AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 2004
1933 ACT FILE NO. 333-111630
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO. ____
AND
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
[X] AMENDMENT NO. 6
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NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
Exact Name of Registrant as Specified in Declaration of Trust
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(800) 257-8787
Registrant's Telephone Number, including Area Code
JESSICA R. DROEGER
VICE PRESIDENT AND SECRETARY
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
COPIES OF COMMUNICATIONS TO:
DAVID A. STURMS ERIC F. FESS CYNTHIA G. COBDEN
JOHN T. BLATCHFORD CHAPMAN AND CUTLER, LLP SIMPSON THACHER & BARTLETT LLP
VEDDER, PRICE, KAUFMAN & KAMMHOLZ, 111 W. MONROE 425 LEXINGTON AVENUE
P.C. CHICAGO, IL 60603 NEW YORK, NY 10017
222 NORTH LASALLE
CHICAGO, IL 60601
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If any of the securities being registered on this form are offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate box)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PRICE PER UNIT PRICE FEE(1)(2)
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MuniPreferred shares, $0.01
par value.................. 6,200 Shares $25,000 $155,000,000 $12,540
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(1) $80.90 has been previously paid.
(2) Transmitted prior to filing.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 15, 2004
PROSPECTUS
(NUVEEN INVESTMENTS LOGO)
$155,000,000
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("MUNIPREFERRED(R)")
3,000 SHARES, SERIES M
1,600 SHARES, SERIES T
1,600 SHARES, SERIES W
LIQUIDATION PREFERENCE $25,000 PER SHARE
Nuveen Municipal High Income Opportunity Fund is a recently organized, diversified, closed-end management investment company. The Fund's primary investment objective is to provide high current income exempt from regular federal income tax. The Fund's secondary investment objective is to seek attractive total return consistent with its primary objective. Under normal circumstances, the Fund will invest its Managed Assets (as defined on page 1 of the prospectus) in a portfolio of municipal securities that pay interest that is exempt from regular federal income tax. Under normal circumstances, the Fund expects to be fully invested in such tax-exempt municipal securities. Up to 30% of the Fund's Managed Assets may be invested in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals. The Fund will invest at least 50% of its Managed Assets in municipal securities that at the time of investment are investment grade quality. A security is considered investment grade quality if it is rated within the four highest grades by all nationally recognized statistical rating organizations that rate such security, or if it is unrated but judged to be of comparable quality by the Fund's investment adviser. The Fund may invest up to 50% of its Managed Assets in municipal securities that at the time of investment are rated below investment grade quality or that are unrated but judged to be of comparable quality by the Fund's investment adviser. No more than 5% of the Fund's Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by the Fund's investment adviser. Municipal securities of below investment grade quality are regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal, and are commonly referred to as junk bonds. The Fund cannot assure you that it will achieve its investment objectives.
The Fund's principal office is located at 333 West Wacker Drive, Chicago, Illinois 60606, and its telephone number is (800) 257-8787. You should read this prospectus, which contains important information about the Fund, before deciding whether to invest and retain it for future reference. A Statement of Additional Information, dated January , 2004 and as it may be supplemented, containing additional information about the Fund, has been filed with the Securities and Exchange Commission and is incorporated by reference in its entirety into this prospectus. You may request a free copy of the Statement of Additional Information, the table of contents of which is on page 42 of this prospectus, by calling (800) 257-8787 or by writing to the Fund, or you may obtain a copy (and other information regarding the Fund) from the Securities and Exchange Commission web site (http://www.sec.gov).
INVESTING IN MUNIPREFERRED SHARES INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 17.
(R) Registered trademark of Nuveen Investments.
PER SHARE TOTAL
--------- -----
Public Offering Price $25,000 $
Sales Load(1) $ $
Proceeds to Fund(2) (before expenses) $ $
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(2) Not including offering expenses payable by the Fund estimated to be $ .
CITIGROUP NUVEEN INVESTMENTS, LLC
A.G. EDWARDS & SONS, INC. WACHOVIA SECURITIES
, 2004
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The Fund is offering 3,000, 1,600 and 1,600 shares of Series M, Series T and Series W MuniPreferred, respectively. The relative sizes of the series of MuniPreferred are subject to adjustment. The shares are referred to in this prospectus as "MuniPreferred." The MuniPreferred have a liquidation preference of $25,000 per share, plus any accumulated, unpaid dividends. The MuniPreferred also have priority over the Fund's common shares as to distribution of assets as described in this prospectus. The dividend rate for the initial dividend rate period will be %, % and % for MuniPreferred Series M, Series T and Series W, respectively. The initial rate period is from the date of issuance through , 200 , , 200 and , 200 for MuniPreferred Series M, Series T and Series W, respectively. The initial rate periods for Series T and Series W, which may be as long as three years from the date of this offering, are referred to in this prospectus as the "Extended Initial Rate Periods". The Series T and Series W with Extended Initial Rate Periods are subject to additional risks described herein. For subsequent rate periods, MuniPreferred shares pay dividends based on a rate set at auction, usually held weekly (unless a special rate period is designated). Subsequent rate periods of longer than 7 days are referred to in this prospectus as "special rate periods." The initial auction for Series T and Series W will not be held until the end of the Extended Initial Rate Period, which may be as long as three years from the date of this offering. Prospective purchasers should carefully review the auction procedures described in the prospectus and should note: (1) a buy order (called a "bid order") or sell order is a commitment to buy or sell MuniPreferred shares based on the results of an auction; (2) auctions will be conducted by telephone; and (3) purchases and sales will be settled on the next business day after the auction. MuniPreferred shares are not listed on an exchange. You may only buy or sell MuniPreferred shares through an order placed at an auction with or through a broker-dealer that has entered into an agreement with the auction agent and the Fund, or in a secondary market maintained by certain broker-dealers. These broker-dealers are not required to maintain this market, and it may not provide you with liquidity.
The MuniPreferred shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THE FUND HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE FUND IS NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
TABLE OF CONTENTS
Prospectus Summary.......................................... 1 Financial Highlights........................................ 7 The Fund.................................................... 8 Use of Proceeds............................................. 8 Capitalization.............................................. 9 Portfolio Composition....................................... 9 The Fund's Investments...................................... 10 Risk Factors................................................ 17 How the Fund Manages Risk................................... 21 Management of the Fund...................................... 22 Description of MuniPreferred Shares......................... 25 The Auction................................................. 33 Description of Common Shares................................ 36 Certain Provisions in the Declaration of Trust.............. 36 Repurchase of Fund Shares; Conversion to Open-End Fund...... 37 Federal Income Tax Matters.................................. 38 Custodian, Transfer Agent, Dividend Disbursing Agent and Redemption Agent.......................................... 39 Underwriting................................................ 40 Legal Opinions.............................................. 41 Available Information....................................... 41 Table of Contents for the Statement of Additional Information............................................... 42 Appendix A: Taxable Equivalent Yield Tables................. A-1 |
PROSPECTUS SUMMARY
This is only a summary. You should review the more detailed information contained elsewhere in this prospectus and in the Statement of Additional Information, including the Fund's Statement Establishing and Fixing the Rights and Preferences of MuniPreferred Shares (the "Statement") attached as Appendix A to the Statement of Additional Information. Capitalized terms used but not defined in this prospectus shall have the meanings given to such terms in the Statement.
The Fund...................... Nuveen Municipal High Income Opportunity Fund
(the "Fund") is a recently organized,
diversified, closed-end management investment
company. See "The Fund." The Fund's common
shares, $.01 par value ("common shares"), are
traded on the American Stock Exchange (the
"Exchange") under the symbol "NMZ." See
"Description of Common Shares." As of January
8, 2004, the Fund had 23,157,000 common shares
outstanding and net assets of $338,536,433.
Investment Objectives......... The Fund's primary investment objective is to
provide high current income exempt from regular
federal income tax. The Fund's secondary
investment objective is to seek attractive
total return consistent with its primary
objective. The Fund seeks to achieve its
investment objectives by investing in municipal
securities that its investment adviser believes
are underrated and undervalued. The Fund cannot
assure you that it will achieve its investment
objectives. See "The Fund's Investments" and
"Risk Factors."
Under normal circumstances, the Fund will
invest its assets, including assets
attributable to MuniPreferred shares, ("Managed
Assets") in a portfolio of municipal securities
that pay interest that is exempt from regular
federal income tax. Under normal circumstances,
the Fund expects to be fully invested in such
tax-exempt municipal securities. Up to 30% of
the Fund's Managed Assets may be invested in
municipal securities that pay interest that is
taxable under the federal alternative minimum
tax applicable to individuals. For a discussion
of how the federal alternative minimum tax may
affect shareholders, see "Federal Income Tax
Matters."
The Fund will invest at least 50% of its
Managed Assets in municipal securities that at
the time of investment are investment grade
quality. A security is considered investment
grade quality if it is rated within the four
highest grades (Baa or BBB or better by Moody's
Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation, a division of The McGraw
Hill Companies ("S&P") or Fitch Ratings
("Fitch")) by all nationally recognized
statistical rating organizations (each a
"NRSRO") that rate such security, or if it is
unrated but judged to be of comparable quality
by the Fund's investment adviser.
The Fund may invest up to 50% of its Managed
Assets in municipal securities that, at the
time of investment, are rated below investment
grade or that are unrated but judged to be of
comparable quality by the Fund's investment
adviser. Below investment grade quality
municipal securities include those municipal
securities that are rated investment grade by
one or more NRSROs but rated below investment
grade by at least one
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NRSRO. No more than 5% of the Fund's Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by Nuveen Advisory (as defined below). This means that the Fund may invest in municipal securities that are involved in bankruptcy or insolvency proceedings or are experiencing other financial difficulties at the time of acquisition (such securities are commonly referred to as distressed securities).
The Fund anticipates that, upon the full
investment of the net proceeds from this
offering (which is expected to occur within two
to three months following the closing of this
offering), it will have invested approximately
55% to 65% of its Managed Assets in investment
grade municipal securities and approximately
35% to 45% of its Managed Assets in below
investment grade municipal securities. The
relative percentages of the value of the Fund's
Managed Assets attributable to investment grade
municipal securities and to below investment
grade municipal securities could change over
time as a result of rebalancing the Fund's
assets by Nuveen Advisory, market value
fluctuations and other events.
Bonds of below investment grade quality are
regarded as having predominately speculative
characteristics with respect to capacity to pay
interest and repay principal, and are commonly
referred to as junk bonds. The Fund cannot
assure you that it will attain its investment
objectives. See "The Fund's Investments" and
"Risk Factors -- Credit and Below Investment
Grade Risk."
The Fund may invest in municipal securities in
the form of notes, which are generally used to
provide for short-term capital needs in
anticipation of an issuer's receipt of other
revenues or financing, and typically have
maturities of up to three years. Such
instruments may include tax anticipation notes,
revenue anticipation notes, bond anticipation
notes, tax and revenue anticipation notes and
construction loan notes. In addition, the Fund
may invest in municipal leases, certificates of
participation and "moral obligation" bonds. The
Fund also may invest in municipal securities in
the form of tender option bonds. The Fund will
not invest in inverse floating rate securities,
which are securities that pay interest at rates
that vary inversely with changes in prevailing
short-term tax-exempt interest rates and which
represent, in effect, a leveraged investment in
an underlying municipal security. See "The
Fund's Investments."
Investment Adviser............ Nuveen Advisory Corp. ("Nuveen Advisory") will
be the Fund's investment adviser. Nuveen
Advisory is a wholly owned subsidiary of Nuveen
Investments, Inc. See "Management of the Fund."
The Offering.................. The Fund is offering 3,000, 1,600 and 1,600
shares of Series M, Series T and Series W
MuniPreferred, respectively, at a purchase
price of $25,000 per share. The relative sizes
of the series of MuniPreferred are subject to
adjustment. Shares of MuniPreferred are being
offered by the underwriters listed under
"Underwriting."
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Risk Factors Summary.......... Risk is inherent in all investing. Therefore,
before investing in the Fund you should
consider certain risks carefully. The primary
risks of investing in MuniPreferred shares are:
- if an auction fails you may not be able to
sell some or all of your shares;
- because of the nature of the market for
MuniPreferred shares, you may not be able to
sell your shares outside of the auction, or
if you do sell your shares outside of the
auction, you may receive less than the price
you paid for your shares, especially when
market interest rates are rising;
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- any inability to sell MuniPreferred shares outside of an auction and any rise in market interest rates relative to the dividend rates on the MuniPreferred shares may have a particularly adverse impact on the value of Series T and Series W shares during their respective Extended Initial Rate Period;
- a rating agency could downgrade MuniPreferred shares, which could affect liquidity;
- the Fund may be forced to redeem your shares to meet regulatory or rating agency requirements or may voluntarily redeem your shares in certain circumstances;
- in extraordinary circumstances the Fund may not earn sufficient income from its investments to pay dividends;
- if long-term interest rates rise, the value of the Fund's investment portfolio will decline, reducing the asset coverage for the MuniPreferred shares; and
- if an issuer of a municipal bond in which the Fund invests is downgraded or defaults, there may be a negative impact on the income and/or asset value of the Fund's portfolio.
For additional general risks of investing in MuniPreferred shares of the Fund, see "Risk Factors."
Trading Market................ MuniPreferred shares are not listed on an
exchange. Instead, you may buy or sell
MuniPreferred shares at an auction by
submitting orders to a broker-dealer that has
entered into an agreement with the auction
agent and the Fund (a "Broker-Dealer"), or to a
broker-dealer that has entered into a separate
agreement with a Broker-Dealer. After the
initial rate period, auctions for subsequent
rate periods are normally held weekly, unless
they are designated in advance as a special
rate period, as described in detail below. The
initial auction for Series T and Series W will
not be held until the end of each series'
respective Extended Initial Rate Period, which
may be up to three years from the date of this
offering. If, at the end of the Extended
Initial Rate Period for each of Series T and
Series W, respectively, the Board of Trustees,
as presently anticipated, determines not to
designate the subsequent rate period as a
special rate period, that subsequent rate
period would be a minimum rate period of 7
days, and shareholders of those series who
submit Hold Orders or fail to submit any Order
in the auction for that subsequent rate period
would thereafter own MuniPreferred
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shares having the characteristics of shares of series having 7 day rate periods, as described in this prospectus.
In addition to the auctions, Broker-Dealers and other broker-dealers may maintain a secondary trading market in MuniPreferred shares outside of auctions, but may discontinue this activity at any time. There is no assurance that a secondary market will provide shareholders with liquidity. You may transfer shares outside of auctions only to or through a Broker-Dealer, or a broker-dealer that has entered into a separate agreement with a Broker-Dealer.
The table below shows the first auction date for each Series of MuniPreferred shares and the day on which each subsequent auction will normally be held for each Series of MuniPreferred shares. The first auction date for the series of MuniPreferred shares will be the business day before the final dividend payment date for the initial rate period for each series of MuniPreferred shares.
SUBSEQUENT
SERIES FIRST AUCTION DATE AUCTION DAY
------ ------------------ -----------
M Monday
T Tuesday
W Wednesday
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The start date for subsequent rate periods normally will be the business day following the auction date unless the then-current rate period is a special rate period, or the day that normally would be the auction date or the first day of the subsequent rate period is not a business day.
Dividends and Rate Periods.... The table below shows the dividend rate for the
initial rate period of the MuniPreferred
offered in this prospectus. For subsequent rate
periods, MuniPreferred shares will pay
dividends based on a rate set at auctions,
normally held weekly. The initial auction for
Series T and Series W will not be held until
after the Extended Initial Rate Period, which
may be up to three years from the date of this
offering. The rate set at auction will not
exceed the Maximum Rate. See "Description of
MuniPreferred Shares -- Dividends and Dividend
Periods -- General."
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The table below also shows the date from which dividends on the MuniPreferred shares will accumulate at the initial rate, the dividend payment date for the initial rate period and the number of days of the initial rate period for each series of MuniPreferred. For Series T and Series W with Extended Initial Rate Periods, the Fund will pay dividends based on the dividend rate for the initial rate period on March 1, 2004 and thereafter dividends for the initial rate period will be paid on the first business day of each month with the last dividend payment for the initial rate period on , 200 for Series and , 200 for Series .
For subsequent rate periods, other than special rate periods that may be specifically designated in advance, dividends will normally be paid weekly, on the day following the end of the subsequent rate period. The table below also shows the day on which dividends for subsequent rate periods will normally be paid. If such dividends are payable on a Monday or Tuesday and that day is not a business day, then your dividends will generally be paid on the first business day that falls after that day. If dividends are payable on a
Wednesday, Thursday or Friday and that day is not a business day, then your dividends generally will be paid on the first business day prior to that day. See "Description of MuniPreferred Shares -- Dividends and Dividend Periods -- General." The dividend payment date for any subsequent rate period that is a special rate period of more than 28 days will be set out in the notice designating a special rate period. See "Description of MuniPreferred Shares -- Dividends and Dividend Periods -- Designation of Special Rate Periods."
NUMBER OF
PAYMENT DATE SUBSEQUENT DAYS OF
INITIAL DATE OF FOR INITIAL DIVIDEND INITIAL
DIVIDEND ACCUMULATION DIVIDEND PAYMENT DIVIDEND
SERIES RATE AT INITIAL RATE PERIOD* DAY* PERIOD
------ -------- --------------- ------------ ---------- ---------
M %
T %
W %
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* In the case of MuniPreferred Series T and
Series W, dividends will be paid on
, 2004, and on the first business
day of each month thereafter with the last
dividend payment date of the initial rate
period on , 200 , and ,
200 , respectively.
Ratings....................... Shares of each series of MuniPreferred will be
issued a rating of "Aaa" from Moody's and "AAA"
from S&P. Because the Fund is required to
maintain at least one of these ratings, it must
own portfolio securities of a sufficient value
and with adequate credit quality to meet the
rating agencies' guidelines. See "Description
of MuniPreferred Shares -- Rating Agency
Guidelines and Asset Coverage."
Redemption.................... Although the Fund will not ordinarily redeem
MuniPreferred shares, it may be required to
redeem shares if, for example, the Fund does
not meet an asset coverage ratio required by
law or in order to correct a failure to meet
rating agency guidelines in a timely manner.
The Fund may voluntarily redeem MuniPreferred
shares is certain circumstances. See
"Description of MuniPreferred
Shares -- Redemption," and "-- Rating Agency
Guidelines and Asset Coverage."
Liquidation Preference........ The liquidation preference of the shares of
MuniPreferred will be $25,000 per share plus
accumulated but unpaid dividends, if any,
thereon. See "Description of MuniPreferred
Shares -- Liquidation."
Federal Income Taxation....... Because under normal circumstances the Fund
will invest substantially all of its assets in
municipal securities that pay interest exempt
from regular federal income tax, the income you
receive will ordinarily be similarly exempt. A
portion of the income from the Fund may also be
subject to the federal alternative minimum tax.
Therefore, MuniPreferred shares may not be a
suitable investment if you are subject to this
tax or would become subject to such tax by
investing in MuniPreferred shares. Taxable
income and gain earned by the Fund will be
allocated proportionately to holders of
MuniPreferred shares and common shares, based
on the percentage of total dividends paid to
each class for that year. Accordingly,
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certain specified MuniPreferred dividends may be subject to regular federal income tax on income or gains attributed to the Fund. See "Federal Income Tax Matters." The Fund intends to notify shareholders, before any applicable auction for a rate period of 28 days or less, of the amount of any taxable income and gain for regular federal income tax purposes only, to be paid for the period relating to that auction. For longer periods, the Fund may notify shareholders of the foregoing information. In certain limited circumstances, the Fund will make payments to MuniPreferred shareholders to offset the federal income tax effects of the taxable distribution. For the initial rate period for Series T and Series W, which are Extended Initial Rate Periods, the Fund will not be able to notify shareholders of the amount of any taxable income and gain for regular federal income tax purposes to be paid during the initial rate period. The Fund will make payments to shareholders of Series T and Series W to offset the federal income tax effects of taxable distributions to Series T and Series W shareholders during the initial rate period. See "Description of MuniPreferred Shares -- Dividend and Dividend Periods -- Gross-Up Payments."
Voting Rights................. The holders of the Fund's preferred shares,
$.01 par value ("Preferred Shares"), including
MuniPreferred, voting as a separate class, have
the right to elect at least two trustees at all
times and to elect a majority of the trustees
in the event two full years' dividends on the
Preferred Shares are unpaid. In each case, the
remaining trustees will be elected by holders
of common shares and Preferred Shares,
including MuniPreferred, voting together as a
single class. The holders of shares of
Preferred Shares, including MuniPreferred, will
vote as a separate class or classes on certain
other matters as required under the Declaration
of Trust, the Investment Company Act of 1940
(the "1940 Act") and Massachusetts law. See
"Description of MuniPreferred Shares -- Voting
Rights" and "Certain Provisions in the
Declaration of Trust."
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FINANCIAL HIGHLIGHTS
Information contained in the table below under the headings "Per Share Operating Performance" and "Ratios/Supplemental Data" shows the unaudited operating performance of the Fund from the commencement of the Fund's investment operations on November 19, 2003 until December 29, 2003. Since the Fund commenced operations on November 19, 2003, the table covers less than six weeks of operations, during which a substantial portion of the Fund's assets were held in cash pending investment in municipal bonds that meet the Fund's investment objectives and policies. Accordingly, the information presented may not provide a meaningful picture of the Fund's operating performances.
