such excess, the
number of shares of AMPS subject to each of such Sell Orders shall be
reduced pro rata so that such Sell Orders, in the aggregate, cover
exactly the number of shares of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum and
number of shares of AMPS specified.
(vi) Any Order submitted by a Beneficial Owner as 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.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
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Applicable Rate.
- ---------------
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (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 shall determine:
(A) the excess of the total number of Outstanding shares of AMPS
over the number of Outstanding shares of AMPS that are the subject of
Submitted Hold Orders (such excess being hereinafter referred to as the
"Available AMPS");
(B) from the Submitted Orders whether the number of Outstanding
shares of AMPS that are the subject of Submitted Bids by Potential
Holders specifying one or more rates per annum equal to or lower than
the Maximum Applicable Rate exceeds or is equal to the sum of:
(1) the number of Outstanding shares of AMPS that are the subject
of Submitted Bids by Existing Holders specifying one or more rates per
annum higher than the Maximum Applicable Rate, and
(2) the number of Outstanding shares of AMPS that are subject to
Submitted Sell Orders (if such excess or such equality exists (other
than because the number of Outstanding shares of AMPS in clause (1)
above and this clause (2) are each zero because all of the Outstanding
shares of AMPS are the subject of Submitted Hold Orders), such
Submitted Bids by Potential Holders being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing Holders
specifying lower rates per annum were rejected, thus entitling such
Existing Holders to continue to hold the shares of AMPS that are the
subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted, thus entitling the
Potential Holders to purchase the shares of AMPS that are the subject
of such Submitted Bids,
would result in the number of shares subject to all Submitted Bids specifying
the Winning Bid Rate or a lower rate per annum being at least equal to the
Available AMPS.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to paragraph 10(d)(i), the Auction Agent shall advise the Corporation
of the Maximum Applicable Rate and, based on such determinations, the Applicable
Rate for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid
Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all
of the Outstanding shares of AMPS are the subject of Submitted Hold
Orders), that the Applicable Rate for the next succeeding Dividend
Period shall be equal to the Maximum Applicable Rate; or
(C) if all of the Outstanding shares of AMPS are the subject of
Submitted Hold Orders, that the Dividend Period next succeeding the
Auction shall automatically be the same length as the immediately
preceding Dividend Period and the Applicable Rate for the next
succeeding Dividend Period shall be equal to 40% of the Reference Rate
(or 60% of such rate if the Corporation has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate
for any dividend pursuant to paragraph 2(f) hereof that net capital
gains or other taxable income will be included in such dividend on
shares of AMPS) on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 10(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder to sell the
Outstanding shares of AMPS that are the subject of such Submitted Sell
Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to hold
the Outstanding shares of AMPS that are the subject of such Submitted
Bid;
(C) the Submitted Bid of each of the Potential Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying
a rate per annum that is equal to the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to hold
the Outstanding shares of AMPS that are the subject of such Submitted
Bid, unless the number of Outstanding shares of AMPS subject to all
such Submitted Bids shall be greater than the number of Outstanding
shares of AMPS ("Remaining Shares") equal to the excess of the
Available AMPS over the number of Outstanding shares of AMPS subject to
Submitted Bids described in paragraph 10(e)(i)(B) and paragraph
10(e)(i)(C), in which event the Submitted Bids of each such Existing
Holder shall be accepted, and each such Existing Holder shall be
required to sell Outstanding shares of AMPS, but only in an amount
equal to the difference between (1) the number of Outstanding shares of
AMPS then held by such Existing Holder subject to such Submitted Bid
and (2) the number of shares of AMPS obtained by multiplying (x) the
number of Remaining Shares by (y) a fraction the numerator of which
shall be the number of Outstanding shares of AMPS held by such Existing
Holder subject to such Submitted Bid and the denominator of which shall
be the sum of the number of Outstanding shares of AMPS subject to such
Submitted Bids made by all such Existing Holders that specified a rate
per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying
a rate per annum that is equal to the Winning Bid Rate shall be
accepted but only in an amount equal to the number of Outstanding
shares of AMPS obtained by multiplying (x) the difference between the
Available AMPS and the number of Outstanding shares of AMPS subject to
Submitted Bids described in paragraph 10(e)(i)(B), paragraph
10(e)(i)(C) and paragraph 10(e)(i)(D) by (y) a fraction the numerator
of which shall be the number of Outstanding shares of AMPS subject to
such Submitted Bid and the denominator of which shall be the sum of the
number of Outstanding shares of AMPS subject to such Submitted Bids
made by all such Potential Holders that specified rates per annum equal
to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the Outstanding shares of AMPS are subject to Submitted Hold Orders),