(UNAUDITED)
NOVEMBER 19, 2003-
DECEMBER 29, 2003
-------------------
PER SHARE OPERATING PERFORMANCE:
Common Share Net Asset Value, Beginning of Period......... $ 14.33
--------
Net Investment Income.................................. .05
Net Realized/Unrealized Gain from Investments.......... .21
--------
Total from Investment Operations..................... .26
Offering Costs............................................ (.03)
--------
Common Share Net Asset Value, End of Period............... $ 14.56
========
Per Share Market Value, End of Period..................... $ 15.10
Total Return on Common Share Net Asset Value(a)........... 1.61%
Total Investment Return on Market Value(a)................ .67%
RATIOS/SUPPLEMENTAL DATA:
Net Assets Applicable to Common Shares, End of Period (In
Thousands)............................................. $327,794
Ratio of Expenses to Average Net Assets Applicable to
Common Shares Before Reimbursement..................... .86%*
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares Before Reimbursement....... 2.94%*
Ratio of Expenses to Average Net Assets Applicable to
Common Shares After Reimbursement...................... .54%*
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares After Reimbursement........ 3.26%*
Portfolio Turnover Rate................................... 26%
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* Annualized.
(a) Total Investment Return on Market Value is the combination of reinvested dividend income, reinvested capital gains distributions, if any, and changes in stock price per share. Total Return on Common Share Net Asset Value is the combination of reinvested dividend income at net asset value, reinvested capital gains distributions at net asset value, if any, and changes in Common Share net asset value per share. Total returns are not annualized.
THE FUND
The Fund is a recently organized, diversified, closed-end management investment company registered under the 1940 Act. The Fund was organized as a Massachusetts business trust on October 8, 2003, pursuant to a Declaration of Trust (the "Declaration") governed by the laws of the Commonwealth of Massachusetts. On November 24, 2003, the Fund issued an aggregate of 20,500,000 common shares of beneficial interest, par value $0.01 per share, pursuant to the initial public offering thereof. On December 4, 2003 and January 7, 2004, the Fund issued an additional 2,000,000 and 650,000 shares, respectively, in connection with partial exercises by the underwriters of their over-allotment option. The Fund's common shares are listed on the Exchange under the symbol "NMZ." The Fund's principal office is located at 333 West Wacker Drive, Chicago, Illinois 60606, and its telephone number is (800) 257-8787.
The following provides information about the Fund's outstanding shares as of January 8, 2004:
AMOUNT HELD
AMOUNT BY THE FUND OR AMOUNT
TITLE OF CLASS AUTHORIZED FOR ITS ACCOUNT OUTSTANDING
-------------- ---------- --------------- -----------
Common.......................................... unlimited 0 23,157,000
MuniPreferred................................... unlimited 0 0
Series M...................................... 3,000 0 0
Series T...................................... 1,600 0 0
Series W...................................... 1,600 0 0
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USE OF PROCEEDS
The net proceeds of the offering of MuniPreferred shares will be approximately $151,645,000 after payment of the sales load and estimated offering costs. The Fund will invest the net proceeds of the offering in accordance with the Fund's investment objectives and policies as stated below. It is presently anticipated that the Fund will be able to invest substantially all of the net proceeds in municipal securities that meet those investment objectives and policies within three months after the completion of the offering. Pending such investment, it is anticipated that the proceeds will be invested in short-term, tax-exempt securities in accordance with the Fund's investment policies.
CAPITALIZATION
The following table sets forth the capitalization of the Fund as of January 8, 2004, and as adjusted to give effect to the issuance of the shares of MuniPreferred offered hereby.
ACTUAL AS ADJUSTED
------------ ------------
(UNAUDITED) (UNAUDITED)
MuniPreferred shares, $25,000 stated value per share, at
liquidation value; unlimited shares authorized (no shares
issued and 6,200 shares issued, as adjusted,
respectively)............................................. $ -- $155,000,000
============ ============
COMMON SHAREHOLDERS' EQUITY:
Common Shares, $.01 par value per share; unlimited shares
authorized, 23,157,000 shares outstanding*............. $ 231,570 $ 231,570
Paid-in surplus**......................................... 330,797,955 327,442,955
Undistributed net investment income....................... 1,403,737 1,403,737
Accumulated net realized gain from investments:........... 713,034 713,034
Net unrealized appreciation (depreciation) of
investments............................................ 5,390,137 5,390,137
------------ ------------
Net assets applicable to common shares.................... $338,536,433 $335,181,433
============ ============
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* None of these outstanding shares are held by or for the account of the Fund.
** As adjusted, paid-in surplus reflects the reduction for the sales load and estimated offering costs of the MuniPreferred shares' issuance ($3,355,000).
PORTFOLIO COMPOSITION
As of January 8, 2004, 100% of the market value of the Fund's portfolio was invested in long-term municipal bonds. The following table sets forth certain information with respect to the composition of the Fund's investment portfolio as of January 8, 2004.
CREDIT RATING** VALUE PERCENT
--------------- ------------ -------
AAA/U.S. guaranteed......................................... $104,224,656 31.39%
AA.......................................................... 29,606,239 8.92
A........................................................... 59,314,087 17.86
BBB......................................................... 54,302,547 16.35
N/R......................................................... 48,033,966 14.47
BB or lower................................................. 36,561,096 11.01
------------ ------
Total..................................................... $332,042,591 100.00%
|
** Using the higher of S&P's or Moody's rating.
THE FUND'S INVESTMENTS
INVESTMENT OBJECTIVES
The Fund's primary investment objective is to provide high current income exempt from regular federal income tax. The Fund's secondary investment objective is to seek attractive total return consistent with its primary objective. Any capital appreciation realized by the Fund will generally result in the distribution of taxable capital gains to MuniPreferred shareholders. The Fund seeks to achieve its investment objectives by investing in municipal securities that Nuveen Advisory believes are underrated and undervalued. The Fund cannot assure you that it will achieve its investment objectives.
INVESTMENT PHILOSOPHY AND PROCESS
INVESTMENT PHILOSOPHY. Nuveen Advisory believes that the unique tax treatment of municipal securities and the structural characteristics in the municipal securities market create attractive opportunities to enhance the after-tax total return and diversification of the investment portfolios of taxable investors. Nuveen Advisory believes that these unique characteristics also present unique risks that may be managed to realize the benefits of the asset class.
After-Tax Income Potential: The primary source of total return from municipal securities comes from the tax-exempt income derived therefrom. Nuveen Advisory believes that, at acceptable levels of credit risk and maturity principal risk, the municipal securities market offers the potential for higher after-tax income when compared with other fixed income markets.
Managing Multi-Faceted Risks: Risk in the municipal securities market is derived from multiple sources, including credit risk at the issuer and sector levels, structural risks such as call risk, yield curve risk, and legislative and tax-related risks. Nuveen Advisory believes that managing these risks at both the individual security and Fund portfolio levels is an important element of realizing the after-tax income and total return potential of the asset class.
Opportunities for Diversification: As of December 31, 2002, the municipal securities market aggregated approximately $1.76 trillion, with over 50,000 issuers, and a wide array of financing purposes, security terms, offering structures and credit quality. Nuveen Advisory believes that the size and depth of the municipal securities market may facilitate the creation of a diversified portfolio that reduces exposure to the risks of individual issuers and may lower correlations to other credit and market risks within an investor's overall portfolio.
Market Inefficiencies: Nuveen Advisory believes that the scale and intricacy of the municipal securities market often results in pricing anomalies and other inefficiencies that can be identified and capitalized on through trading strategies.
INVESTMENT PROCESS. Nuveen Advisory believes that a bottom-up, value-oriented investment strategy that seeks to identify underrated and undervalued securities and sectors is positioned to capture the opportunities inherent in the municipal securities market and potentially outperform the general municipal securities market over time. The primary elements of Nuveen Advisory's investment process are:
Credit Analysis and Surveillance: Nuveen Advisory focuses on bottom-up, fundamental analysis of municipal securities issuers. Analysts screen each sector for issuers that meet the fundamental tests of creditworthiness and favor those securities with demonstrable growth potential, solid coverage of debt service and a priority lien on hard assets, dedicated revenue streams or tax resources. As part of Nuveen Advisory's overall risk management process, analysts actively monitor the credit quality of portfolio holdings.
Sector Analysis: Organized by sector, analysts continually assess the key issues and trends affecting each sector in order to maintain a sector outlook. Evaluating such factors as historical default rates and average credit spreads within each sector, analysts provide top-down analysis that supports decisions to overweight or underweight a given sector in a portfolio.
Diversification: Nuveen Advisory seeks to invest in a large number of sectors, states and specific issuers in order to help insulate a portfolio from events that affect any individual industry, geographic location or credit. Portfolio managers normally seek to limit exposure to individual credits over the long-term. Portfolio managers also seek to diversify other portfolio level risks, including exposure to calls, and to manage a portfolio's interest rate sensitivity within tolerance bands relative to the relevant benchmark.
Trading Strategies: Through its trading strategies, Nuveen Advisory seeks to enhance portfolio value by trading to take advantage of inefficiencies found in the municipal market. This may entail selling issues Nuveen Advisory deems to be overvalued and purchasing issues Nuveen Advisory considers to be undervalued.
Sell Discipline: Nuveen Advisory generally sells securities when it (i) determines a security has become overvalued or over-rated, (ii) identifies credit deterioration, or (iii) modifies a portfolio strategy, such as sector allocation. Nuveen Advisory may also sell securities when such securities exceed the portfolio's diversification targets.
INVESTMENT POLICIES
Under normal circumstances, the Fund will invest its Managed Assets in a portfolio of municipal securities that pay interest that is exempt from regular federal income tax. It is a fundamental policy of the Fund that its investment in municipal securities paying interest that is exempt from regular federal income tax will, under normal circumstances, comprise at least 80% of the Fund's Managed Assets. Under normal circumstances, the Fund expects to be fully invested (at least 95% of its Managed Assets) in such tax-exempt municipal securities. Up to 30% of the Fund's Managed Assets may be invested in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals. For a discussion of how the federal alternative minimum tax may affect shareholders, see "Federal Income Tax Matters."
- The Fund will invest at least 50% of its Managed Assets in investment grade quality municipal securities. A security is considered investment grade quality if it is rated within the four highest grades (Baa or BBB or better by Moody's, S&P or Fitch) by all NRSROs that rate such security, or if it is unrated but judged to be of comparable quality by Nuveen Advisory.
- The Fund may invest up to 50% of its Managed Assets in municipal securities that at the time of investment are rated below investment grade. Below investment grade quality municipal securities include those municipal securities that are rated investment grade by one or more NRSROs but rated below investment grade by at least one NRSRO. No more than 5% of the Fund's Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by Nuveen Advisory. This means that the Fund may invest in municipal securities that are involved in bankruptcy or insolvency proceedings or are experiencing other financial difficulties at the time of acquisition (such securities are commonly referred to as distressed securities).
- The Fund anticipates that, upon the full investment of the net proceeds from this offering (which is expected to occur within two to three months following the closing of this offering), it will have invested approximately 55% to 65% of its Managed Assets in investment grade municipal securities and approximately 35% to 45% of its Managed Assets in below investment grade municipal securities. The relative percentages of the value of the Fund's Managed Assets attributable to investment grade municipal securities and to below investment grade municipal securities could change over time as a result of rebalancing the Fund's assets by Nuveen Advisory, market value fluctuations and other events.
Municipal securities of below investment grade quality are regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal and are commonly referred to as junk bonds. The foregoing credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security in the event that a rating agency downgrades its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell such a security, Nuveen Advisory
may consider such factors as Nuveen Advisory's assessment of the credit quality of the issuer of such security, the price at which such security could be sold and the rating, if any, assigned to such security by other rating agencies. A general description of Moody's, S&P's and Fitch's ratings of municipal securities is set forth in Appendix A to the Statement of Additional Information. The Fund may also invest in securities of other open-or closed-end investment companies that invest primarily in municipal securities of the types in which the Fund may invest directly. See "-- Other Investment Companies" and "-- Initial Portfolio Composition."
The Fund may purchase municipal securities that are additionally secured by insurance, bank credit agreements, or escrow accounts. The credit quality of companies which provide such credit enhancements will affect the value of those securities. Although the insurance feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the Fund's income. The Fund may use any insurer, regardless of its rating. A municipal security will be deemed to have the rating of its insurer. The insurance feature does not guarantee the market value of the insured obligations or the net asset value of the common shares.
The Fund presently intends to limit its investment in tobacco settlement bonds to no more than 10% of its Managed Assets. In addition, the Fund will not invest in inverse floating rate securities, which are securities that pay interest at rates that vary inversely with changes in prevailing short-term tax-exempt interest rates and which represent a leveraged investment in an underlying municipal security.
Upon Nuveen Advisory's recommendation, during temporary defensive periods and in order to keep the Fund's cash fully invested, including the period during which the net proceeds of the offering of common shares or MuniPreferred shares are being invested, the Fund may deviate from its investment objectives and invest up to 100% of its net assets in short-term investments including high quality, short-term securities that may be either tax-exempt or taxable. The Fund intends to invest in taxable short-term investments only in the event that suitable tax-exempt short-term investments are not available at reasonable prices and yields. Investment in taxable short-term investments would result in a portion of your dividends being subject to regular federal income taxes. For more information, see the Statement of Additional Information.
The Fund cannot change its investment objectives without the approval of the holders of a "majority of the outstanding" common shares and, if issued, MuniPreferred shares voting together as a single class, and of the holders of a "majority of the outstanding" MuniPreferred shares voting as a separate class. When used with respect to particular shares of the Fund, a "majority of the outstanding" shares means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy, or (ii) more than 50% of the shares, whichever is less. See "Description of MuniPreferred Shares -- Voting Rights" for additional information with respect to the voting rights of holders of MuniPreferred shares.
If you are, or as a result of investment in the Fund would become, subject to the federal alternative minimum tax, the Fund may not be a suitable investment for you because the Fund expects that a substantial portion of its investments will pay interest that is taxable under the federal alternative minimum tax. Special rules apply to corporate holders. In addition, distributions of net capital gain will be subject to capital gains taxes. See "Federal Income Tax Matters."
MUNICIPAL SECURITIES
Municipal securities are either general obligation or revenue bonds and typically are issued to finance public projects (such as roads or public buildings), to pay general operating expenses, or to refinance outstanding debt. Municipal securities may also be issued for private activities, such as housing, medical and educational facility construction, or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the full faith and credit, or taxing authority, of the issuer and may be repaid from any revenue source; revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund may also purchase municipal securities that represent lease obligations, municipal notes, pre-refunded municipal securities, private activity bonds, tender option bonds and other forms of municipal securities.
The municipal securities in which the Fund will invest are generally issued by states, cities and local authorities and certain possessions and territories of the United States (such as Puerto Rico and Guam), and pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by Nuveen Advisory to be reliable), is exempt from regular federal income tax, although the interest may be subject to the federal alternative minimum tax.
The yields on municipal securities depend on a variety of factors, including prevailing interest rates and the condition of the general money market and the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The market value of municipal securities will vary with changes in interest rate levels and as a result of changing evaluations of the ability of their issuers to meet interest and principal payments.
The Fund will primarily invest in municipal securities with long-term maturities in order to maintain a weighted average maturity of 15 to 30 years, but the weighted average maturity of obligations held by the Fund may be shorter, depending on market conditions. Likewise, the Fund anticipates that its duration following the invest up period will be in the range of 8 to 10 years, depending on market conditions. In comparison to maturity (which is the date on which a debt instrument ceases and the issuer is obligated to repay the principal amount), duration is a measure of the price volatility of a debt instrument as a result of changes in market rates of interest, based on the weighted average timing of the instrument's expected principal and interest payments. Duration differs from maturity in that it considers a security's yield, coupon payments, principal payments and call features in addition to the amount of time until the security finally matures. As the value of a security changes over time, so will its duration. Prices of securities with longer durations tend to be more sensitive to interest rate changes than securities with shorter durations. In general, a portfolio of securities with a longer duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter duration.
Municipal Leases and Certificates of Participation. The Fund also may purchase municipal securities that represent lease obligations and certificates of participation in such leases. These carry special risks because the issuer of the securities may not be obligated to appropriate money annually to make payments under the lease. A municipal lease is an obligation in the form of a lease or installment purchase which is issued by a state or local government to acquire equipment and facilities. Income from such obligations is generally exempt from state and local taxes in the state of issuance. Leases and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion in many leases or contracts of "non-appropriation" clauses that relieve the governmental issuer of any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event the issuer is prevented from maintaining occupancy of the leased premises or utilizing the leased equipment or facilities. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering, or the failure to recover fully, the Fund's original investment. To the extent that the Fund invests in unrated municipal leases or participates in such leases, the credit quality rating and risk of cancellation of such unrated leases will be monitored on an ongoing basis. In order to reduce this risk, the Fund will only purchase municipal securities representing lease obligations where Nuveen Advisory believes the issuer has a strong incentive to continue making appropriations until maturity.
A certificate of participation represents an undivided interest in an
unmanaged pool of municipal leases, an installment purchase agreement or other
instruments. The certificates are typically issued by a municipal agency, a
trust or other entity that has received an assignment of the payments to be made
by the state or political subdivision under such leases or installment purchase
agreements. Such certificates provide the Fund with the right to a pro rata
undivided interest in the underlying municipal securities. In addition, such
participations generally provide the Fund with the right to demand payment, on
not more than seven days'
notice, of all or any part of the Fund's participation interest in the underlying municipal securities, plus accrued interest.
Municipal Notes. Municipal securities in the form of notes generally are used to provide for short-term capital needs, in anticipation of an issuer's receipt of other revenues or financing, and typically have maturities of up to three years. Such instruments may include tax anticipation notes, revenue anticipation notes, bond anticipation notes, tax and revenue anticipation notes and construction loan notes. Tax anticipation notes are issued to finance the working capital needs of governments. Generally, they are issued in anticipation of various tax revenues, such as income, sales, property, use and business taxes, and are payable from these specific future taxes. Revenue anticipation notes are issued in expectation of receipt of other kinds of revenue, such as federal revenues available under federal revenue sharing programs. Bond anticipation notes are issued to provide interim financing until long- term bond financing can be arranged. In most cases, the long-term bonds then provide the funds needed for repayment of the bond anticipation notes. Tax and revenue anticipation notes combine the funding sources of both tax anticipation notes and revenue anticipation notes. Construction loan notes are sold to provide construction financing. Mortgage notes insured by the Federal Housing Authority secure these notes; however, the proceeds from the insurance may be less than the economic equivalent of the payment of principal and interest on the mortgage note if there has been a default. The anticipated revenues from taxes, grants or bond financing generally secure the obligations of an issuer of municipal notes. An investment in such instruments, however, presents a risk that the anticipated revenues will not be received or that such revenues will be insufficient to satisfy the issuer's payment obligations under the notes or that refinancing will be otherwise unavailable.
Pre-Refunded Municipal Securities. The principal of and interest on pre-refunded municipal securities are no longer paid from the original revenue source for the securities. Instead, the source of such payments is typically an escrow fund consisting of U.S. government securities. The assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded municipal securities. Issuers of municipal securities use this advance refunding technique to obtain more favorable terms with respect to securities that are not yet subject to call or redemption by the issuer. For example, advance refunding enables an issuer to refinance debt at lower market interest rates, restructure debt to improve cash flow or eliminate restrictive covenants in the indenture or other governing instrument for the pre-refunded municipal securities. However, except for a change in the revenue source from which principal and interest payments are made, the pre-refunded municipal securities remain outstanding on their original terms until they mature or are redeemed by the issuer.
Private Activity Bonds. Private activity bonds, formerly referred to as industrial development bonds, are issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of which are used for the construction, equipment, repair or improvement of privately operated industrial or commercial facilities, may constitute municipal securities, although the current federal tax laws place substantial limitations on the size of such issues. The Fund's distributions of its interest income from private activity bonds may subject certain investors to the federal alternative minimum tax.
Tender Option Bonds. A tender option bond is a municipal security
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term, tax-exempt rates. The bond is typically issued with the
agreement of a third party, such as a bank, broker-dealer or other financial
institution, which grants the security holders the option, at periodic
intervals, to tender their securities to the institution and receive the face
value thereof. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the bond's
fixed coupon rate and the rate, as determined by a remarketing or similar agent
at or near the commencement of such period, that would cause the securities,
coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term,
tax-exempt rate. However, an institution will not be obligated to accept
tendered bonds in the event of certain defaults or a significant downgrade in
the credit rating assigned to the issuer of the bond. The Fund intends to invest
in tender option bonds the interest
on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by Nuveen Advisory, be exempt from regular federal income tax. However, because there can be no assurance that the Internal Revenue Service (the "IRS") will agree with such counsel's opinion in any particular case, there is a risk that the Fund will not be considered the owner of such tender option bonds and thus will not be entitled to treat such interest as exempt from such tax. Additionally, the federal income tax treatment of certain other aspects of these investments, including the proper tax treatment of tender option bonds and the associated fees in relation to various regulated investment company tax provisions, is unclear. The Fund intends to manage its portfolio in a manner designed to eliminate or minimize any adverse impact from the tax rules applicable to these investments.
Special Taxing Districts. Special taxing districts are organized to plan and finance infrastructure developments to induce residential, commercial and industrial growth and redevelopment. The bond financing methods such as tax increment finance, tax assessment, special services district and Mello-Roos bonds, are generally payable solely from taxes or other revenues attributable to the specific projects financed by the bonds without recourse to the credit or taxing power of related or overlapping municipalities. They often are exposed to real estate development-related risks and can have more taxpayer concentration risk than general tax-supported bonds, such as general obligation bonds. Further, the fees, special taxes, or tax allocations and other revenues that are established to secure such financings are generally limited as to the rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. The bonds could default if development failed to progress as anticipated or if larger taxpayers failed to pay the assessments, fees and taxes as provided in the financing plans of the districts.
When-Issued and Delayed Delivery Transactions. The Fund may buy and sell municipal securities on a when-issued or delayed delivery basis, making payment or taking delivery at a later date, normally within 15 to 45 days of the trade date. This type of transaction may involve an element of risk because no interest accrues on the bonds prior to settlement and, because bonds are subject to market fluctuations, the value of the bonds at time of delivery may be less (or more) than cost. A separate account of the Fund will be established with its custodian consisting of cash, cash equivalents, or liquid securities having a market value at all times at least equal to the amount of the commitment.
Zero Coupon Bonds. A zero coupon bond is a bond that does not pay interest either for the entire life of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, its return comes from the difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount from face value. Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current interest payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The Fund would be required to distribute the income on any of these instruments as it accrues, even though the Fund will not receive all of the income on a current basis or in cash. Thus, the Fund may have to sell other investments, including when it may not be advisable to do so, to make income distributions to its shareholders.
Structured Notes. The Fund may utilize structured notes and similar instruments for investment purposes and also for hedging purposes. Structured notes are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of a benchmark asset, market or interest rate (an "embedded index"), such as selected securities, an index of securities or specified interest rates, or the differential performance of two assets or markets. The terms of such structured instruments normally provide that their principal and/or interest payments are to be adjusted upwards or downwards (but not ordinarily below zero) to reflect changes in the embedded index while the structured instruments are outstanding. As a result, the interest and/or principal payments that may be made on a structured product may vary widely, depending upon a variety of factors, including the volatility of the embedded index and the effect of changes in the embedded index on principal and/or interest payments. The rate of return on structured notes may be determined by applying a multiplier to the performance or differential performance of the referenced index or indices or other assets. Application of a multiplier involves leverage that will serve to magnify the potential for gain and the risk of loss.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its Managed Assets in securities of other open- or closed-end investment companies that invest primarily in municipal securities of the types in which the Fund may invest directly. In addition, the Fund may invest a portion of its Managed Assets in pooled investment vehicles (other than investment companies) that invest primarily in municipal securities of the types in which the Fund may invest directly. The Fund generally expects that it may invest in other investment companies and/or other pooled investment vehicles either during periods when it has large amounts of uninvested cash, such as the period shortly after the Fund receives the proceeds of the offering of its common shares or MuniPreferred shares, or during periods when there is a shortage of attractive, high-yielding municipal securities available in the market. As a stockholder in an investment company, the Fund will bear its ratable share of that investment company's expenses, and would remain subject to payment of the Fund's advisory and administrative fees with respect to assets so invested. Common shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. Nuveen Advisory will take expenses into account when evaluating the investment merits of an investment in an investment company relative to available municipal security investments.
In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the same leverage risks described herein. As described in the section entitled "Risk Factors," the net asset value and market value of leveraged shares will be more volatile and the yield to common shareholders will tend to fluctuate more than the yield generated by unleveraged shares.
INITIAL PORTFOLIO COMPOSITION
If current market conditions persist, the Fund expects that approximately 55% to 65% of its initial portfolio will consist of investment grade quality municipal securities, rated as such at the time of investment. A security is considered investment grade quality if it is rated within the four highest grades by all NRSROs that rate such security, or if it is unrated but judged to be of comparable quality by Nuveen Advisory. The Fund also expects that approximately 35% to 45% of its initial portfolio will consist of below investment grade quality municipal securities, rated as such at the time of investment or unrated but judged to be of comparable quality by Nuveen Advisory. In addition, the Fund anticipates that the initial average credit quality of the portfolio will be BBB, including securities that are not rated by any NRSROs but have ratings assigned to them by Nuveen Advisory for internal compliance purposes. As previously noted, the Fund anticipates that its duration following the invest up period will be in the range of 8 to 10 years, depending on market conditions. See the Statement of Additional Information under "Other Investment Policies and Techniques -- Portfolio Trading and Turnover Rate." See "-- Investment Policies."
RISK FACTORS
Risk is inherent in all investing. Investing in any investment company security involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing you should consider carefully the following risks that you assume when you invest in MuniPreferred shares.
Limited Operating History. The Fund is a recently organized, diversified, closed-end management investment company and has a limited operating history.
Interest Rate Risk (and its impact on the value of the Fund's investments). The Fund issues MuniPreferred shares, which pay dividends based on short- and intermediate-term interest rates, and uses the proceeds to buy municipal bonds, which pay interest based on long-term yields. Long-term municipal bond yields are typically, although not always, higher than short- and intermediate-term interest rates. Long-term, intermediate-term and short-term interest rates may fluctuate. If short- or intermediate-term interest rates rise, MuniPreferred rates may rise so that the amount of dividends paid to MuniPreferred shareholders exceeds the income from the portfolio securities purchased with the proceeds from the sale of MuniPreferred shares. Because income from the Fund's entire investment portfolio (not just the portion of the portfolio purchased with the proceeds of the MuniPreferred share offering) is available to pay MuniPreferred dividends, however, MuniPreferred dividend rates would need to greatly exceed the Fund's net portfolio income before the Fund's ability to pay MuniPreferred dividends would be jeopardized. If long-term rates rise, the value of the Fund's investment portfolio will decline, reducing the amount of assets serving as asset coverage for the MuniPreferred shares.
Auction Risk. You may not be able to sell your MuniPreferred shares at an auction if the auction fails; that is, if there are more MuniPreferred shares offered for sale than there are buyers for those shares. Also, if you place hold orders (orders to retain MuniPreferred shares) at an auction only at a specified rate, and that bid rate exceeds the rate set at the auction, you will not retain your MuniPreferred shares. Finally, if you buy shares or elect to retain shares without specifying a rate below which you would not wish to continue to hold those shares, and the auction sets a below-market rate, you may receive a lower rate of return on your shares than the market rate. See "Description of MuniPreferred Shares" and "The Auction -- Auction Procedures."
Secondary Market Risk (and the possible impact of Interest Rate Risk on the value of MuniPreferred shares during Extended Initial Rate Periods and special rate periods). If you try to sell your MuniPreferred shares between auctions, you may not be able to sell any or all of your shares, or you may not be able to sell them for $25,000 per share or $25,000 per share plus accumulated dividends. In the case of Extended Initial Rate Periods for Series T and Series W MuniPreferred, or if the Fund has designated a subsequent rate period for a series as a special rate period (a rate period of more than 7 days), changes in market interest rates could adversely affect the price you would receive if you sold your shares in the secondary market. If market interest rates for tax-exempt securities having similar credit quality to the MuniPreferred shares, and maturities equivalent to the period remaining until the end of the Extended Initial Rate Period (or subsequent special rate period), increase so as to exceed the dividend rate for that rate period, the amount for which the MuniPreferred shares could be sold in the secondary market (assuming there is a market for the shares) will tend to fall, and will likely be less than $25,000 per share. Broker-dealers that maintain a secondary trading market for MuniPreferred shares, if any, are not required to maintain this market, and the Fund is not required to redeem shares either if an auction or an attempted secondary market sale fails because of a lack of buyers. MuniPreferred shares are not registered on a stock exchange or the NASDAQ stock market. If you sell your MuniPreferred shares to a broker-dealer between auctions, you may receive less than the price you paid for them, especially when market interest rates have risen since the last auction or risen higher than the dividend rate on a series within a rate period longer than 7 days, including the Extended Initial Rate Period of Series T and Series W.
Ratings and Asset Coverage Risk. While Moody's and S&P assign ratings of "Aaa" and "AAA", respectively, to MuniPreferred shares, the ratings do not eliminate or necessarily mitigate the risks of investing in MuniPreferred shares. A rating agency could downgrade MuniPreferred shares, which may make your shares less liquid at an auction or in the secondary market. If a rating agency downgrades MuniPreferred
shares, the Fund may alter its portfolio or redeem MuniPreferred shares. The Fund may voluntarily redeem MuniPreferred shares under certain circumstances. See "Description of MuniPreferred Shares -- Rating Agency Guidelines and Asset Coverage" for a description of the asset maintenance tests the Fund must meet.
Credit and Below Investment Grade Risk. Credit risk is the risk that one or more municipal securities in the Fund's portfolio will decline in price, or the issuer thereof will fail to pay interest or principal when due, because the issuer of the security experiences a decline in its financial status. In general, lower-rated municipal securities carry a greater degree of risk that the issuer will lose its ability to make interest and principal payments, which could have a negative impact on the Fund's net asset value or dividends. The Fund may invest up to 50% of its Managed Assets in municipal securities that are rated below investment grade at the time of investment or that are unrated but judged to be of comparable quality by Nuveen Advisory. No more than 5% of the Fund's Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by Nuveen Advisory. This means that the Fund may invest in municipal securities that are involved in bankruptcy or insolvency proceedings or are experiencing other financial difficulties at the time of acquisition (such securities are commonly referred to as distressed securities). Municipal securities of below investment grade quality, commonly referred to as junk bonds, are regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal when due, and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for municipal securities of below investment grade quality tend to be volatile, and these securities are less liquid than investment grade municipal securities. For these reasons, an investment in the Fund is subject to the following specific risks:
- increased price sensitivity resulting from changing interest rates and/or a deteriorating economic environment;
- greater risk of loss due to default or declining credit quality;
- adverse issuer specific events that are more likely to render the issuer unable to make interest and/or principal payments; and
- the possibility that a negative perception of the below investment grade market develops, resulting in the price and liquidity of below investment grade securities becoming depressed, and this negative perception could last for a significant period of time.
Adverse changes in economic conditions are more likely to lead to a weakened capacity of a below investment grade issuer to make principal payments and interest payments compared to an investment grade issuer. The principal amount of below investment grade securities outstanding has proliferated in the past decade as an increasing number of issuers have used below investment grade securities for financing. An economic downturn could severely affect the ability of highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. If the national economy enters into a recessionary phase during 2004, potentially decreasing the tax and other revenue of municipal issuers, or interest rates rise sharply, increasing the interest cost on variable rate instruments and negatively impacting economic activity, the number of defaults by below investment grade municipal issuers is likely to increase. Similarly, down-turns in profitability in specific industries could adversely affect private activity bonds. The market values of lower quality debt securities tend to reflect individual developments of the issuer to a greater extent than do higher quality securities, which react primarily to fluctuations in the general level of interest rates. Factors having an adverse impact on the market value of lower quality securities may have an adverse impact on the Fund's net asset value and the market value of its common shares. In addition, the Fund may incur additional expenses to the extent it is required to seek recovery upon a default in payment of principal or interest on its portfolio holdings. In certain circumstances, the Fund may be required to foreclose on an issuer's assets and take possession of its property or operations. In such circumstances, the Fund would incur additional costs in disposing of such assets and potential liabilities from operating any business acquired.
The secondary market for below investment grade securities may not be as liquid as the secondary market for more highly rated securities, a factor that may have an adverse effect on the Fund's ability to dispose of a particular security. There are fewer dealers in the market for below investment grade municipal securities than
the market for investment grade municipal securities. The prices quoted by different dealers for below investment grade municipal securities may vary significantly, and the spread between the bid and ask price is generally much larger for below investment grade municipal securities than for higher quality instruments. Under adverse market or economic conditions, the secondary market for below investment grade securities could contract further, independent of any specific adverse changes in the condition of a particular issuer, and these instruments may become illiquid. As a result, the Fund could find it more difficult to sell these securities or may be able to sell the securities only at prices lower than if such securities were widely traded. Prices realized upon the sale of such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating the Fund's net asset value.
Issuers of such below investment grade securities are highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of below investment grade securities may experience financial stress. During such periods, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific developments, the issuer's inability to meet specific projected forecasts or the unavailability of additional financing. The risk of loss from default by the issuer is significantly greater for the holders of below investment grade securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. Prices and yields of below investment grade securities will fluctuate over time and, during periods of economic uncertainty, volatility of below investment grade securities may adversely affect the Fund's net asset value. In addition, investments in below investment grade zero coupon bonds rather than income-bearing below investment grade securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates.
The Fund may invest in distressed securities, which are securities issued by companies that are involved in bankruptcy or insolvency proceedings or are experiencing other financial difficulties at the time of acquisition by the Fund. The issuers of such securities may be in transition, out of favor, financially leveraged or troubled, or potentially troubled, and may be or have recently been involved in major strategic actions, restructurings, bankruptcy, reorganization or liquidation. These characteristics of these companies can cause their securities to be particularly risky, although they also may offer the potential for high returns. These companies' securities may be considered speculative, and the ability of the companies to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting a particular industry or specific developments within the companies. Distressed securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment.
Investments in lower rated or unrated securities may present special tax issues for the Fund to the extent that the issuers of these securities default on their obligations pertaining thereto, and the federal income tax consequences to the Fund as a holder of such distressed securities may not be clear.
Municipal Securities Market Risk. Investing in the municipal securities market involves certain risks. The amount of public information available about the municipal securities in the Fund's portfolio is generally less than that for corporate equities or bonds, and the investment performance of the Fund may therefore be more dependent on the analytical abilities of Nuveen Advisory than if the Fund were a stock fund or taxable bond fund. The secondary market for municipal securities, particularly the below investment grade bonds in which the Fund may invest, also tends to be less well-developed or liquid than many other securities markets, which may adversely affect the Fund's ability to sell its municipal securities at attractive prices or at prices approximating those at which the Fund currently values them.
The ability of municipal issuers to make timely payments of interest and principal may be diminished during general economic downturns and as governmental cost burdens are reallocated among federal, state and local governments. In addition, laws enacted in the future by Congress or state legislatures or referenda could extend the time for payment of principal and/or interest, or impose other constraints on enforcement of such obligations, or on the ability of municipalities to levy taxes. Issuers of municipal securities might seek
protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, the Fund could experience delays in collecting principal and interest and the Fund may not, in all circumstances, be able to collect all principal and interest to which it is entitled. To enforce its rights in the event of a default in the payment of interest or repayment of principal, or both, the Fund may take possession of and manage the assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses. Any income derived from the Fund's ownership or operation of such assets may not be tax-exempt.
Reinvestment Risk. Reinvestment risk is the risk that income from the Fund's portfolio will decline if and when the Fund invests the proceeds from matured, traded or called bonds at market interest rates that are below the portfolio's current earnings rate. A decline in income could affect the common shares' market price or their overall returns.
Tax Risk. The value of the Fund's investments and its net asset value may be adversely affected by changes in tax rates and policies. Because interest income from municipal securities is normally not subject to regular federal income taxation, the attractiveness of municipal securities in relation to other investment alternatives is affected by changes in federal income tax rates or changes in the tax-exempt status of interest income from municipal securities. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect the demand for and supply, liquidity and marketability of municipal securities. This could in turn affect the Fund's net asset value and ability to acquire and dispose of municipal securities at desirable yield and price levels. Additionally, the Fund is not a suitable investment for individual retirement accounts, for other tax-exempt or tax-deferred accounts or for investors who are not sensitive to the federal income tax consequences of their investments.
Inflation Risk. Inflation risk is the risk that the value of assets or income from investment will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the dividends paid to MuniPreferred shareholders can decline.
Sector and Industry Risk. The Fund may invest in municipal securities that are collateralized by the proceeds from class action or other litigation against the tobacco industry. Payment by tobacco industry participants of such proceeds is spread over several years, and the collection and distribution of such proceeds to the issuers of municipal securities is dependent upon the financial health of such tobacco industry participants, which cannot be assured. Additional litigation, government regulation or prohibition on the sales of tobacco products, or the seeking of protection under the bankruptcy laws by companies in the tobacco industry, could adversely affect the tobacco industry which, in turn, could have an adverse affect on tobacco-related municipal securities. The Fund presently intends to limit its investment in tobacco settlement bonds to no more than 10% of the Fund's Managed Assets.
Subject to rating agency guidelines, the Fund may invest a significant portion of its Managed Assets in broad segments of the municipal securities market, such as revenue obligations of hospitals and other health care facilities, special taxing districts, securities issued to finance charter schools and other private educational facilities, municipal utility securities, industrial development bonds, and other private activity bonds. Subject to the availability of suitable investment opportunities, Nuveen Advisory will attempt to minimize the sensitivity of the Fund's portfolio to credit and other risks associated with a particular sector or industry. However, if the Fund invests a significant portion of its Managed Assets in the segments noted above, the Fund will be more susceptible to economic, business, political, regulatory and other developments generally affecting issuers in such segments of the municipal securities market. To the extent that the Fund focuses its Managed Assets in the hospital and healthcare facilities sector, the Fund will be subject to risks associated with such sector, including adverse government regulation and reduction in reimbursement rates, as well as government approval of products and services and intense competition. Securities issued with respect to special taxing districts will be subject to various risks, including real-estate development related risks and taxpayer concentration risk. Further, the fees, special taxes or tax allocations and other revenues established to secure the obligations of securities issued with respect to special taxing districts are generally limited as to the rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. Securities issued to finance charter schools and other private educational facilities will be subject to various risks, including the reversal of legislation authorizing or funding charter
schools, the failure to renew or secure a charter, the failure of a funding entity to appropriate necessary funds and competition from alternatives such as voucher programs. Issuers of municipal utility securities can be significantly affected by government regulation, financing difficulties, supply and demand of services or fuel and natural resource conservation. The transportation sector, including airports, airlines, ports and other transportation facilities, can be significantly affected by changes in the economy, fuel prices, labor relations, insurance costs and government regulation.
Special Risks Related to Certain Municipal Obligations. The Fund may invest in municipal leases and certificates of participation in such leases. Municipal leases and certificates of participation involve special risks not normally associated with general obligations or revenue bonds. Leases and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion in many leases or contracts of "non-appropriation" clauses that relieve the governmental issuer of any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event the governmental issuer is prevented from maintaining occupancy of the leased premises or utilizing the leased equipment. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to fully recover the Fund's original investment. In the event of non-appropriation, the issuer would be in default and taking ownership of the assets may be a remedy available to the Fund, although the Fund does not anticipate that such a remedy would normally be pursued. To the extent that the Fund invests in unrated municipal leases or participates in such leases, the credit quality rating and risk of cancellation of such unrated leases will be monitored on an ongoing basis. Certificates of participation, which represent interests in unmanaged pools of municipal leases or installment contracts, involve the same risks as the underlying municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificates of participation to exercise remedies with respect to the underlying securities. Certificates of participation also entail a risk of default or bankruptcy, both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.
Market Disruption Risk. Certain events have a disruptive effect on the securities markets, such as terrorist attacks (including the terrorist attacks in the U.S. on September 11, 2001), war and other geopolitical events. The Fund cannot predict the effects of similar events in the future on the U.S. economy. Below investment grade securities tend to be more volatile than higher rated securities so that these events and any actions resulting from them may have a greater impact on the prices and volatility of below investment grade securities than on higher rated securities.
Certain Affiliations. Certain broker-dealers may be considered to be affiliated persons of the Fund, Nuveen Advisory and/or Nuveen. Absent an exemption from the Securities and Exchange Commission or other regulatory relief, the Fund is generally precluded from effecting certain principal transactions with affiliated brokers, and its ability to purchase securities being underwritten by an affiliated broker or a syndicate including an affiliated broker, or to utilize affiliated brokers for agency transactions, is subject to restrictions. This could limit the Fund's ability to engage in securities transactions and take advantage of market opportunities.
HOW THE FUND MANAGES RISK
INVESTMENT LIMITATIONS
The Fund has adopted certain investment limitations designed to limit investment risk and maintain portfolio diversification. These limitations are fundamental and may not be changed without the approval of the holders of a "majority of the outstanding" common shares and MuniPreferred shares voting together as a single class, and the approval of the holders of a "majority of the outstanding" MuniPreferred shares voting as
a separate class. When used with respect to particular shares of the Fund, a "majority of the outstanding" shares means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy, or (ii) more than 50% of the shares, whichever is less.
The Fund is subject to guidelines which are more limiting than the investment restrictions set forth above in order to obtain and maintain ratings from Moody's or S&P on the MuniPreferred shares. See "Investment Objectives" in the Statement of Additional Information for information about these guidelines and a complete list of the fundamental and non-fundamental investment policies of the Fund.
MANAGEMENT OF INVESTMENT PORTFOLIO AND CAPITAL STRUCTURE TO LIMIT LEVERAGE RISK
The Fund may take certain actions if short- or intermediate-term interest rates increase or market conditions otherwise change (or the Fund anticipates such an increase or change) and the Fund's leverage begins (or is expected) to adversely affect common shareholders. In order to attempt to offset such a negative impact of leverage on common shareholders, the Fund may shorten the average maturity of its investment portfolio (by investing in short-term, high quality securities) or may extend the maturity of outstanding MuniPreferred shares. The Fund may also attempt to reduce the leverage by redeeming or otherwise purchasing MuniPreferred shares. The success of any such attempt to limit leverage risk depends on Nuveen Advisory's ability to accurately predict interest rate or other market changes. Because of the difficulty of making such predictions, the Fund may never attempt to manage its capital structure in the manner described above.
If market conditions suggest that additional leverage would be beneficial, the Fund may sell previously unissued MuniPreferred shares or MuniPreferred shares that the Fund previously issued but later repurchased.
NO INVERSE FLOATING RATE SECURITIES
The Fund may not invest in inverse floating rate securities, which are securities that pay interest at rates that vary inversely with changes in prevailing short-term tax-exempt interest rates and which represent a leveraged investment in an underlying municipal security. This restriction is a non-fundamental policy of the Fund that may be changed by vote of the Fund's Board of Trustees.