subject to the provisions of paragraph 10(e)(iii), Submitted Orders shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate
shall be rejected, thus entitling such Existing Holder to continue to
hold the Outstanding shares of AMPS that are the subject of such
Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted, thus requiring such Potential Holder to
purchase the Outstanding shares of AMPS that are the subject of such
Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference
between (1) the number of Outstanding shares of AMPS then held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order
and (2) the number of shares of AMPS obtained by multiplying (x) the
difference between the Available AMPS and the aggregate number of
Outstanding shares of AMPS subject to Submitted Bids described in
paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B) by (y) a fraction the
numerator of which shall be the number of Outstanding shares of AMPS
held by such Existing Holder subject to such Submitted Bid or Submitted
Sell Order and the denominator of which shall be the number of
Outstanding shares of AMPS subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph 10(e)(i)
or paragraph 10(e)(ii), 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 AMPS on any Auction Date, the Auction Agent shall, in
such manner as in its sole discretion it shall determine, round up or down the
number of shares of AMPS to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date so that each Outstanding share of AMPS
purchased or sold by each Existing Holder or Potential Holder on such Auction
Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in paragraph 10(e)(i),
any Potential Holder would be entitled or required to purchase less than a whole
share of AMPS on any Auction Date, the Auction Agent shall, in such manner as in
its sole discretion it shall determine, allocate shares of AMPS for purchase
among Potential Holders so that only whole shares of AMPS are purchased on such
Auction Date by any Potential Holder, even if such allocation results in one or
more of such Potential Holders not purchasing any shares of AMPS on such Auction
Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of
Outstanding shares of AMPS to be purchased and the aggregate number of the
Outstanding shares of AMPS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of AMPS.
(f) Miscellaneous. The Corporation may interpret the provisions of this
-------------
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or an
Existing Holder (A) may sell, transfer or otherwise dispose of shares of AMPS
only pursuant to a Bid or Sell Order in accordance with the procedures described
in this paragraph 10 or to or through a Broker-Dealer, provided that in the case
of all transfers other than pursuant to Auctions such Beneficial Owner or
Existing Holder, its Broker-Dealer, if applicable, or its Agent Member advises
the Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of AMPS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Corporation nor any Affiliate shall submit an Order in
any Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer
or otherwise dispose of shares of AMPS to any Person other than the Corporation.
All of the Outstanding shares of AMPS of a series shall be represented by one or
more certificates registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities Depository, at the Corporation's option
and upon its receipt of such documents as it deems appropriate, any shares of
AMPS may be registered in the Stock Register in the name of the Beneficial Owner
thereof and such Beneficial Owner thereupon will be entitled to receive
certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.
11. Securities Depository; Stock Certificates. (a) If there is a
--------------------------------------------
Securities Depository, one or more certificates for all of the shares of AMPS of
each series shall be issued to the Securities Depository and registered in the
name of the Securities Depository or its nominee. Additional certificates may be
issued as necessary to represent shares of AMPS. All such certificates shall
bear a legend to the effect that such certificates are issued subject to the
provisions restricting the transfer of shares of AMPS contained in these
Articles Supplementary. Unless the Corporation shall have elected, during a
Non-Payment Period, to waive this requirement, the Corporation will also issue
stop-transfer instructions to the Auction Agent for the shares of AMPS. Except
as provided in paragraph (b) below, the Securities Depository or its nominee
will be the Holder, and no Beneficial Owner shall receive certificates
representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of AMPS of a series
shall be the Non-Payment Period Rate or there is no Securities Depository, the
Corporation may at its option issue one or more new certificates with respect to
such shares (without the legend referred to in paragraph 11(a)) registered in
the names of the Beneficial Owners or their nominees and rescind the
stop-transfer instructions referred to in paragraph 11(a) with respect to such
shares.
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC. has
caused these presents to be signed in its name and on its behalf by a duly
authorized officer, and its corporate seal to be hereunto affixed and attested
by its Secretary, and the said officers of the Corporation further acknowledge
said instrument to be the corporate act of the Corporation, and state under the
penalties of perjury that to the best of their knowledge, information and belief
the matters and facts herein set forth with respect to approval are true in all
material respects, all on February , 1996.
MERRILL LYNCH MUNICIPAL STRATEGY
FUND, INC.
By: ________________________
Vincent R. Giordano
Senior Vice President
Attest:
___________________________
Mark B. Goldfus
Secretary