HEDGING STRATEGIES
The Fund may use various investment strategies designed to limit the risk of bond price fluctuations and to preserve capital. These hedging strategies include using credit default swaps, interest-rate swaps on taxable tax-exempt indices, forward starting rate swaps and options on interest rate swaps, financial futures contracts, options on financial futures or options based on either an index of long-term municipal securities or on taxable debt securities whose prices, in the opinion of Nuveen Advisory, correlate with the prices of the Fund's investments. These hedging strategies may generate taxable income.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Board of Trustees is responsible for the management of the Fund, including supervision of the duties performed by Nuveen Advisory. The names and business addresses of the trustees and officers of the Fund and their principal occupations and other affiliations during the past five years are set forth under "Management of the Fund" in the Statement of Additional Information.
INVESTMENT ADVISER
Nuveen Advisory, 333 West Wacker Drive, Chicago, Illinois 60606, serves as the investment adviser to the Fund. In this capacity, Nuveen Advisory is responsible for the selection and on-going monitoring of the municipal securities in the Fund's investment portfolio, managing the Fund's business affairs and providing certain clerical, bookkeeping and administrative services. Nuveen Advisory serves as investment adviser to
investment portfolios with more than $45 billion in assets under management. See the Statement of Additional Information under "Investment Adviser."
Nuveen Advisory is responsible for execution of specific investment strategies and day-to-day investment operations. Nuveen Advisory manages the Fund using a team of analysts and portfolio managers that focus on a specific group of funds. John V. Miller is the portfolio manager of the Fund and will provide daily oversight for, and execution of, the Fund's investment activities. He became a Vice President of Nuveen Advisory in 2003. Prior thereto, he was a credit analyst with Nuveen (since 1996). Mr. Miller currently manages investments for three Nuveen-sponsored investment companies.
Nuveen Advisory is a wholly owned subsidiary of Nuveen Investments, Inc. Founded in 1898, Nuveen through its various affiliates manages $90 billion in assets for clients in separate accounts, registered investment companies, and other collective investment vehicles as of September 30, 2003. Nuveen Investments, Inc. is a publicly traded company and is a majority-owned subsidiary of The St. Paul Companies, Inc. ("St. Paul"), a publicly-traded company which is principally engaged in providing property-liability insurance through subsidiaries. According to data from Thompson Wealth Management, Nuveen Investments, Inc. is the leading sponsor of municipal closed-end exchange-traded bond funds as measured by number of funds (97) and fund assets under management ($35 billion) as of September 30, 2003.
On November 17, 2003, St. Paul and Travelers Property Casualty Corp. ("Travelers") announced that they had signed a definitive merger agreement, under which holders of Travelers common stock will each receive common shares of St. Paul in exchange for their Travelers shares. The transaction is subject to customary closing conditions, including approval by the shareholders of both companies as well as certain regulatory approvals.
If this merger transaction were to constitute a change of control of Nuveen Advisory it would operate as an "assignment," as defined in the 1940 Act, of the Fund's investment management agreement (as discussed further below), which would cause the investment management agreement to terminate. In the event of such a termination, it is expected that the Fund's Board would meet to consider both an interim investment management agreement (as permitted under the 1940 Act) and a new investment management agreement, the latter of which, if approved by the Board, would be submitted to a vote of the Fund's shareholders and take effect only upon such approval. There is no assurance that these approvals would be obtained. The Fund and Nuveen Advisory currently expect that they will receive advice of counsel to the effect that the merger will not constitute a change of control of Nuveen Advisory and will not operate as an "assignment," and that therefore the Fund's investment management agreement would not terminate as a result of the merger. There is no assurance that the Fund will receive such advice of counsel.
As a result of the current ownership by Citigroup Inc. ("Citigroup") and its affiliates of voting securities of Travelers and St. Paul, if the transaction occurs on currently contemplated terms, Citigroup may indirectly own a sufficient percentage of voting securities of the combined entity to make Citigroup an indirect affiliate of Nuveen, Nuveen Advisory and the Fund. Such an affiliation could result, pursuant to the 1940 Act, in restrictions on transactions between the Fund and Citigroup and possibly its affiliates. In particular, principal trades between the Fund and Citigroup and its affiliates could be prohibited. Such a prohibition could have an adverse impact on the Fund's ability to efficiently invest its portfolio. Nuveen Advisory does not believe, however, that any potential inability to so trade with Citigroup or its affiliates would have a material adverse effect on Nuveen Advisory's ability to perform its obligations under the investment management agreement with the Fund or on the Fund's ability to pursue its investment objectives and policies as described in this prospectus.
INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an investment management agreement between Nuveen Advisory and the Fund, the Fund has agreed to pay for the services and facilities provided by Nuveen Advisory an annual management fee, payable on a monthly basis, according to the following schedule:
AVERAGE DAILY MANAGED ASSETS* MANAGEMENT FEE ----------------------------- -------------- Up to $125 million.......................................... 0.7500% $125 million to $250 million................................ 0.7375% $250 million to $500 million................................ 0.7250% $500 million to $1 billion.................................. 0.7125% $1 billion to $2 billion.................................... 0.7000% $2 billion and over......................................... 0.6750% |
* Including assets attributable to outstanding MuniPreferred shares.
In addition to the fee of Nuveen Advisory, the Fund pays all other costs and expenses of its operations, including compensation of its trustees (other than those affiliated with Nuveen Advisory), custodian, transfer agency and dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses of issuing any MuniPreferred shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies, and taxes, if any.
For the first eight full years of the Fund's operation, Nuveen Advisory has contractually agreed to reimburse the Fund for fees and expenses in the amounts, and for the time periods, set forth below:
PERCENTAGE PERCENTAGE
REIMBURSED REIMBURSED
YEARS (AS A PERCENTAGE YEARS (AS A PERCENTAGE
ENDING OF MANAGED ENDING OF MANAGED
NOVEMBER 30, ASSETS) NOVEMBER 30, ASSETS)
------------------------------- ---------------- ------------------------------- ----------------
2003(1)........................ 0.32% 2008........................... 0.32%
2004........................... 0.32% 2009........................... 0.24%
2005........................... 0.32% 2010........................... 0.16%
2006........................... 0.32% 2011........................... 0.08%
2007........................... 0.32%
|
(1) From the commencement of operations.
Nuveen Advisory has not agreed to reimburse the Fund for any portion of its fees and expenses beyond November 30, 2011.
DESCRIPTION OF MUNIPREFERRED SHARES
The following is a brief description of the terms of the MuniPreferred shares. This description does not purport to be complete and is subject to and qualified in its entirety by reference to the more detailed description of the MuniPreferred shares in the Fund's Statement attached as Appendix A to the Statement of Additional Information.
GENERAL
The Fund's Declaration of Trust authorizes the issuance of an unlimited number of preferred shares, par value $.01 per share, in one or more classes or series, with rights as determined by the Board of Trustees without the approval of holders of common shares. The Statement currently authorizes the issuance of 3,000, 1,600 and 1,600 shares of MuniPreferred Series M, Series T and Series W, respectively. All MuniPreferred shares will have a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared).
The MuniPreferred shares of each series will rank on parity with shares of any other series of MuniPreferred and with shares of any other series of preferred shares of the Fund as to the payment of dividends and the distribution of assets upon liquidation. All MuniPreferred shares carry one vote per share on all matters on which such shares are entitled to be voted. Shares of MuniPreferred are, when issued, fully paid and, subject to matters discussed in "Certain Provisions in the Declaration of Trust," non-assessable and have no preemptive, conversion or cumulative voting rights.
DIVIDENDS AND DIVIDEND PERIODS
General. The initial Rate Period of MuniPreferred shares Series M, Series T and Series W will be a period consisting of days, days and days, respectively. Any Subsequent Rate Period of shares of a series of MuniPreferred will be a Minimum Rate Period (7 Rate Period Days), unless the Fund, subject to certain conditions, designates such Subsequent Rate Period as a Special Rate Period. See "-- Designation of Special Rate Periods" below.
Dividends on shares of each series of MuniPreferred shall be payable, when, as and if declared by the Board out of funds legally available therefor in accordance with the Declaration of Trust, including the Statement, and applicable law. For the initial Rate Period for shares of MuniPreferred Series M, dividends will be paid on , 2004. For the initial Rate Period for shares of MuniPreferred Series T, dividends will be paid on , 2004, and on the first business day of each month thereafter, with the last dividend payment date for the initial Rate Period on , 200 . For the initial Rate Period for shares of MuniPreferred Series W, dividends will be paid on , 2004 and on the first business day of each month thereafter, with the last dividend payment date for the initial Rate Period on , 200 . After the initial Rate Period, for Subsequent Rate Periods dividends for Rate Periods other than Special Rate Periods will normally be paid on each Tuesday, Wednesday and Thursday for Series M, Series T and Series W, respectively; provided, however, that (i) if the Monday or the Tuesday on which dividends would otherwise be payable as set forth above is not a Business Day, then such dividends shall be payable on such shares on the first Business Day that falls after such Monday or Tuesday, as the case may be; (ii) if the Wednesday, Thursday or Friday on which dividends would otherwise be payable as set forth above is not a Business Day, then such dividends shall be payable on such shares on the first Business Day that falls prior to such Wednesday, Thursday or Friday, as the case may be; and (iii) the Fund may specify different Dividend Payment Dates in respect of any Special Rate Period of more than 28 Rate Period Days.
The amount of dividends per share payable on shares of a series of MuniPreferred on any date on which dividends shall be payable on shares of such series shall be computed by multiplying the Applicable Rate for shares of such series in effect for such Dividend Period or Dividend Periods or part thereof for which dividends have not been paid by a fraction, the numerator of which shall be the number of days in such Dividend Period or Dividend Periods or part thereof and the denominator of which shall be 365 if such Dividend Period consists of 7 Rate Period Days and 360 for all other Dividend Periods, and applying the rate obtained against $25,000.
Dividends will be paid through the Securities Depository on each Dividend Payment Date in accordance with its normal procedures, which currently provide for it to distribute dividends in next-day funds to Agent Members, who in turn are expected to distribute such dividend payments to the persons for whom they are acting as agents. Each of the current Broker-Dealers, however, has indicated to the Fund that such Broker-Dealer or the Agent Member designated by such Broker-Dealer will make such dividend payments available in same-day funds on each Dividend Payment Date to customers that use such Broker-Dealer or its designee as Agent Member.
Dividends on shares of each series of MuniPreferred will accumulate from the Date of Original Issue thereof. The dividend rate for shares of MuniPreferred of a particular series for the initial Rate Period for such shares shall be % per annum for Series M, % per annum for Series T and % per annum for Series W. For each Subsequent Rate Period of shares of MuniPreferred of a particular series, the dividend rate for such shares will be the Applicable Rate for such shares that the Auction Agent advises the Fund results from an Auction, except as provided below. The Applicable Rate that results from an Auction for shares of any series of MuniPreferred will not be greater than the Maximum Rate for shares of such series, which is:
(a) in the case of any Auction Date which is not the Auction Date immediately prior to the first day of any proposed Special Rate Period, the product of (i) the Reference Rate on such Auction Date for the next Rate Period of shares of such series and (ii) the Rate Multiple on such Auction Date, unless shares of such series have or had a Special Rate Period (other than a Special Rate Period of 28 Rate Period Days or fewer) and an Auction at which Sufficient Clearing Bids existed has not yet occurred for a Minimum Rate Period of shares of such series after such Special Rate Period, in which case the higher of:
(A) the dividend rate on shares of such series for the then-ending Rate Period; and
(B) the product of (x) the higher of (I) the Reference Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of shares of such series, if such then-ending Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of shares of such series, if such then-ending Rate Period was more than 364 Rate Period Days, and (II) the Reference Rate on such Auction Date for a Rate Period equal in length to such Special Rate Period of shares of such series, if such Special Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to such Special Rate Period, if such Special Rate Period was more than 364 Rate Period Days and (y) the Rate Multiple on such Auction Date; or
(b) in the case of any Auction Date which is the Auction Date immediately prior to the first day of any proposed Special Rate Period, the product of (i) the highest of (x) the Reference Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of shares of such series, if such then-ending Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of shares of such series, if such then-ending Rate Period was more than 364 Rate Period Days, (y) the Reference Rate on such Auction Date for the Special Rate Period for which the Auction is being held if such Special Rate Period is 364 Rate Period Days or fewer or the Treasury Note Rate on such Auction Date for the Special Rate Period for which the Auction is being held if such Special Rate Period is more than 364 Rate Period Days, and (z) the Reference Rate on such Auction Date for Minimum Rate Periods and (ii) the Rate Multiple on such Auction Date.
If an Auction for any Subsequent Rate Period of shares of any series of MuniPreferred is not held for any reason other than as described below, the dividend rate on shares of such series for such Subsequent Rate Period will be the Maximum Rate for shares of such series on the Auction Date for such Subsequent Rate Period.
If the Fund fails to pay in a timely manner to the Auction Agent the full amount of any dividend on, or the redemption price of, any shares of any series of MuniPreferred during any Rate Period thereof (other than any Special Rate Period of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate
Period of more than 364 Rate Period Days during which such a failure occurred that has not been cured), but, prior to 12:00 noon on the third Business Day next succeeding the date such failure occurred, such failure shall have been cured and the Fund shall have paid a late charge, as described more fully in the Statement, no Auction will be held in respect of shares of such series for the first Subsequent Rate Period thereof thereafter and the dividend rate for shares of such series for such Subsequent Rate Period will be the Maximum Rate for shares of such series on the Auction Date for such Subsequent Rate Period.
If the Fund fails to pay in a timely manner to the Auction Agent the full amount of any dividend on, or the redemption price of, any shares of any series of MuniPreferred during any Rate Period thereof (other than any Special Rate Period of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate Period of more than 364 Rate Period Days during which such a failure occurred that has not been cured), and, prior to 12:00 noon on the third Business Day next succeeding the date on which such failure occurred, such failure shall not have been cured or the Fund shall not have paid a late charge, as described more fully in the Statement, no Auction will be held in respect of shares of such series for the first Subsequent Rate Period thereof thereafter (or for any Rate Period thereof thereafter to and including the Rate Period during which such failure is so cured and such late charge so paid) (such late charge to be paid only in the event Moody's is rating such shares at the time the Fund cures such failure), and the dividend rate for shares of such series for each such Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate for shares of such series on the Auction Date for such Subsequent Rate Period (but with the prevailing rating for shares of such series, for purposes of determining such Maximum Rate, being deemed to be "Below 'ba3'/'BB2"').
If the Fund fails to pay in a timely manner to the Auction Agent the full amount of any dividend on, or the redemption price of, any shares of any series of MuniPreferred during a Special Rate Period thereof of more than 364 Rate Period Days, or during any Rate Period thereof succeeding any Special Rate Period of more than 364 Rate Period Days during which such a failure occurred that has not been cured, and such failure shall not have been cured or the Fund shall not have paid a late charge, as described more fully in the Statement, no Auction will be held in respect of shares of such series for such Subsequent Rate Period thereof (or for any Rate Period thereof thereafter to and including the Rate Period during which such failure is so cured and such late charge so paid) (such late charge to be paid only in the event Moody's is rating such shares at the time the Fund cures such failure), and the dividend rate for shares of such series for each such Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate for shares of such series on the Auction Date for each such Subsequent Rate Period (but with the prevailing rating for shares of such series, for purposes of determining such Maximum Rate, being deemed to be "Below 'ba3'/'BB2"').
A failure to pay dividends on, or the redemption price of, shares of any series of MuniPreferred shall have been cured with respect to any Rate Period thereof if, within the respective time periods described in the Statement, the Fund shall have paid to the Auction Agent (a) all accumulated and unpaid dividends on the shares of such series and (b) without duplication, the redemption price for shares, if any, of such series for which notice of redemption has been mailed by the Fund; provided, however, that the foregoing clause (b) shall not apply to the Fund's failure to pay the redemption price in respect of shares of MuniPreferred when the related notice of redemption provides that redemption of such shares is subject to one or more conditions precedent and any such condition precedent shall not have been satisfied at the time or times and in the manner specified in such notice of redemption.
Gross-up Payments. Holders of shares of MuniPreferred are entitled to receive, when, as and if declared by the Board, out of funds legally available therefor in accordance with the Declaration of Trust, including the Statement, and applicable law, dividends in an amount equal to the aggregate Gross-up Payments in accordance with the following:
If, in the case of any Minimum Rate Period or any Special Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net capital gain or other income taxable for regular federal income tax purposes to a dividend paid on shares of MuniPreferred without having given advance notice thereof to the Auction Agent as described below under "The Auction -- Auction Procedures" (a "Taxable Allocation") solely by reason of the fact that such allocation is made retroactively as a result of the redemption of all or a portion of the outstanding shares of MuniPreferred or the liquidation of the Fund, the Fund will, prior to the end of the
calendar year in which such dividend was paid, provide notice thereof to the Auction Agent and direct the Fund's dividend disbursing agent to send such notice with a Gross-up Payment to each holder of shares (initially Cede & Co., as nominee of the Securities Depository) that was entitled to such dividend payment during such calendar year at such holder's address as the same appears or last appeared on the stock books of the Fund.
If, in the case of any Special Rate Period or initial Rate Period of more than 28 Rate Period Days (including the Extended Initial Rate Period with respect to each of Series T and Series W), the Fund makes a Taxable Allocation to a dividend paid on shares of MuniPreferred without having given prior to the auction with respect to that Rate Period to the Auction Agent advance notice thereof, the Fund shall, prior to the end of the calendar year in which such dividend was paid, provide notice thereof to the Auction Agent and direct the Fund's dividend disbursing agent to send such notice with a Gross-up Payment to each holder of shares that was entitled to such dividend payment during such calendar year at such holder's address as the same appears or last appeared on the stock books of the Fund.
A "Gross-up Payment" means payment to a holder of shares of MuniPreferred of an amount which, when taken together with the aggregate amount of Taxable Allocations made to such holder to which such Gross-up Payment relates, would cause such holder's dividends in dollars (after federal income tax consequences) from the aggregate of such Taxable Allocations and the related Gross-up Payment to be equal to the dollar amount of the dividends which would have been received by such holder if the amount of the aggregate Taxable Allocations would have been excludable from the gross income of such holder. Such Gross-up Payment shall be calculated: (a) without consideration being given to the time value of money; (b) assuming that no holder of shares of MuniPreferred is subject to the federal alternative minimum tax with respect to dividends received from the Fund; and (c) assuming that each Taxable Allocation and each Gross-up Payment (except to the extent such Gross-up Payment is designated as an exempt-interest dividend under Section 852(b)(5) of the Internal Revenue Code of 1986, as amended, or successor provisions) would be taxable in the hands of each holder of shares of MuniPreferred at the maximum marginal regular federal individual income tax rate applicable to ordinary income or net capital gain, as applicable, or the maximum marginal regular federal corporate income tax rate applicable to ordinary income or net capital gain, as applicable, whichever is greater, in effect at the time such Gross-up Payment is made.
Restrictions on Dividends and Other Distributions. Except as otherwise
described herein, for so long as any shares of MuniPreferred are outstanding,
the Fund may not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in, or in options,
warrants or rights to subscribe for or purchase, its shares of common shares) in
respect of its common shares or any other shares of the Fund ranking junior to,
or on parity with, shares of MuniPreferred as to the payments of dividends or
the distribution of assets upon dissolution, liquidation or winding up, or call
for redemption, redeem, purchase or otherwise acquire for consideration any
common shares or other such junior shares or other such parity shares (except by
conversion into or exchange for shares of the Fund ranking junior to the shares
of MuniPreferred as to the payment of dividends and the distribution of assets
upon liquidation, dissolution or winding up of the affairs of the Fund), unless
(a) full cumulative dividends on shares of each series of MuniPreferred through
its most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (b) the Fund shall have redeemed the full number of shares of
MuniPreferred required to be redeemed by any provision for mandatory redemption
pertaining thereto. Except as otherwise described herein, for so long as any
shares of MuniPreferred are outstanding, the Fund may not declare, pay or set
apart for payment any dividend or other distribution (other than a dividend or
distribution paid in shares of, or in options, warrants or rights to subscribe
for or purchase, common shares or other shares, if any, ranking junior to shares
of MuniPreferred as to the payment of dividends and the distribution of assets
upon dissolution, liquidation or winding up) in respect of common shares or any
other shares of the Fund ranking junior to shares of MuniPreferred as to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any common shares or any other such junior shares (except by
conversion into or exchange for shares of the Fund ranking junior to shares of
MuniPreferred as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up), unless
immediately after such transaction the Discounted Value of the Fund's portfolio would at least equal the MuniPreferred Basic Maintenance Amount in accordance with guidelines of the rating agency or agencies then rating the shares of MuniPreferred.
Except as set forth in the next sentence, no dividends shall be declared or paid or set apart for payment on the shares of any class or series of Fund shares ranking, as to the payment of dividends, on a parity with shares of MuniPreferred for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the shares of each series of MuniPreferred through its most recent Dividend Payment Date. When dividends are not paid in full upon the shares of each series of MuniPreferred through its most recent Dividend Payment Date or upon the shares of any other class or series of shares ranking on a parity as to the payment of dividends with shares of MuniPreferred through their most recent respective dividend payment dates, all dividends declared upon shares of MuniPreferred and any such other class or series of shares ranking on a parity as to the payment of dividends with shares of MuniPreferred shall be declared pro rata so that the amount of dividends declared per share on shares of MuniPreferred and such other class or series of shares shall in all cases bear to each other the same ratio that accumulated dividends per share on the shares of MuniPreferred and such other class or series of shares bear to each other.
Designation of Special Rate Periods. The Fund, at its option, may designate any succeeding Subsequent Rate Period of shares of a particular series of MuniPreferred as a Special Rate Period consisting of a specified number of Rate Period Days evenly divisible by seven and not more than 1,820 (approximately 5 years), subject to certain adjustments. A designation of a Special Rate Period shall be effective only if, among other things, (a) the Fund shall have given certain notices to the Auction Agent, (b) an Auction for shares of such series shall have been held on the Auction Date immediately preceding the first day of such proposed Special Rate Period and Sufficient Clearing Bids for shares of such series shall have existed in such Auction and (c) if the Fund shall have mailed a notice of redemption with respect to any shares of such series, the redemption price with respect to such shares shall have been deposited with the Auction Agent. The Fund will give MuniPreferred shareholders notice of a special rate period as provided in the Statement.
REDEMPTION
Mandatory Redemption. In the event the Fund does not timely cure a failure to maintain (a) a Discounted Value of its eligible portfolio securities equal to the MuniPreferred Basic Maintenance Amount or (b) the 1940 Act MuniPreferred Asset Coverage (as defined below), in each case in accordance with the requirements of the rating agency or agencies then rating the shares of MuniPreferred, shares of MuniPreferred will be subject to mandatory redemption on a date specified by the Board out of funds legally available therefor in accordance with the Declaration of Trust, including the Statement, and applicable law, at the redemption price of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed for redemption. Any such redemption will be limited to the lesser of the number of shares of MuniPreferred necessary to restore the required Discounted Value or the 1940 Act MuniPreferred Asset Coverage, as the case may be, or the maximum number that can be redeemed with the funds legally available under the Declaration of Trust and applicable law.
Optional Redemption. Shares of MuniPreferred of each series are redeemable, at the option of the Fund:
(a) as a whole or from time to time in part, on the second Business
Day preceding any Dividend Payment Date for shares of such series, out of
funds legally available therefor in accordance with the Declaration of
Trust, including the Statement, and applicable law, at the redemption price
of $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption; provided, however, that (i)
shares of such series may not be redeemed in part if after such partial
redemption fewer than 250 shares of such series would remain outstanding;
(ii) shares of a series of MuniPreferred are redeemable by the Fund during
the Initial Rate Period thereof only on the second Business Day next
preceding the last Dividend Payment Date for such Initial Rate Period; and
(iii) the notice establishing a Special Rate Period of
shares of such series, as delivered to the Auction Agent and filed with the Secretary of the Fund, may provide that shares of such series shall not be redeemable during the whole or any part of such Special Rate Period (except as provided in clause (b) below) or shall be redeemable during the whole or any part of such Special Rate Period only upon payment of such redemption premium or premiums as shall be specified therein; and
(b) as a whole but not in part, out of funds legally available therefor in accordance with the Declaration of Trust, including the Statement, and applicable law, on the first day following any Dividend Period thereof included in a Rate Period of more than 364 Rate Period Days if, on the date of determination of the Applicable Rate for shares of such series for such Rate Period, such Applicable Rate equaled or exceeded on such date of determination the Treasury Note Rate for such Rate Period, at a redemption price of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed for redemption.
Notwithstanding the foregoing, if any dividends on shares of a series of MuniPreferred (whether or not earned or declared) are in arrears, no shares of such series shall be redeemed unless all outstanding shares of such series are simultaneously redeemed, and the Fund shall not purchase or otherwise acquire any shares of such series; provided, however, that the foregoing shall not prevent the purchase or acquisition of all outstanding shares of such series pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to, and accepted by, holders of all outstanding shares of such series.
LIQUIDATION
Subject to the rights of holders of any series or class or classes of shares ranking on a parity with shares of MuniPreferred with respect to the distribution of assets upon liquidation of the Fund, upon a liquidation of the Fund, whether voluntary or involuntary, the holders of shares of MuniPreferred then outstanding will be entitled to receive and to be paid out of the assets of the Fund available for distribution to its shareholders, before any payment or distribution shall be made on the common shares, an amount equal to the liquidation preference with respect to such shares ($25,000 per share), plus an amount equal to all dividends thereon (whether or not earned or declared) accumulated but unpaid to (but not including) the date of final distribution in same-day funds, together with any applicable Gross-up Payments in connection with the liquidation of the Fund. After the payment to the holders of shares of MuniPreferred of the full preferential amounts provided for as described herein, the holders of shares of MuniPreferred as such shall have no right or claim to any of the remaining assets of the Fund.
Neither the sale of all or substantially all the property or business of the Fund, nor the merger or consolidation of the Fund into or with any Massachusetts business trust or corporation nor the merger or consolidation of any Massachusetts business trust or corporation into or with the Fund, shall be a liquidation, whether voluntary or involuntary, for the purposes of the foregoing paragraph.
RATING AGENCY GUIDELINES AND ASSET COVERAGE
The Fund is required under Moody's and S&P guidelines ("the Rating Agency Guidelines") to maintain assets having in the aggregate a Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount. Moody's and S&P have each established separate Rating Agency Guidelines for determining Discounted Value. To the extent any particular portfolio holding does not satisfy the applicable Rating Agency's Guidelines, all or a portion of such holding's value will not be included in the calculation of Discounted Value (as defined by such rating agency). Although the Rating Agency Guidelines impose certain restrictions on the Fund's investments, Rating Agency Guidelines do not impose any limitations on the percentage of the Fund's assets that may be invested in holdings not otherwise restricted by the Rating Agency Guidelines and that are eligible for inclusion in the calculation of the Discounted Value of the Fund's portfolio. The amount of such assets included in the portfolio at any time may vary depending upon the rating, diversification and other characteristics of the eligible assets included in the portfolio, although it is not anticipated that in the normal course of business the value of such assets would exceed 20% of the Fund's total assets. The MuniPreferred Basic Maintenance Amount includes the sum of (a) the aggregate liquidation
preference of shares of MuniPreferred then outstanding and (b) certain accrued and projected payment obligations of the Fund.
The Rating Agency Guidelines, as each may be amended from time to time by the respective rating agency, will be reflected in a written document. A copy of the current Rating Agency Guidelines will be provided to any holder of MuniPreferred promptly upon written request therefor made by such holder to the Fund at: 333 W. Wacker Dr., Chicago, IL 60606.
The Fund is also required under the 1940 Act and rating agency guidelines to maintain, with respect to shares of MuniPreferred, as of the last Business Day of each month in which any such shares are outstanding, asset coverage of at least 200% with respect to all outstanding senior securities which are shares of beneficial interest, including MuniPreferred (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are shares of a closed-end investment company as a condition of declaring dividends on its common shares) ("1940 Act MuniPreferred Asset Coverage"). Based on the composition of the portfolio of the Fund and market conditions as of January 8, 2004, 1940 Act MuniPreferred Asset Coverage with respect to shares of MuniPreferred, assuming the issuance on the date thereof of all shares of MuniPreferred offered hereby and giving effect to the deduction of sales load and offering costs related thereto estimated at $3,355,000, would have been computed as follows:
Value of Fund assets less liabilities not
constituting senior securities $490,181,433
------------------------------------------------------------ = --------------- = 316%
Senior securities representing indebtedness plus $155,000,000
liquidation value of the shares of MuniPreferred
|
In the event the Fund does not timely cure a failure to maintain (a) a Discounted Value of its portfolio equal to the MuniPreferred Basic Maintenance Amount or (b) the 1940 Act MuniPreferred Asset Coverage, in each case in accordance with the requirements of the rating agency or agencies then rating the shares of MuniPreferred, the Fund will be required to redeem shares of MuniPreferred as described under "Redemption -- Mandatory Redemption" above.
Moody's or S&P (or any other rating agency providing a rating for the MuniPreferred) may change from time to time its Rating Agency Guidelines without Fund, Board of Trustees or shareholder approval. In addition, any rating agency providing a rating for the shares of MuniPreferred may, at any time, change or withdraw any such rating. The Board may, without shareholder approval, adopt, amend, alter or repeal any or all of the definitions set forth in the Statement or add covenants and other obligations of the Fund or confirm the applicability of covenants and other obligations set forth in the Statement in connection with obtaining or maintaining the rating of any rating agency which is then rating shares of MuniPreferred and any such adoption, amendment, alteration or repeal will not be deemed to affect the preferences, rights or powers of MuniPreferred or holders of MuniPreferred, provided the Board of Trustees receives written confirmation from Moody's or S&P, or both, as appropriate, that any such amendment, alteration or repeal would not adversely affect the ratings then assigned by Moody's and S&P to shares of MuniPreferred.
As recently described by Moody's and S&P, a preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock obligations. The ratings on the shares of MuniPreferred are not recommendations to purchase, hold or sell those shares, inasmuch as the ratings do not comment as to market price or suitability for a particular investor. The rating agency guidelines described above also do not address the likelihood that an owner of shares of MuniPreferred will be able to sell such shares in an Auction or otherwise. The ratings are based on current information furnished to Moody's and S&P by the Fund and the Adviser and information obtained from other sources. The ratings may be changed, suspended or withdrawn as a result of changes in, or the unavailability of, such information. The common shares have not been rated by a nationally recognized statistical rating organization.
A rating agency's guidelines will apply to shares of MuniPreferred only so long as such rating agency is rating such shares. The Fund will pay certain fees to Moody's or S&P, or both, for rating shares of MuniPreferred.
VOTING RIGHTS
Except as otherwise provided in this prospectus and in the Statement of Additional Information, in the Declaration of Trust or as otherwise required by law, holders of shares of MuniPreferred will have equal voting rights with holders of common shares and any Preferred Shares (one vote per share) and will vote together with holders of common shares and any Preferred Shares as a single class.
In connection with the election of the Fund's trustees, holders of outstanding Preferred Shares, including MuniPreferred shares, voting as a separate class, are entitled to elect two of the Fund's trustees, and the remaining trustees are elected by holders of common shares and Preferred Shares, including MuniPreferred shares, voting together as a single class. In addition, if at any time dividends (whether or not earned or declared) on outstanding Preferred Shares, including MuniPreferred shares, shall be due and unpaid in an amount equal to two full years' dividends thereon, and sufficient cash or specified securities shall not have been deposited with the Auction Agent for the payment of such dividends, then, as the sole remedy of holders of outstanding Preferred Shares, including MuniPreferred shares, the number of trustees constituting the Board shall be automatically increased by the smallest number that, when added to the two trustees elected exclusively by the holders of Preferred Shares, including shares of MuniPreferred, as described above, would constitute a majority of the Board as so increased by such smallest number, and at a special meeting of shareholders which will be called and held as soon as practicable, and at all subsequent meetings at which trustees are to be elected, the holders of Preferred Shares, including shares of MuniPreferred, voting as a separate class, will be entitled to elect the smallest number of additional trustees that, together with the two trustees which such holders will be in any event entitled to elect, constitutes a majority of the total number of trustees of the Fund as so increased. The terms of office of the persons who are trustees at the time of that election will continue. If the Fund thereafter shall pay, or declare and set apart for payment, in full, all dividends payable on all outstanding Preferred Shares, including MuniPreferred shares, the voting rights stated in the second preceding sentence shall cease, and the terms of office of all of the additional trustees elected by the holders of Preferred Shares, including MuniPreferred shares (but not of the trustees with respect to whose election the holders of common shares were entitled to vote or the two trustees the holders of Preferred Shares have the right to elect in any event), will terminate automatically.
So long as any shares of MuniPreferred are outstanding, the Fund will not, without the affirmative vote or consent of the holders of at least a majority of the shares of MuniPreferred outstanding at the time (voting as a separate class):
(a) authorize, create or issue any class or series of stock ranking prior to or on a parity with shares of MuniPreferred with respect to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the affairs of the Fund or authorize, create or issue additional shares of any series of MuniPreferred (except that, notwithstanding the foregoing, but subject to certain rating agency approvals, the Board, without the vote or consent of the holders of MuniPreferred, may from time to time authorize and create, and the Fund may from time to time issue additional shares of, any series of MuniPreferred or classes or series of Preferred Shares ranking on a parity with shares of MuniPreferred with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the affairs of the Fund; provided, however, that if Moody's or S&P is not then rating the shares of MuniPreferred, the aggregate liquidation preference of all Preferred Shares of the Fund outstanding after any such issuance, exclusive of accumulated and unpaid dividends, may not exceed $ ) or
(b) amend, alter or repeal the provisions of the Declaration of Trust, including the Statement, whether by merger, consolidation or otherwise, so as to affect any preference, right or power of such shares of MuniPreferred or the holders thereof;
provided, however, that (i) none of the actions permitted by the exception to
(a) above will be deemed to affect such preferences, rights or powers, (ii) a
division of a share of MuniPreferred will be deemed to affect such preferences,
rights or powers only if the terms of such division adversely affect the holders
of shares of MuniPreferred and (iii) the authorization, creation and issuance of
classes or series of stock ranking junior to shares of MuniPreferred with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the affairs of the Fund will be deemed to affect such preferences, rights or powers only if Moody's or S&P is then rating shares of MuniPreferred and such issuance would, at the time thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage or the MuniPreferred Basic Maintenance Amount. So long as any shares of MuniPreferred are outstanding, the Fund shall not, without the affirmative vote or consent of the holders of at least 66 2/3% of the shares of MuniPreferred outstanding at the time, voting as a separate class, file a voluntary application for relief under federal bankruptcy law or any similar application under state law for so long as the Fund is solvent and does not foresee becoming insolvent.
If any action set forth above would adversely affect the rights of one or more series (the "Affected Series") of MuniPreferred shares in a manner different from any other series of MuniPreferred shares, the Fund will not approve any such action without the affirmative vote or consent of the holders of at least a majority of the shares of each such Affected Series outstanding at the time, in person or by proxy, either in writing or at a meeting (each such Affected Series voting as a separate class). The Board may, without shareholder approval, amend, alter or repeal any or all of the definitions and related provisions which have been adopted by the Fund pursuant to the rating agency guidelines in the event the Fund receives written confirmation from Moody's or S&P, or both, as appropriate, that any such amendment, alteration or repeal would not impair the ratings then assigned by Moody's and S&P to shares of MuniPreferred. Unless a higher percentage is provided for in the Declaration of Trust (see "Certain Provisions in the Declaration of Trust"), (A) the affirmative vote of the holders of at least a majority of the Preferred Shares, including MuniPreferred shares, outstanding at the time, voting as a separate class, shall be required to approve any conversion of the Fund from a closed-end to an open-end investment company and (B) the affirmative vote of the holders of a majority of the outstanding Preferred Shares, including MuniPreferred shares, voting as a separate class, shall be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares. The affirmative vote of the holders of a majority of the outstanding Preferred Shares, including MuniPreferred shares, voting as a separate class, shall be required to approve any action not described in the preceding sentence requiring a vote of security holders of the Fund under Section 13(a) of the 1940 Act.
The foregoing voting provisions will not apply with respect to shares of MuniPreferred if, at or prior to the time when a vote is required, such shares shall have been (i) redeemed or (ii) called for redemption and sufficient funds shall have been deposited in trust to effect such redemption.
THE AUCTION
GENERAL
The Statement provides that, except as otherwise described herein, the Applicable Rate for the shares of each series of MuniPreferred, including the shares of MuniPreferred to be issued in this offering, for each Rate Period of shares of such series after the initial Rate Period thereof shall be equal to the rate per annum that the Auction Agent advises has resulted on the Business Day preceding the first day of such Subsequent Rate Period (an "Auction Date") from implementation of the auction procedures (the "Auction Procedures") set forth in the Statement and summarized below, in which persons determine to hold or offer to sell or, based on dividend rates bid by them, offer to purchase or sell shares of such series. Each periodic implementation of the Auction Procedures is referred to herein as an "Auction." See the Statement for a more complete description of the Auction process.
Auction Agency Agreement. The Fund has entered into an Auction Agency Agreement (the "Auction Agency Agreement") with the Auction Agent (currently, Deutsche Bank Trust Company Americas) which provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for shares of each series of MuniPreferred so long as the Applicable Rate for shares of such series is to be based on the results of an Auction.
The Auction Agent may terminate the Auction Agency Agreement upon notice to
the Fund on a date no earlier than 45 days after such notice. If the Auction
Agent should resign, the Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially the same terms
and
conditions as the Auction Agency Agreement. The Fund may remove the Auction Agent provided that prior to such removal the Fund shall have entered into such an agreement with a successor Auction Agent.
Broker-Dealer Agreements. Each Auction requires the participation of one or more Broker-Dealers. The Auction Agent has entered into agreements (collectively, the "Broker-Dealer Agreements") with several Broker-Dealers selected by the Fund, which provide for the participation of those Broker-Dealers in Auctions for shares of MuniPreferred.
The Auction Agent after each Auction for shares of MuniPreferred will pay
to each Broker-Dealer, from funds provided by the Fund, a service charge at the
annual rate of 1/4 of 1% in the case of any Auction immediately preceding a Rate
Period of less than one year, or a percentage agreed to by the Fund and the
Broker-Dealers in the case of any Auction immediately preceding a Rate Period of
one year or longer, of the purchase price of shares of MuniPreferred placed by
such Broker-Dealer at such Auction. For the purposes of the preceding sentence,
shares of MuniPreferred will be placed by a Broker-Dealer if such shares were
(a) the subject of Hold Orders deemed to have been submitted to the Auction
Agent by the Broker-Dealer and were acquired by such Broker-Dealer for its own
account or were acquired by such Broker-Dealer for its customers who are
Beneficial Owners or (b) the subject of an Order submitted by such Broker-Dealer
that is (i) a Submitted Bid of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction or (ii) a
Submitted Bid of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (iii) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer Agreement is in effect after such termination.
AUCTION PROCEDURES
Prior to the Submission Deadline on each Auction Date for shares of a series of MuniPreferred, each customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares of such series (a "Beneficial Owner") may submit orders ("Orders") with respect to shares of such series to that Broker-Dealer as follows:
- Hold Order -- indicating its desire to hold shares of such series without regard to the Applicable Rate for shares of such series for the next Rate Period thereof.
- Bid -- indicating its desire to sell shares of such series at $25,000 per share if the Applicable Rate for shares of such series for the next Rate Period thereof is less than the rate specified in such Bid (also known as a hold-at-a-rate order).
- Sell Order -- indicating its desire to sell shares of such series at $25,000 per share without regard to the Applicable Rate for shares of such series for the next Rate Period thereof.
A Beneficial Owner may submit different types of Orders to its Broker-Dealer with respect to shares of a series of MuniPreferred then held by such Beneficial Owner. A Beneficial Owner of shares of such series that submits a Bid with respect to shares of such series to its Broker-Dealer having a rate higher than the Maximum Rate for shares of such series on the Auction Date therefor will be treated as having submitted a Sell Order with respect to such shares to its Broker-Dealer. A Beneficial Owner of shares of such series that fails to submit an Order with respect to such shares to its Broker-Dealer will be deemed to have submitted a Hold Order with respect to such shares of such series to its Broker-Dealer; provided, however, that if a Beneficial Owner of shares of such series fails to submit an Order with respect to shares of such series to its Broker-Dealer for an Auction relating to a Rate Period of more than 28 Rate Period Days, such Beneficial Owner will be deemed to have submitted a Sell Order with respect to such shares to its Broker-Dealer. A Sell Order shall constitute an irrevocable offer to sell the shares of MuniPreferred subject thereto. A Beneficial Owner that offers to become the Beneficial Owner of additional shares of MuniPreferred is, for purposes of such offer, a Potential Beneficial Owner as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of shares of a series of MuniPreferred but that wishes to purchase shares of such series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series (in each case, a "Potential Beneficial Owner"), may submit Bids to its Broker-Dealer in which it offers to purchase shares of such series at $25,000 per share if the Applicable Rate for shares of such series for the next Rate Period thereof is not less than the rate specified in such Bid. A Bid placed by a Potential Beneficial Owner of shares of such series specifying a rate higher than the Maximum Rate for shares of such series on the Auction Date therefor will not be accepted.
The Broker-Dealers in turn will submit the Orders of their respective customers who are Beneficial Owners and Potential Beneficial Owners to the Auction Agent, designating themselves (unless otherwise permitted by the Fund) as Existing Holders in respect of shares subject to Orders submitted or deemed submitted to them by Beneficial Owners and as Potential Holders in respect of shares subject to Orders submitted to them by Potential Beneficial Owners. However, neither the Fund nor the Auction Agent will be responsible for a Broker-Dealer's failure to comply with the foregoing. Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or a Potential Holder will be treated in the same manner as an Order placed with a Broker-Dealer by a Beneficial Owner or Potential Beneficial Owner. Similarly, any failure by a Broker-Dealer to submit to the Auction Agent an Order in respect of any shares of MuniPreferred held by it or customers who are Beneficial Owners will be treated in the same manner as a Beneficial Owner's failure to submit to its Broker-Dealer an Order in respect of shares of MuniPreferred held by it. A Broker-Dealer may also submit Orders to the Auction Agent for its own account as an Existing Holder or Potential Holder, provided it is not an affiliate of the Fund.
If Sufficient Clearing Bids for shares of a series of MuniPreferred exist (that is, the number of shares of such series subject to Bids submitted or deemed submitted to the Auction Agent by Broker-Dealers as or on behalf of Potential Holders with rates equal to or lower than the Maximum Rate for shares of such series is at least equal to the number of shares of such series subject to Sell Orders submitted or deemed submitted to the Auction Agent by Broker-Dealers as or on behalf of Existing Holders), the Applicable Rate for shares of such series for the next succeeding Rate Period thereof will be the lowest rate specified in the Submitted Bids which, taking into account such rate and all lower rates bid by Broker-Dealers as or on behalf of Existing Holders and Potential Holders, would result in Existing Holders and Potential Holders owning the shares of such series available for purchase in the Auction. If Sufficient Clearing Bids for shares of a series of MuniPreferred do not exist, the Applicable Rate for shares of such series for the next succeeding Rate Period thereof will be the Maximum Rate for shares of such series on the Auction Date therefor. In such event, Beneficial Owners of shares of such series that have submitted or are deemed to have submitted Sell Orders may not be able to sell in such Auction all shares of such series subject to such Sell Orders. If Broker-Dealers submit or are deemed to have submitted to the Auction Agent Hold Orders with respect to all Existing Holders of shares of a series of MuniPreferred, the Applicable Rate for shares of such series for the next succeeding Rate Period thereof will be the All Hold Order Rate.
The Auction Procedures include a pro rata allocation of shares for purchase and sale, which may result in an Existing Holder continuing to hold or selling, or a Potential Holder purchasing, a number of shares of a series of MuniPreferred that is fewer than the number of shares of such series specified in its Order. To the extent the allocation procedures have that result, Broker-Dealers that have designated themselves as Existing Holders or Potential Holders in respect of customer Orders will be required to make appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next Business Day (also a Dividend Payment Date) after the Auction Date through the Securities Depository. Purchasers will make payment through their Agent Members in same-day funds to the Securities Depository against delivery to their respective Agent Members. The Securities Depository will make payment to the sellers' Agent Members in accordance with the Securities Depository's normal procedures, which now provide for payment against delivery by their Agent Members in same-day funds.
The Auctions for shares of MuniPreferred Series M will normally be held every Monday and each Subsequent Rate Period of shares of such series will normally begin on the following Tuesday, assuming they are not Special Rate Periods. The Auctions for shares of MuniPreferred Series T following the Extended Initial Rate Period will normally be held every Tuesday and each Subsequent Rate Period of shares of such
series will normally begin on the following Wednesday, assuming they are not Special Rate Periods. The Auctions for shares of MuniPreferred Series W following the Initial Extended Rate Period will normally be held every Wednesday and each Subsequent Rate Period of shares of such series will normally begin on the following Thursday, assuming they are not Special Rate Periods.
Whenever the Fund intends to include any net capital gain or other income taxable for regular federal income tax purposes in any dividend on shares of MuniPreferred, the Fund shall, in the case of Minimum Rate Periods or Special Rate Periods of 28 Rate Period Days or fewer, and may, in the case of any other Special Rate Period, notify the Auction Agent of the amount to be so included not later than the Dividend Payment Date next preceding the Auction Date on which the Applicable Rate for such dividend is to be established. Whenever the Auction Agent receives such notice from the Fund, it will be required in turn to notify each Broker-Dealer, who, on or prior to such Auction Date, in accordance with its Broker-Dealer Agreement, will be required to notify its customers who are Beneficial Owners and Potential Beneficial Owners believed by it to be interested in submitting an Order in the Auction to be held on such Auction Date.
SECONDARY MARKET TRADING AND TRANSFER OF MUNIPREFERRED SHARES
The Broker-Dealers are expected to maintain a secondary trading market in shares of MuniPreferred outside of Auctions, but are not obligated to do so, and may discontinue such activity at any time. There can be no assurance that such secondary trading market in shares of MuniPreferred will provide owners with liquidity of investment. The shares of MuniPreferred are not registered on any stock exchange or on the Nasdaq Stock Market. Investors who purchase shares with an Extended Initial Rate Period or in an Auction for a Special Rate Period should note that because the dividend rate on such shares will be fixed for the length of such Rate Period, the value of the shares may fluctuate in response to changes in interest rates, and may be more or less than their original cost if sold on the open market in advance of the next Auction therefor, depending upon market conditions.
A Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose of shares of MuniPreferred only in whole shares and only (1) pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with the Auction Procedures, (2) to a Broker-Dealer or (3) to such other persons as may be permitted by the Fund; provided, however, that (a) a sale, transfer or other disposition of shares of MuniPreferred from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such shares to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of the foregoing if such Broker-Dealer remains the Existing Holder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to Auctions, the Broker-Dealer (or other person, if permitted by the Fund) to whom such transfer is made shall advise the Auction Agent of such transfer.
DESCRIPTION OF COMMON SHARES
In addition to the MuniPreferred shares, the Declaration authorizes the issuance of an unlimited number of common shares, par value of $0.01 per share. All outstanding common shares have equal rights to the payment of dividends and the distribution of assets upon liquidation, are fully paid and, subject to matters discussed in "Certain Provisions in the Declaration of Trust," non-assessable, and have no pre-emptive or conversion rights or rights to cumulative voting. Whenever MuniPreferred shares are outstanding, holders of the Fund's common shares will not be entitled to receive any cash distributions from the Fund unless all accrued dividends on MuniPreferred shares have been paid, and unless asset coverage (as defined in the 1940 Act) with respect to MuniPreferred shares would be at least 200% after giving effect to the distributions.
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Declaration contains an express disclaimer of shareholder liability for debts or obligations of the Fund and requires that notice of such limited liability be given in each agreement, obligation or instrument entered into or executed by the Fund or the trustees. The Declaration
further provides for indemnification out of the assets and property of the Fund for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations. The Fund believes that the likelihood of such circumstances is remote.
The Declaration includes provisions that could limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end status. Specifically, the Declaration requires a vote by holders of at least two-thirds of the common shares and MuniPreferred shares, voting together as a single class, except as described below, to authorize (1) a conversion of the Fund from a closed-end to an open-end investment company, (2) a merger or consolidation of the Fund, or a series or class of the Fund, with any corporation, association, trust or other organization or a reorganization of the Fund, or a series or class of the Fund, (3) a sale, lease or transfer of all or substantially all of the Fund's assets (other than in the regular course of the Fund's investment activities), (4) in certain circumstances, a termination of the Fund, or a series or class of the Fund, or (5) a removal of trustees by shareholders, and then only for cause, unless, with respect to (1) through (4), such transaction has already been authorized by the affirmative vote of two-thirds of the total number of trustees fixed in accordance with the Declaration or the By-laws, in which case the affirmative vote of the holders of at least a majority of the Fund's common shares and MuniPreferred shares outstanding at the time, voting together as a single class, is required; provided, however, that where only a particular class or series is affected (or, in the case of removing a trustee, when the trustee has been elected by only one class), only the required vote by the applicable class or series will be required. Approval of shareholders is not required, however, for any transaction, whether deemed a merger, consolidation, reorganization or otherwise whereby the Fund issues shares in connection with the acquisition of assets (including those subject to liabilities) from any other investment company or similar entity. In the case of the conversion of the Fund to an open-end investment company, or in the case of any of the foregoing transactions constituting a plan of reorganization which adversely affects the holders of MuniPreferred shares, the action in question will also require the affirmative vote of the holders of at least two-thirds of the Fund's MuniPreferred shares outstanding at the time, voting as a separate class, or, if such action has been authorized by the affirmative vote of two-thirds of the total number of trustees fixed in accordance with the Declaration or the By-laws, the affirmative vote of the holders of at least a majority of the Fund's MuniPreferred shares outstanding at the time, voting as a separate class. None of the foregoing provisions may be amended except by the vote of at least two-thirds of the common shares and MuniPreferred shares, voting together as a single class. The votes required to approve the conversion of the Fund from a closed-end to an open-end investment company or to approve transactions constituting a plan of reorganization which adversely affects the holders of MuniPreferred shares are higher than those required by the 1940 Act. The Board of Trustees believes that the provisions of the Declaration relating to such higher votes are in the best interest of the Fund and its shareholders. See the Statement of Additional Information under "Certain Provisions in the Declaration of Trust."
Reference should be made to the Declaration on file with the Securities and Exchange Commission for the full text of these provisions.
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
common shares will trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, call protection, dividend stability, portfolio
credit quality, relative demand for and supply of such shares in the market,
general market and economic conditions and other factors. Because shares of
closed-end investment companies may frequently trade at prices lower than net
asset value, the Fund's Board of Trustees has currently determined that, at
least annually, it will consider action that might be taken to reduce or
eliminate any material discount from net asset value in respect of common
shares, which may include the repurchase of such shares in the open market or in
private transactions, the making of a tender offer for such shares at net asset
value, or the conversion of the Fund to an open-end investment company. The Fund
cannot assure you that its Board of Trustees will decide to take any of these
actions, or that share repurchases or tender offers will actually reduce market
discount.
If the Fund converted to an open-end investment company, it would be required to redeem all MuniPreferred shares then outstanding (requiring in turn that it liquidate a portion of its investment portfolio), and the common shares would no longer be listed on the American Stock Exchange. In contrast to a closed-end investment company, shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the 1940 Act) at their net asset value, less any redemption charge that is in effect at the time of redemption. See the Statement of Additional Information under "Certain Provisions in the Declaration of Trust" for a discussion of the voting requirements applicable to the conversion of the Fund to an open-end investment company.
Before deciding whether to take any action if the common shares trade below net asset value, the Board would consider all relevant factors, including the extent and duration of the discount, the liquidity of the Fund's portfolio, the impact of any action that might be taken on the Fund or its shareholders, and market considerations. Based on these considerations, even if the Fund's shares should trade at a discount, the Board of Trustees may determine that, in the interest of the Fund and its shareholders, no action should be taken. See the Statement of Additional Information under "Repurchase of Fund Shares; Conversion to Open-End Fund" for a further discussion of possible action to reduce or eliminate such discount to net asset value.
FEDERAL INCOME TAX MATTERS
The discussions below and in the Statement of Additional Information provide general tax information. Because tax laws are complex and often change, you should consult your tax advisor about the tax consequences of an investment in the MuniPreferred shares before making such an investment.
The Fund intends to elect to be treated, and to qualify each year, as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to distribute substantially all of its net income and gains to its shareholders. Therefore, it is not expected that the Fund will be subject to any federal income tax. The Fund primarily invests in municipal securities issued by states, cities and local authorities and certain possessions and territories of the United States (such as Puerto Rico or Guam) or in municipal securities whose income is otherwise exempt from regular federal income taxes. Thus, substantially all of the Fund's dividends to you should qualify as "exempt-interest dividends." A shareholder treats an exempt-interest dividend as interest on state and local bonds exempt from regular federal income tax. Federal income tax law imposes an alternative minimum tax with respect to corporations, individuals, trusts and estates. Interest on certain municipal obligations, such as certain private activity bonds is included as an item of tax preference in determining the amount of a taxpayer's alternative minimum taxable income. To the extent that the Fund receives income from such municipal obligations, a portion of the dividends paid by the Fund, although exempt from regular federal income tax, will be taxable to shareholders to the extent that their tax liability is determined under the federal alternative minimum tax. The Fund will annually provide a report indicating the percentage of the Fund's income attributable to municipal obligations subject to the federal alternative minimum tax. In addition, for certain corporations, federal alternative minimum taxable income is increased by 75% of the difference between an alternative measure of income ("adjusted current earnings") and the amount otherwise determined to be the alternative minimum taxable income. Interest on all municipal obligations, and therefore all distributions by the Fund that would otherwise be tax-exempt, is included in calculating a corporation's adjusted current earnings. Certain small corporations are not subject to the alternative minimum tax.
In addition to exempt-interest dividends, the Fund also may distribute to its shareholders amounts that are treated as long-term capital gain or ordinary income. These distributions will generally be taxable to holders of MuniPreferred. The Fund will allocate distributions to shareholders that are treated as tax-exempt interest and as long-term capital gain and ordinary income, if any, among the common shares and MuniPreferred shares in proportion to total dividends paid to each class for the year. The Fund intends to notify MuniPreferred shareholders in advance if it will allocate to them income that is not exempt from regular federal income tax. In certain circumstances, in particular during the Extended Initial Rate Periods for Series T and Series W, the Fund will make payments to MuniPreferred shareholders to offset the federal income tax effects of the taxable distribution. See "Description of MuniPreferred Shares -- Dividends and
Dividend Periods -- Gross-up Payments." As long as the Fund qualifies as a regulated investment company, distributions paid by the Fund generally will not be eligible for the dividends-received deduction available to corporations. Although dividends generally will be treated as distributed when paid, dividends declared in October, November or December, payable to shareholders of record on a specified date in one of those months and paid during the following January, will be treated as having been distributed by the Fund (and received by the shareholders) on December 31 of the year declared.
The sale or other disposition of common shares or shares of MuniPreferred of the Fund will normally result in capital gain or loss to shareholders if such shares are held as a capital asset. Present law taxes both long-term and short-term capital gains of corporations at the rates applicable to ordinary income. For non-corporate taxpayers, long-term capital gains are generally subject to reduced rates of taxation. Losses realized by a shareholder on the sale or exchange of shares of the Fund held for six months or less are disallowed to the extent of any distribution of exempt-interest dividends received with respect to such shares, and, if not disallowed, such losses are treated as long-term capital losses to the extent of any distribution of long-term capital gain received (or designated amounts of undistributed capital gain that are treated as received) with respect to such shares. Under certain circumstances, a shareholder's holding period may have to restart after, or may be suspended for, any periods during which the shareholder's risk of loss is diminished as a result of holding one or more other positions in substantially similar or related property, or through certain options or short sales. Any loss realized on a sale or exchange of shares of the Fund will be disallowed to the extent those shares of the Fund are replaced by other substantially identical shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the original shares. In that event, the basis of the replacement shares of the Fund will be adjusted to reflect the disallowed loss.
The Code provides that interest on indebtedness incurred or continued to purchase or carry the Fund's shares to which exempt-interest dividends are allocated is not deductible. Under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase or ownership of shares may be considered to have been made with borrowed funds even though such funds are not directly used for the purchase or ownership of such shares.
The Fund is required in certain circumstances to withhold a portion of dividends and certain other payments paid to certain holders of the Fund's shares who do not furnish to the Fund their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act") reduced the maximum rate of tax on long-term capital gains of noncorporate investors from 20% to 15%. The Act also reduced to 15% the maximum rate of tax on "qualified dividend income" received by noncorporate shareholders who satisfy certain holding period and other requirements. None of the Fund's distributions are expected to be eligible for treatment as qualified dividend income. Without further legislative change, the rate reductions enacted by the Act will lapse, and the previous rates will be reinstated, for taxable years beginning on or after January 1, 2009.
The Statement of Additional Information contains a more detailed summary of the federal income tax rules that apply to the Fund and its shareholders. Legislative, judicial or administrative action may change the tax rules that apply to the Fund or its shareholders and any such change may be retroactive. You should consult with your tax advisor about the federal, foreign, state and local tax consequences of an investment in the Fund before making such investment.
CUSTODIAN, TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REDEMPTION AGENT
The custodian of the assets of and transfer, shareholder services and dividend paying agent for the Fund is State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. The Custodian performs custodial, fund accounting and portfolio accounting services. Deutsche Bank Trust Company Americas, 100 Plaza One, 6th Floor, Jersey City, NJ 07311, a banking corporation organized under the laws of New York, is the Auction Agent with respect to shares of MuniPreferred and acts as transfer agent, registrar, dividend disbursing agent and redemption agent with respect to such shares.
UNDERWRITING
The underwriters named below have severally agreed, subject to the terms and conditions of the Underwriting Agreement with the Fund and Nuveen Advisory, to purchase from the Fund the number of MuniPreferred shares set forth below opposite their respective names.
NUMBER OF SHARES
------------------------------
UNDERWRITERS SERIES SERIES SERIES
------------ -------- -------- --------
Citigroup Global Markets Inc................................
----- ----- -----
Nuveen Investments, LLC.....................................
----- ----- -----
A.G. Edwards & Sons, Inc. ..................................
----- ----- -----
Wachovia Capital Markets, LLC...............................
----- ----- -----
Total.....................................................
===== ===== =====
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The Underwriting Agreement provides that the obligations of the underwriters are subject to certain conditions, including the absence of any materially adverse change in the Fund's business and the receipt of certain certificates, opinions and letters from the Fund and the Fund's attorneys and independent accountants. The nature of the underwriters' obligation is such that they are committed to purchase all MuniPreferred shares offered hereby if any of the MuniPreferred shares are purchased.
The underwriters have advised the Fund that the underwriters propose to offer some of the MuniPreferred shares directly to investors at the offering price of $25,000 per MuniPreferred share, and may offer some of the MuniPreferred shares to certain dealers at the offering price less a concession not in excess of $ per MuniPreferred share, and such dealers may reallow a concession not in excess of $ per MuniPreferred share on sales to certain other dealers. The sales load of $ is equal to % of the offering price. The MuniPreferred shares are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to reject orders in whole or in part.
The Fund anticipates that the underwriters may from time to time act as brokers or dealers in executing the Fund's portfolio transactions after they have ceased to be underwriters and, subject to certain restrictions, may act as brokers while they are underwriters. The underwriters are active underwriters of, and dealers in, securities and act as market makers in a number of such securities, and therefore can be expected to engage in portfolio transactions with, and perform services for, the Fund. Nuveen may engage in these transactions only in compliance with the 1940 Act.
The Fund anticipates that the underwriters or their respective affiliates may, from time to time, act in auctions as Broker-Dealers and receive fees as set forth under "The Auction" and in the Statement of Additional Information.
The Fund and Nuveen Advisory have agreed to indemnify the underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933, or to contribute payments the underwriters may be required to make for any of those liabilities. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Fund pursuant to the foregoing provisions, or otherwise, the Fund has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Fund of expenses incurred or paid by a director, officer or controlling person of the Fund in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Fund will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Nuveen, 333 West Wacker Drive, Chicago, Illinois, 60606, one of the underwriters, and Nuveen Advisory are each wholly owned subsidiaries of Nuveen Investments, Inc.
The principal business address of Citigroup Global Markets Inc. is 388 Greenwich Street, New York, New York 10013.
LEGAL OPINIONS
Certain legal matters in connection with the MuniPreferred will be passed upon for the Fund by Vedder, Price, Kaufman & Kammholz, P.C., Chicago, Illinois, and for the underwriters by Simpson Thacher & Bartlett LLP. Vedder, Price, Kaufman & Kammholz, P.C. and Simpson Thacher & Bartlett LLP may rely as to certain matters of Massachusetts law on the opinion of Bingham McCutchen LLP, Boston, Massachusetts.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act and is required to file reports, proxy statements and other information with the SEC. These documents can be inspected and copied for a fee at the Securities and Exchange Commission's public reference room, 450 Fifth Street, N.W., Washington, D.C. 20549, and Northeast Regional Office, Woolworth Building, 233 Broadway, New York, NY 10013-2409. Reports, proxy statements, and other information about the Fund can be inspected at the offices of the Exchange.
This prospectus does not contain all of the information in the Fund's Registration Statement, including amendments, exhibits, and schedules. Statements in this prospectus about the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy of the contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by this reference.
Additional information about the Fund and MuniPreferred shares can be found in the Fund's Registration Statement (including amendments, exhibits, and schedules) on Form N-2 filed with the Securities and Exchange Commission. The Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains each Fund's Registration Statement, other documents incorporated by reference, and other information the Fund has filed electronically with the Commission, including proxy statements and reports file under the Securities Exchange Act of 1934. Additional information may be found on the internet at http://www.nuveen.com.
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
PAGE
----
Investment Objectives....................................... S-3
Investment Policies and Techniques.......................... S-5
Other Investment Policies and Techniques.................... S-15
Management of the Fund...................................... S-17
Investment Adviser.......................................... S-25
Portfolio Transactions...................................... S-28
Net Asset Value............................................. S-29
Additional Information Concerning the Auctions For
MuniPreferred............................................. S-29
Description Of Common Shares................................ S-31
Certain Provisions in the Declaration of Trust.............. S-31
Repurchase of Fund Shares; Conversion to Open-End Fund...... S-32
Federal Income Tax Matters.................................. S-34
Experts..................................................... S-39
Custodian, Transfer Agent, Dividend Disbursing Agent and
Redemption Agent.......................................... S-39
Additional Information...................................... S-39
Report of Independent Auditors.............................. F-1
Financial Statements........................................ F-2
Appendices
Appendix A -- Statement Establishing and Fixing Rights and
Preferences of MuniPreferred Shares........... A-1
Appendix B -- Ratings of Investments........................ B-1
Appendix C -- Hedging Strategies and Risks.................. C-1
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APPENDIX A
TAXABLE EQUIVALENT YIELD TABLES
The taxable equivalent yield is the current yield you would need to earn on a taxable investment in order to equal a stated tax-free yield on a municipal investment. To assist you to more easily compare municipal investments like the Fund with taxable alternative investments, the table below presents the approximate taxable equivalent yields for individuals for a range of hypothetical tax-free yields assuming the stated marginal federal tax rates for 2004 listed below:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS*
TAX-FREE YIELDS
SINGLE-RETURN JOINT-RETURN FEDERAL
BRACKET BRACKET TAX RATE 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50%
--------------- --------------- -------- ----- ----- ------ ------ ------ ------ ------
$0-7,150 $0-14,300 10.0% 4.44% 4.72% 5.00% 5.28% 5.56% 5.83% 6.11%
7,150-29,050 14,300-58,100 15.0% 4.71% 5.00% 5.29% 5.59% 5.88% 6.18% 6.47%
29,050-70,350 58,100-117,250 25.0% 5.33% 5.67% 6.00% 6.33% 6.67% 7.00% 7.33%
70,350-146,750 117,250-178,650 28.0% 5.56% 5.90% 6.25% 6.60% 6.94% 7.29% 7.64%
146,750-319,100 178,650-319,100 33.0% 5.97% 6.34% 6.72% 7.09% 7.46% 7.84% 8.21%
Over 319,100 Over 319,100 35.0% 6.15% 6.54% 6.92% 7.31% 7.69% 8.08% 8.46%
|
5.75% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25% 7.50% -------- ----- ----- ------ ------ ------ ------ ------ 6.39% 6.67% 6.94% 7.22% 7.50% 7.78% 8.06% 8.33% 6.76% 7.06% 7.35% 7.65% 7.94% 8.24% 8.53% 8.82% 7.67% 8.00% 8.33% 8.67% 9.00% 9.33% 9.67% 10.00% 7.99% 8.33% 8.68% 9.03% 9.38% 9.72% 10.07% 10.42% 8.58% 8.96% 9.33% 9.70% 10.07% 10.45% 10.82% 11.19% 8.85% 9.23% 9.62% 10.00% 10.38% 10.77% 11.15% 11.54% |
* Please note that the table does not reflect (i) any federal limitations on the amounts of allowable itemized deductions, phase-outs of personal or dependent exemption credits or other allowable credits, (ii) any state or local taxes imposed, or (iii) any alternative minimum taxes or any taxes other than federal personal income taxes.
$155,000,000
NUVEEN MUNICIPAL HIGH INCOME
OPPORTUNITY FUND
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
MUNIPREFERRED(R)
3,000 SHARES, SERIES M
1,600 SHARES, SERIES T
1,600 SHARES, SERIES W
PROSPECTUS
, 2004
CITIGROUP
NUVEEN INVESTMENTS, LLC
A.G. EDWARDS & SONS, INC.
WACHOVIA SECURITIES
The information in this Statement of Additional Information is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 15, 2004
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
STATEMENT OF ADDITIONAL INFORMATION
Nuveen Municipal High Income Opportunity Fund (the "Fund") is a recently organized, diversified closed-end management investment company. The Fund was organized on October 8, 2003 as Nuveen Municipal High Yield Opportunity Fund, but changed its name to Nuveen Municipal High Income Opportunity Fund effective October 15, 2003.
This Statement of Additional Information relating to Municipal Auction Rate Cumulative Preferred Shares of the Fund ("MuniPreferred") does not constitute a prospectus, but should be read in conjunction with the Fund's prospectus relating thereto dated January _____ , 2004 (the "Prospectus"). This Statement of Additional Information does not include all information that a prospective investor should consider before purchasing common shares. Investors should obtain and read the Fund's prospectus prior to purchasing such shares. A copy of the Fund's prospectus may be obtained without charge by calling (800) 257-8787. You may also obtain a copy of the Fund's prospectus on the Securities and Exchange Commission's web site (http://www.sec.gov). Capitalized terms used but not defined in this Statement of Additional Information have the meanings ascribed to them in the Prospectus.
TABLE OF CONTENTS
Investment Objectives..........................................................................................S-3
Investment Policies and Techniques.............................................................................S-5
Other Investment Policies and Techniques......................................................................S-15
Management of the Fund........................................................................................S-17
Investment Adviser............................................................................................S-25
Portfolio Transactions........................................................................................S-28
Net Asset Value...............................................................................................S-29
Additional Information Concerning the Auctions For MuniPreferred..............................................S-29
Description Of Common Shares..................................................................................S-31
Certain Provisions in the Declaration of Trust................................................................S-31
Repurchase of Fund Shares; Conversion to Open-End Fund........................................................S-32
Federal Income Tax Matters....................................................................................S-34
Experts .....................................................................................................S-39
Custodian, Transfer Agent, Dividend Disbursing Agent and Redemption Agent.....................................S-39
Additional Information........................................................................................S-39
Report of Independent Auditors.................................................................................F-1
Financial Statements...........................................................................................F-2
Appendices
Appendix A--Statement Establishing and Fixing Rights and Preferences of MuniPreferred Shares...........A-1
Appendix B--Ratings of Investments.....................................................................B-1
Appendix C--Hedging Strategies and Risks...............................................................C-1
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This Statement of Additional Information is dated January , 2004
INVESTMENT OBJECTIVES
The Fund's primary investment objective is to provide high current income exempt from regular federal income tax. The Fund's secondary investment objective is to seek attractive total return consistent with its primary objective. Any capital appreciation realized by the Fund will generally result in the distribution of taxable capital gains to shareholders. The Fund seeks to achieve its investment objectives by investing in municipal securities that Nuveen Advisory believes are underrated and undervalued. The Fund cannot assure you that it will achieve its investment objectives. The Fund's investment objectives are fundamental policies of the Fund.
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of the outstanding common shares and, if issued, MuniPreferred shares (as hereinafter defined) voting together as a single class, and of the holders of a majority of the outstanding MuniPreferred shares voting as a separate class:
(1) Under normal circumstances, invest less than 80% of the Fund's net assets (plus any borrowings for investment purposes) in investments the income from which is exempt from regular federal income tax;
(2) Issue senior securities, as defined in the Investment Company Act of 1940, other than MuniPreferred shares, except to the extent permitted under the Investment Company Act of 1940 and except as otherwise described in the prospectus;
(3) Borrow money, except as permitted by the Investment Company Act of 1940 and exemptive orders granted under the Investment Company Act of 1940;
(4) Act as underwriter of another issuer's securities, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in connection with the purchase and sale of portfolio securities;
(5) Invest more than 25% of its total assets in securities of issuers in any one industry; provided, however, that such limitation shall not apply to municipal securities other than those municipal securities backed only by the assets and revenues of non-governmental users;
(6) Purchase or sell real estate, but this shall not prevent the Fund from investing in municipal securities secured by real estate or interests therein or foreclosing upon and selling such real estate;
(7) Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts or derivative instruments or from investing in securities or other instruments backed by physical commodities);
(8) Make loans, except as permitted by the Investment Company Act of 1940 and exemptive orders granted under the Investment Company Act of 1940;
(9) With respect to 75% of the value of the Fund's total assets, purchase any securities (other than obligations issued or guaranteed by the United States government or by its agencies or instrumentalities), if as a result more than 5% of the Fund's total assets would then be
invested in securities of a single issuer or if as a result the Fund would hold more than 10% of the outstanding voting securities of any single issuer; and
(10) Invest in securities other than municipal securities and
short-term securities, as described in the prospectus, except the Fund
may invest up to 5% of its net assets in tax-exempt or taxable
fixed-income or equity securities for the purpose of acquiring control
of an issuer whose municipal securities (a) the Fund already owns and
(b) have deteriorated or are expected shortly to deteriorate
significantly in credit quality, provided Nuveen Advisory determines
such investment should enable the Fund to maximize better its existing
investment in such issuer. For purposes of the foregoing and
"Description of Shares--MuniPreferred Shares--Voting Rights" below,
"majority of the outstanding," when used with respect to particular
shares of the Fund, means (i) 67% or more of the shares present at a
meeting, if the holders of more than 50% of the shares are present or
represented by proxy, or (ii) more than 50% of the shares, whichever is
less.
For the purpose of applying the limitation set forth in subparagraph
(9) above, an issuer shall be deemed the sole issuer of a security when its
assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the case of
a non-governmental issuer, such as an industrial corporation or a privately
owned or operated hospital, if the security is backed only by the assets and
revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the sole issuer. Where a security is also backed by the
enforceable obligation of a superior or unrelated governmental or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity. Where a
security is guaranteed by a governmental entity or some other facility, such as
a bank guarantee or letter of credit, such a guarantee or letter of credit would
be considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal security is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such municipal security will be determined
in accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of the Fund's assets that may be invested in municipal
securities insured by any given insurer.
Under the Investment Company Act of 1940, the Fund may invest only up to 10% of its Managed Assets in the aggregate in shares of other investment companies and only up to 5% of its Managed Assets in any one investment company, provided the investment does not represent more than 3% of the voting stock of the acquired investment company at the time such shares are purchased. As a stockholder in any investment company, the Fund will bear its ratable share of that investment company's expenses, and will remain subject to payment of the Fund's management, advisory and administrative fees with respect to assets so invested. Holders of common shares would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the same leverage risks described herein. As described in the prospectus in the section entitled "Risk Factors", the net asset value and market value of leveraged shares will be more volatile and the yield to shareholders will tend to fluctuate more than the yield generated by unleveraged shares.
In addition to the foregoing fundamental investment policies, the Fund is also subject to the following non-fundamental restrictions and policies, which may be changed by the Board of Trustees. The Fund may not:
(1) Sell securities short, unless the Fund owns or has the right to obtain securities equivalent in kind and amount to the securities sold at no added cost, and provided that transactions in options, futures contracts, options on futures contracts, or other derivative instruments are not deemed to constitute selling securities short.
(2) Purchase securities of open-end or closed-end investment companies except in compliance with the Investment Company Act of 1940 or any exemptive relief obtained thereunder.
(3) Enter into futures contracts or related options or forward contracts, if more than 30% of the Fund's net assets would be represented by futures contracts or more than 5% of the Fund's net assets would be committed to initial margin deposits and premiums on futures contracts and related options.
(4) Purchase securities when borrowings exceed 5% of its total assets if and so long as MuniPreferred shares are outstanding.
(5) Purchase securities of companies for the purpose of exercising control, except as otherwise permitted in the Fund's prospectus and statement of additional information.
(6) Invest in inverse floating rate securities (which are securities that pay interest at rates that vary inversely with changes in prevailing short-term tax-exempt interest rates and which represent in effect a leveraged investment in an underlying municipal security).
The restrictions and other limitations set forth above will apply only at the time of purchase of securities and will not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of an acquisition of securities.
The Fund applied for ratings for its preferred shares (called "MuniPreferred" herein) from Moody's and S&P. In order to obtain and maintain the required ratings, the Fund is required to comply with investment quality, diversification and other guidelines established by such rating agencies. The guidelines are more restrictive than the restrictions set forth above, including with respect to the Fund's hedging strategies. Moody's and S&P receive fees in connection with their ratings issuances.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's investment objectives, policies, and techniques that are described in the Fund's prospectus.
INVESTMENT PHILOSOPHY AND PROCESS
INVESTMENT PHILOSOPHY. Nuveen Advisory believes that the unique tax treatment of municipal securities and the structural characteristics in the municipal securities market create attractive opportunities to enhance the after-tax total return and diversification of the investment portfolios of taxable investors. Nuveen Advisory believes that these unique characteristics also present unique risks that may be managed to realize the benefits of the asset class.
After-Tax Income Potential: The primary source of total return from municipal securities comes from the tax-exempt income derived therefrom. Nuveen Advisory believes that, at acceptable levels of credit risk and maturity principal risk, the municipal securities market offers the potential for higher after-tax income when compared with other fixed income markets.
Managing Multi-Faceted Risks: Risk in the municipal securities market is derived from multiple sources, including credit risk at the issuer and sector levels, structural risks such as call risk, yield curve risk, and legislative and tax-related risks. Nuveen Advisory believes that managing these risks at both the
individual security and Fund portfolio levels is an important element of realizing the after-tax income and total return potential of the asset class.
Opportunities for Diversification: As of December 31, 2002, the municipal securities market aggregated approximately $1.76 trillion, and over 50,000 issuers, collectively with a wide array of financing purposes, security terms, offering structures, and credit quality. Nuveen Advisory believes that the size and depth of the municipal securities market may facilitate the creation of a diversified portfolio that reduces exposure to the risks of individual issuers and may lower correlations to other credit and market risks within an investor's overall portfolio.
Market Inefficiencies: Nuveen Advisory believes that the scale and intricacy of the municipal securities market often results in pricing anomalies and other inefficiencies that can be identified and capitalized on through trading strategies.
INVESTMENT PROCESS. Nuveen Advisory believes that a bottom-up, value-oriented investment strategy that seeks to identify underrated and undervalued securities and sectors is positioned to capture the opportunities inherent in the municipal securities market and potentially outperform the general municipal securities market over time. The primary elements of Nuveen Advisory's investment process are:
Credit Analysis and Surveillance: Nuveen Advisory focuses on bottom-up, fundamental analysis of municipal securities issuers. Analysts screen each sector for issuers that meet the fundamental tests of creditworthiness and favor those securities with demonstrable growth potential, solid coverage of debt service and a priority lien on hard assets, dedicated revenue streams or tax resources. As part of Nuveen Advisory's overall risk management process, analysts actively monitor the credit quality of portfolio holdings.
Sector Analysis: Organized by sector, analysts continually assess the key issues and trends affecting each sector in order to maintain a sector outlook. Evaluating such factors as historical default rates and average credit spreads within each sector, analysts provide top-down analysis that supports decisions to overweight or underweight a given sector in a portfolio.
Diversification: Nuveen Advisory seeks to invest in a large number of sectors, states and specific issuers in order to help insulate a portfolio from events that affect any individual industry, geographic location or credit. Portfolio managers normally seek to limit exposure to individual credits over the long-term. Portfolio managers also seek to diversify other portfolio level risks, including exposure to calls, and to manage a portfolio's interest rate sensitivity within tolerance bands relative to the relevant benchmark.
Trading Strategies: Through its trading strategies, Nuveen Advisory seeks to enhance portfolio value by trading to take advantage of inefficiencies found in the municipal market. This may entail selling issues Nuveen Advisory deems to be overvalued and purchasing issues Nuveen Advisory considers to be undervalued.
Sell Discipline: Nuveen Advisory generally sells securities when it (i) determines a security has become overvalued or over-rated, (ii) identifies credit deterioration, or (iii) modifies a portfolio strategy, such as sector allocation. Nuveen Advisory may also sell securities when such securities exceed the portfolio's diversification targets.
INVESTMENT POLICIES
Under normal circumstances, the Fund will invest its Managed Assets in a portfolio of municipal securities that pay interest that is exempt from regular federal income tax. It is a fundamental policy of
the Fund that its investment in municipal securities paying interest that is exempt from regular federal income tax will, under normal circumstances, comprise at least 80% of the Fund's Managed Assets.
Under normal circumstances, and except for the temporary investments described below, the Fund expects to be fully invested (at least 95% of its Managed Assets) in such tax-exempt municipal securities described above. Up to 30% of the Fund's Managed Assets may be invested in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals. For a discussion of how the federal alternative minimum tax may affect shareholders, see "Federal Income Tax Matters."
o The Fund will invest at least 50% of its Managed Assets in investment grade quality municipal securities. A security is considered investment grade quality if it is rated within the four highest grades (Baa or BBB or better by Moody's, S&P or Fitch) by all NRSROs that rate such security, or if it is unrated but judged to be of comparable quality by Nuveen Advisory.
o The Fund may invest up to 50% of its Managed Assets in municipal securities that at the time of investment are rated below investment grade. Below investment grade quality municipal securities include those municipal securities that are rated investment grade by one or more NRSROs but rated below investment grade by at least one NRSRO. No more than 5% of the Fund's Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by Nuveen Advisory. This means that the Fund may invest in municipal securities that are involved in bankruptcy or insolvency proceedings or are experiencing other financial difficulties at the time of acquisition (such securities are commonly referred to as distressed securities).
o The Fund anticipates that, upon the full investment of the net proceeds from this offering (which is expected to occur within two to three months following the closing of this offering), it will have invested approximately 55% to 65% of its Managed Assets in investment grade municipal securities and approximately 35% to 45% of its Managed Assets in below investment grade municipal securities. The relative percentages of the value of the Fund's Managed Assets attributable to investment grade municipal securities and to below investment grade municipal securities could change over time as a result of rebalancing the Fund's assets by Nuveen Advisory, market value fluctuations and other events.
Municipal securities are either general obligation or revenue bonds and typically are issued to finance public projects (such as roads or public buildings), to pay general operating expenses, or to refinance outstanding debt. Municipal securities may also be issued for private activities, such as housing, medical and educational facility construction, or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the full faith and credit, or taxing authority, of the issuer and may be repaid from any revenue source; revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund may also purchase municipal securities that represent lease obligations, municipal notes, pre-refunded municipal securities, private activity bonds, tender option bonds and other forms of municipal securities.
Municipal securities of below investment grade quality (Ba/BB or below) are commonly referred to as junk bonds. Issuers of securities rated Ba/BB or B are regarded as having current capacity to make principal and interest payments but are subject to business, financial or economic conditions which could adversely affect such payment capacity. Municipal securities rated Baa or BBB are considered "investment grade" securities; municipal securities rated Baa are considered medium grade obligations which lack outstanding investment characteristics and have speculative characteristics, while municipal
securities rated BBB are regarded as having adequate capacity to pay principal and interest. Municipal securities rated Aaa or AAA in which the Fund may invest may have been so rated on the basis of the existence of insurance guaranteeing the timely payment, when due, of all principal and interest. Municipal securities rated below investment grade quality are obligations of issuers that are considered predominately speculative with respect to the issuer's capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility of issuer default and bankruptcy and increased market price volatility. Municipal securities rated below investment grade tend to be less marketable than higher-quality securities because the market for them is less broad. The market for unrated municipal securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly and the Fund may have greater difficulty selling its portfolio securities. The Fund will be more dependent on Nuveen Advisory's research and analysis when investing in these securities.
The Fund may invest in distressed securities, which are securities issued by companies that are involved in bankruptcy or insolvency proceedings or are experiencing other financial difficulties at the time of acquisition by the Fund. The issuers of such securities may be in transition, out of favor, financially leveraged or troubled, or potentially troubled, and may be or have recently been involved in major strategic actions, restructurings, bankruptcy, reorganization or liquidation. These characteristics of these companies can cause their securities to be particularly risky, although they also may offer the potential for high returns. These companies' securities may be considered speculative, and the ability of the companies to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting a particular industry or specific developments within the companies. Distressed securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment.
Investments in lower rated or unrated securities may present special tax issues for the Fund to the extent that the issuers of these securities default on their obligations pertaining thereto, and the federal income tax consequences to the Fund as a holder of such distressed securities may not be clear.
A general description of Moody's, S&P's and Fitch's ratings of municipal securities is set forth in Appendix B hereto. The ratings of Moody's, S&P and Fitch represent their opinions as to the quality of the municipal securities they rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the same maturity, coupon and rating may have different yields while obligations of the same maturity and coupon with different ratings may have the same yield.
The Fund will primarily invest in municipal securities with long-term maturities in order to maintain a weighted average maturity of 15 to 30 years, but the weighted average maturity of obligations held by the Fund may be shorter, depending on market conditions. As a result, the Fund's portfolio at any given time may include both long-term and intermediate-term municipal securities. Moreover, during temporary defensive periods (e.g., times when, in Nuveen Advisory's opinion, temporary imbalances of supply and demand or other temporary dislocations in the tax-exempt securities market adversely affect the price at which long-term or intermediate-term municipal securities are available), and in order to keep the Fund's cash fully invested, including the period during which the net proceeds of the offering are being invested, the Fund may invest any percentage of its net assets in short-term investments including high quality, short-term securities that may be either tax-exempt or taxable and up to 10% of its Managed Assets in securities of other open or closed-end investment companies that invest primarily in municipal securities of the type in which the Fund may invest directly. The Fund intends to invest in taxable short-term investments only in the event that suitable tax-exempt short-term investments are not available at reasonable prices and yields. Tax-exempt short-term investments include various obligations issued by
state and local governmental issuers, such as tax-exempt notes (bond anticipation notes, tax anticipation notes and revenue anticipation notes or other such municipal bonds maturing in three years or less from the date of issuance) and municipal commercial paper. The Fund will invest only in taxable short-term investments which are U.S. government securities or securities rated within the highest grade by Moody's, S&P or Fitch, and which mature within one year from the date of purchase or carry a variable or floating rate of interest. See Appendix B for a general description of Moody's, S&P's and Fitch's ratings of securities in such categories. Taxable short-term investments of the Fund may include certificates of deposit issued by U.S. banks with assets of at least $1 billion, or commercial paper or corporate notes, bonds or debentures with a remaining maturity of one year or less, or repurchase agreements. See "Other Investment Policies and Techniques--Repurchase Agreements." To the extent the Fund invests in taxable investments, the Fund will not at such times be in a position to achieve its investment objective of tax-exempt income.
The foregoing policies as to ratings of portfolio investments will apply only at the time of the purchase of a security, and the Fund will not be required to dispose of securities in the event Moody's, S&P or Fitch downgrades its assessment of the credit characteristics of a particular issuer.
Obligations of issuers of municipal securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Bankruptcy Reform Act of 1978. In addition, the obligations of such issuers may become subject to the laws enacted in the future by Congress, state legislatures or referenda extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon municipalities to levy taxes. There is also the possibility that, as a result of legislation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected.
The Fund presently intends to limit its investment in tobacco settlement bonds to no more than 10% of its Managed Assets. In addition, the Fund will not invest in inverse floating rate securities, which are securities that pay interest at rates that vary inversely with changes in prevailing short-term tax-exempt interest rates and which represent in effect a leveraged investment in an underlying municipal security.
Subject to guidelines which may be imposed in connection with the Fund's seeking an investment grade rating on the MuniPreferred shares, the Fund may invest a significant portion of its Managed Assets in broad segments of the municipal securities market, such as revenue obligations of hospitals and other health care facilities, special taxing districts, securities issued to finance charter schools and other private educational facilities, municipal utility securities, industrial development bonds and other private activity bonds. Subject to the availability of suitable investment opportunities, Nuveen Advisory will attempt to minimize the sensitivity of the Fund's portfolio to credit and other risks associated with a particular sector or industry. However, if the Fund invests a significant portion of its Managed Assets in the segments noted above, the Fund will be more susceptible to economic, business, political, regulatory and other developments generally affecting issuers in such segments of the municipal securities market. To the extent that the Fund focuses its Managed Assets in the hospital and healthcare facilities sector, the Fund will be subject to risks associated with such sector, including adverse government regulation and reduction in reimbursement rates, as well as government approval of products and services and intense competition. Securities issued to finance charter schools and other private educational facilities will be subject to various risks, including the reversal of legislation authorizing or funding charter schools, the failure to renew or secure a charter, the failure of a funding entity to appropriate necessary funds and competition from alternatives such as voucher programs. Issuers of municipal utility securities can be significantly affected by government regulation, financing difficulties, supply and demand of services or fuel and natural resource conservation.
Up to 30% of the Fund's Managed Assets may be invested in municipal securities subject to the federal alternative minimum tax applicable to individuals. Special federal alternative minimum tax rules apply to corporate investors. For a discussion of how the federal alternative minimum tax may affect shareholders, see "Federal Income Tax Matters."
Upon Nuveen Advisory's recommendation, during temporary defensive periods and in order to keep the Fund's cash fully invested, including the period during which the net proceeds of the offering of common shares or MuniPreferred shares are being invested, the Fund may deviate from its investment objectives and invest up to 100% of its Managed Assets in short-term investments including high quality, short-term securities that may be either tax-exempt or taxable. To the extent the Fund invests in taxable short-term investments, the Fund will not at such times be in a position to achieve that portion of its investment objective of seeking current income exempt from regular federal income tax. For further information, see, "Short-Term Investments" below.
Municipal Leases and Certificates of Participation. Also included within the general category of municipal securities described in the Fund's prospectus are municipal leases, certificates of participation in such lease obligations or installment purchase contract obligations (hereinafter collectively called "Municipal Lease Obligations") of municipal authorities or entities. Although a Municipal Lease Obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation. However, certain Municipal Lease Obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a "non-appropriation" lease, the Fund's ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and disposition or releasing of the property might prove difficult. In order to reduce this risk, the Fund will only purchase Municipal Lease Obligations where Nuveen Advisory believes the issuer has a strong incentive to continue making appropriations until maturity.
Pre-Refunded Municipal Securities. The principal of and interest on pre-refunded municipal securities are no longer paid from the original revenue source for the securities. Instead, the source of such payments is typically an escrow fund consisting of U.S. government securities. The assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded municipal securities. Issuers of municipal securities use this advance refunding technique to obtain more favorable terms with respect to securities that are not yet subject to call or redemption by the issuer. For example, advance refunding enables an issuer to refinance debt at lower market interest rates, restructure debt to improve cash flow or eliminate restrictive covenants in the indenture or other governing instrument for the pre-refunded municipal securities. However, except for a change in the revenue source from which principal and interest payments are made, the pre-refunded municipal securities remain outstanding on their original terms until they mature or are redeemed by the issuer.
Private Activity Bonds. Private activity bonds, formerly referred to as industrial development bonds, are issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of which are used for the construction, equipment, repair or improvement of privately operated industrial or commercial facilities, may constitute municipal securities, although the current federal tax laws place substantial limitations on the size of such issues. The Fund's distributions of its interest income from private activity bonds may subject certain investors to the federal alternative minimum tax.
Tender Option Bonds. A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued with the agreement of a third party, such as a bank, broker-dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the bond's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. However, an institution will not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrade in the credit rating assigned to the issuer of the bond. The Fund intends to invest in tender option bonds the interest on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by Nuveen Advisory, be exempt from regular federal income tax. However, because there can be no assurance that the IRS will agree with such counsel's opinion in any particular case, there is a risk that the Fund will not be considered the owner of such tender option bonds and thus will not be entitled to treat such interest as exempt from such tax. Additionally, the federal income tax treatment of certain other aspects of these investments, including the proper tax treatment of tender option bonds and the associated fees in relation to various regulated investment company tax provisions, is unclear. The Fund intends to manage its portfolio in a manner designed to eliminate or minimize any adverse impact from the tax rules applicable to these investments.
Special Taxing Districts. Special taxing districts are organized to plan and finance infrastructure development to induce residential, commercial and industrial growth and redevelopment. The bond financing methods such as tax increment finance, tax assessment, special services district and Mello-Roos bonds, are generally payable solely from taxes or other revenues attributable to the specific projects financed by the bonds without recourse to the credit or taxing power of related or overlapping municipalities. They often are exposed to real estate development-related risks and can have more taxpayer concentration risk than general tax-supported bonds, such as general obligation bonds. Further, the fees, special taxes, or tax allocations and other revenues that are established to secure such financings are generally limited as to the rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. The bonds could default if development failed to progress as anticipated or if larger taxpayers failed to pay the assessments, fees and taxes as provided in the financing plans of the districts.
SHORT-TERM INVESTMENTS
SHORT-TERM TAXABLE FIXED INCOME SECURITIES
For temporary defensive purposes or to keep cash on hand fully invested, the Fund may invest up to 100% of its net assets in cash equivalents and short- term taxable fixed-income securities, although the Fund intends to invest in taxable short-term investments only in the event that suitable tax-exempt short- term investments are not available at reasonable prices and yields. Short-term taxable fixed income investments are defined to include, without limitation, the following:
(1) U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government agency securities include securities issued by (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, and the Government National Mortgage Association, whose securities are supported by the full faith and credit of the United
States; (b) the Federal Home Loan Banks*, Federal Intermediate Credit
Banks, and the Tennessee Valley Authority, whose securities are
supported by the right of the agency to borrow from the U.S. Treasury;
(c) the Federal National Mortgage Association*, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and (d)
the Student Loan Marketing Association, whose securities are supported
only by its credit. While the U.S. government provides financial
support to such U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it always will do so
since it is not so obligated by law. The U.S. government, its agencies,
and instrumentalities do not guarantee the market value of their
securities. Consequently, the value of such securities may fluctuate.
(2) Certificates of Deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return, and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current FDIC regulations, the maximum insurance payable as to any one certificate of deposit is $100,000; therefore, certificates of deposit purchased by the Fund may not be fully insured.
(3) Repurchase agreements, which involve purchases of debt securities. At the time the Fund purchases securities pursuant to a repurchase agreement, it simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back the securities at a fixed price and time. This assures a predetermined yield for the Fund during its holding period, since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund to invest temporarily available cash. The Fund may enter into repurchase agreements only with respect to obligations of the U.S. government, its agencies or instrumentalities; certificates of deposit; or bankers' acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the Fund is entitled to sell the underlying collateral. If the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of both principal and interest. Nuveen Advisory monitors the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. Nuveen Advisory does so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws.
(4) Commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for such notes. However, they are redeemable by the Fund at any time. Nuveen Advisory will consider the financial condition of the corporation (e.g., earning power, cash flow, and other liquidity measures) and will continuously monitor the corporation's ability to meet all of its financial obligations, because the Fund's liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in
* These securities are not backed by the full faith and credit of the United States Government.
commercial paper will be limited to commercial paper rated in the highest categories by a major rating agency and which mature within one year of the date of purchase or carry a variable or floating rate of interest.
SHORT-TERM TAX-EXEMPT MUNICIPAL SECURITIES
Short-term tax-exempt municipal securities are securities that are exempt from regular federal income tax and mature within three years or less from the date of issuance. Short-term tax-exempt municipal income securities are defined to include, without limitation, the following:
Bond Anticipation Notes ("BANs") are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds. The ability of an issuer to meet its obligations on its BANs is primarily dependent on the issuer's access to the long-term municipal bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes ("TANs") are issued by state and local governments to finance the current operations of such governments. Repayment is generally to be derived from specific future tax revenues. TANs are usually general obligations of the issuer. A weakness in an issuer's capacity to raise taxes due to, among other things, a decline in its tax base or a rise in delinquencies, could adversely affect the issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes ("RANs") are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes. In general, they also constitute general obligations of the issuer. A decline in the receipt of projected revenues, such as anticipated revenues from another level of government, could adversely affect an issuer's ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other obligations could affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for specific projects. Frequently, these notes are redeemed with funds obtained from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies, such as those described above to commercial banks as evidence of borrowings. The purposes for which the notes are issued are varied but they are frequently issued to meet short-term working capital or capital-project needs. These notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper ("Municipal Paper") represents very short-term unsecured, negotiable promissory notes issued by states, municipalities and their agencies. Payment of principal and interest on issues of municipal paper may be made from various sources, to the extent the funds are available therefrom. Maturities of municipal paper generally will be shorter than the maturities of TANs, BANs or RANs. There is a limited secondary market for issues of Municipal Paper.
Certain municipal securities may carry variable or floating rates of interest whereby the rate of interest is not fixed but varies with changes in specified market rates or indices, such as a bank prime rate or a tax-exempt money market index.
While the various types of notes described above as a group represent the major portion of the short-term tax-exempt note market, other types of notes are available in the marketplace and the Fund may invest in such other types of notes to the extent permitted under its investment objectives, policies
and limitations. Such notes may be issued for different purposes and may be secured differently from those mentioned above.
HEDGING STRATEGIES
The Fund may periodically engage in hedging transactions. Hedging is a term used for various methods of seeking to preserve portfolio capital value by offsetting price changes in one investment through making another investment whose price should tend to move in the opposite direction. It may be desirable and possible in various market environments partially to hedge the portfolio against fluctuations in market value due to interest rate fluctuations by investment in financial futures and index futures as well as related put and call options on such instruments. Both parties entering into an index or financial futures contract are required to post an initial deposit of 1% to 5% of the total contract price. Typically, option holders enter into offsetting closing transactions to enable settlement in cash rather than take delivery of the position in the future of the underlying security. The Fund will only sell covered futures contracts, which means that the Fund segregates assets equal to the amount of the obligations.
These transactions present certain risks. In particular, the imperfect correlation between price movements in the futures contract and price movements in the securities being hedged creates the possibility that losses on the hedge by a Fund may be greater than gains in the value of the securities in the Fund's portfolio. In addition, futures and options markets may not be liquid in all circumstances. As a result, in volatile markets, the Fund may not be able to close out the transaction without incurring losses substantially greater than the initial deposit. Finally, the potential deposit requirements in futures contracts create an ongoing greater potential financial risk than do options transactions, where the exposure is limited to the cost of the initial premium. Losses due to hedging transactions will reduce yield. Net gains, if any, from hedging and other portfolio transactions will be distributed as taxable distributions to shareholders. The Fund will not make any investment (whether an initial premium or deposit or a subsequent deposit) other than as necessary to close a prior investment if, immediately after such investment, the sum of the amount of its premiums and deposits would exceed 5% of the Fund's net assets. The Fund will invest in these instruments only in markets believed by Nuveen Advisory to be active and sufficiently liquid. Successful implementation of most hedging strategies would generate taxable income. For further information regarding these investment strategies and risks presented thereby, see Appendix B to this Statement of Additional Information.
The Fund may utilize structured notes and similar instruments for investment purposes and also for hedging purposes. Structured notes are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of a benchmark asset, market or interest rate (an "embedded index"), such as selected securities, an index of securities or specified interest rates, or the differential performance of two assets or markets. The terms of such structured instruments normally provide that their principal and/or interest payments are to be adjusted upwards or downwards (but not ordinarily below zero) to reflect changes in the embedded index while the structured instruments are outstanding. As a result, the interest and/or principal payments that may be made on a structured product may vary widely, depending upon a variety of factors, including the volatility of the embedded index and the effect of changes in the embedded index on principal and/or interest payments. The rate of return on structured notes may be determined by applying a multiplier to the performance or differential performance of the referenced index or indices or other assets. Application of a multiplier involves leverage that will serve to magnify the potential for gain and the risk of loss.
Other hedging strategies include using credit default swaps, interest-rate swaps on taxable or tax-exempt indices, forward starting interest rate swaps and options on interest rate swaps. These hedging strategies may also generate taxable income.
OTHER INVESTMENT POLICIES AND TECHNIQUES
ILLIQUID SECURITIES
The Fund may invest in illiquid securities (i.e., securities that are not readily marketable), including, but not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that may be resold only pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") that are deemed to be illiquid, and certain repurchase agreements.
Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act. Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell. To the extent that the Board of Trustees or its delegatee determines that the price of any illiquid security provided by the pricing service is inappropriate, such security will be priced at a fair value as determined in good faith by the Board of Trustees or its delegatee.
PORTFOLIO TRADING AND TURNOVER RATE
Portfolio trading may be undertaken to accomplish the investment objectives of the Fund in relation to actual and anticipated movements in interest rates. In addition, a security may be sold and another of comparable quality purchased at approximately the same time to take advantage of what Nuveen Advisory believes to be a temporary price disparity between the two securities. Temporary price disparities between two comparable securities may result from supply and demand imbalances where, for example, a temporary oversupply of certain bonds may cause a temporarily low price for such bonds, as compared with other bonds of like quality and characteristics. The Fund may also engage to a limited extent in short-term trading consistent with its investment objectives. Securities may be sold in anticipation of a market decline (a rise in interest rates) or purchased in anticipation of a market rise (a decline in interest rates) and later sold, but the Fund will not engage in trading solely to recognize a gain.
Subject to the foregoing, the Fund will attempt to achieve its investment objectives by prudent selection of municipal bonds with a view to holding them for investment. While there can be no assurance thereof, the Fund anticipates that its annual portfolio turnover rate will generally not exceed 20%. However, the rate of turnover will not be a limiting factor when the Fund deems it desirable to sell or purchase securities. Therefore, depending upon market conditions, the annual portfolio turnover rate of the Fund may exceed 20% in particular years.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its Managed Assets in securities of other open or closed-end investment companies that invest primarily in municipal securities of the types in which the Fund may invest directly. In addition, the Fund may invest a portion of its Managed Assets in pooled investment vehicles other than investment companies that invest primarily in municipal securities of the types in which the Fund may invest directly. The Fund generally expects that it may invest in other investment companies and/or other pooled investment vehicles either during periods when it has large amounts of uninvested cash, such as the period shortly after the Fund receives the proceeds of the offering of its common shares or MuniPreferred shares, or during periods when there is a shortage of attractive, high-yielding municipal securities available in the market. As a stockholder in an investment company, the Fund will bear its ratable share of that investment company's expenses and would remain subject to
payment of the Fund's management, advisory and administrative fees with respect to assets so invested. Common Shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. Nuveen Advisory will take expenses into account when evaluating the investment merits of an investment in an investment company relative to available municipal security investments. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the same leverage risks described herein. As described in the Fund's prospectus, the net asset value and market value of leveraged shares will be more volatile and the yield to shareholders will tend to fluctuate more than the yield generated by unleveraged shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may buy and sell municipal securities on a when-issued or delayed delivery basis, making payment or taking delivery at a later date, normally within 15-45 days of the trade date. On such transactions the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment. Beginning on the date the Fund enters into a commitment to purchase securities on a when-issued or delayed delivery basis, the Fund is required under rules of the Commission to maintain in a separate account liquid assets, consisting of cash, cash equivalents or liquid securities having a market value, at all times, of at least equal to the amount of the commitment. Income generated by any such assets which provide taxable income for federal income tax purposes is includable in the taxable income of the Fund. The Fund may enter into contracts to purchase municipal securities on a forward basis (i.e., where settlement will occur more than 60 days from the date of the transaction) only to the extent that the Fund specifically collateralizes such obligations with a security that is expected to be called or mature within sixty days before or after the settlement date of the forward transaction. The commitment to purchase securities on a when-issued, delayed delivery or forward basis may involve an element of risk because no interest accrues on the bonds prior to settlement and at the time of delivery the market value may be less than cost.
REPURCHASE AGREEMENTS
As temporary investments, the Fund may invest in repurchase agreements. A repurchase agreement is a contractual agreement whereby the seller of securities (U.S. government securities or municipal securities) agrees to repurchase the same security at a specified price on a future date agreed upon by the parties. The agreed-upon repurchase price determines the yield during the Fund's holding period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. Income generated from transactions in repurchase agreements will be taxable. See "Federal Income Tax Matters" for information relating to the allocation of taxable income between common shares and MuniPreferred shares, if any. The Fund will only enter into repurchase agreements with registered securities dealers or domestic banks that, in the opinion of Nuveen Advisory, present minimal credit risk. The risk to the Fund is limited to the ability of the issuer to pay the agreed-upon repurchase price on the delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a risk of loss of both principal and interest. In the event of default, the collateral may be sold but the Fund might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by the Fund may be delayed or limited. Nuveen Advisory will monitor the value of the collateral at the time the transaction is entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that such value always equals or exceeds the agreed-upon repurchase price. In the event the value of the collateral declines below the repurchase price, Nuveen Advisory will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price, including interest.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds. A zero coupon bond is a bond that does not pay interest for its entire life. When held to its maturity, its return comes from the difference between the purchase price and its maturity value. The market prices of zero coupon bonds are affected to a greater extent by changes in prevailing levels of interest rates and thereby tend to be more volatile in price than securities that pay interest periodically and may be more speculative than such securities. In addition, because the Fund accrues income with respect to these securities prior to the receipt of such interest, it may have to dispose of portfolio securities under disadvantageous circumstances in order to obtain cash needed to pay income dividends in amounts necessary to avoid unfavorable tax consequences.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The management of the Fund, including general supervision of the duties performed for the Fund under the Management Agreement, is the responsibility of the Board of Trustees of the Fund. The number of trustees of the Fund is currently set at twelve. None of the trustees who are not "interested" persons of the Fund has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the trustees and officers of the Fund, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
POSITIONS AND NUMBER OF
OFFICES WITH PORTFOLIOS
THE FUND AND IN FUND
YEAR FIRST COMPLEX
NAME, BIRTHDATE AND ELECTED OR PRINCIPAL OCCUPATIONS INCLUDING OTHER OVERSEEN BY
ADDRESS APPOINTED DIRECTORSHIPS DURING PAST FIVE YEARS TRUSTEE
--------------------------- -------------------- ------------------------------------------------ -----------
TRUSTEE WHO IS AN INTERESTED PERSON OF THE FUND:
Timothy R. Schwertfeger* Chairman of the Chairman and Director of Nuveen Investments, 142
3/28/49 Board and Trustee Inc., Nuveen Investments, LLC, Nuveen Advisory
333 West Wacker Drive 2003 Corp. and Nuveen Institutional Advisory Corp.;
Chicago, IL 60606 Chairman and Director of Nuveen Asset Management
Inc.; Director (since 1996) of Institutional
Capital Corporation; Chairman and Director
(since 1999) of Rittenhouse Asset Management, Inc.
and Nuveen Investments Holdings, Inc.; Chairman
(since 2002) of Nuveen Investment Advisers Inc.
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* Mr. Schwertfeger is an "interested person" of the Fund, as defined in the Investment Company Act of 1940, because he is an officer and director of Nuveen Advisory.
POSITIONS AND NUMBER OF
OFFICES WITH PORTFOLIOS
THE FUND AND IN FUND
YEAR FIRST COMPLEX
NAME, BIRTHDATE AND ELECTED OR PRINCIPAL OCCUPATIONS INCLUDING OTHER OVERSEEN BY
ADDRESS APPOINTED DIRECTORSHIPS DURING PAST FIVE YEARS TRUSTEE
--------------------------- -------------------- ------------------------------------------------ -----------
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE FUND:
William E. Bennett Trustee Private Investor; previously, President and 142
10/16/46 2003 Chief Executive Officer, Draper &Kramer, Inc., a
333 West Wacker Drive private company that handles mortgage banking,
Chicago, IL 60606 real estate development, pension advisory and
real estate management (1995-1998). Prior thereto,
Executive Vice President and Chief Credit Officer
of First Chicago Corporation and its principal
subsidiary, The First National Bank of Chicago.
Robert P. Bremner Trustee Private Investor and Management Consultant. 141
8/22/40 2003
333 West Wacker Drive
Chicago, IL 60606
Lawrence H. Brown Trustee Retired (August 1989) as Senior Vice President 141
7/29/34 2003 of The Northern Trust Company; Director of the
333 West Wacker Drive United Way Highland Park-Highwood (since 2002).
Chicago, IL 60606
Jack B. Evans Trustee President, The Hall-Perrine Foundation, a 142
10/22/48 2003 private philanthropic corporation (since 1996);
333 West Wacker Drive Director, Alliant Energy; Director and Vice
Chicago, IL 60606 Chairman, United Fire &Casualty Company;
Director, Federal Reserve Bank of Chicago;
formerly, President and Chief Operating Officer,
SCI Financial Group, Inc., a regional financial
services firm.
Anne E. Impellizzeri Trustee Retired; formerly, Executive Director 141
1/26/33 2003 (1998-2001) of Manitoga (Center for Russel
333 West Wacker Drive Wright's Design with Nature); formerly,
Chicago, IL 60606 President and Executive Officer of Blanton-Peale
Institutes of Religion and Health (since 1990);
prior thereto, Vice President, Metropolitan Life
Insurance Co.
William L. Kissick Trustee Professor Emeritus, School of Medicine and the 142
7/29/32 2003 Wharton School of Management and former
333 West Wacker Drive Chairman, Leonard Davis Institute of Health
Chicago, IL 60606 Economics, University of Pennsylvania; Adjunct
Professor, Health Policy and Management, Yale
University.
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POSITIONS AND NUMBER OF
OFFICES WITH PORTFOLIOS
THE FUND AND IN FUND
YEAR FIRST COMPLEX
NAME, BIRTHDATE AND ELECTED OR PRINCIPAL OCCUPATIONS INCLUDING OTHER OVERSEEN BY
ADDRESS APPOINTED DIRECTORSHIPS DURING PAST FIVE YEARS TRUSTEE
--------------------------- -------------------- ------------------------------------------------ -----------
Thomas E. Leafstrand(1) Trustee Retired; previously, Vice President in charge of 142
11/11/31 2003 Municipal Underwriting and Dealer Sales at The
333 West Wacker Drive Northern Trust Company.
Chicago, IL 60606
Peter R. Sawers Trustee Adjunct Professor of Business and Economics, 141
4/3/33 2003 University of Dubuque, Iowa; formerly
333 West Wacker Drive (1991-2000) Adjunct Professor, Lake Forest
Chicago, IL 60606 Graduate School of Management, Lake Forest,
Illinois; prior thereto, Executive Director,
Towers Perrin Australia, a management consulting
firm; Chartered Financial Analyst; Director,
Executive Service Corps. of Chicago, a not-for-
profit organization; Certified Management
Consultant.
William J. Schneider Trustee Senior Partner and Chief Operating Officer, 141
9/24/44 2003 Miller-Valentine Group, Vice President,
333 West Wacker Drive Miller-Valentine Realty, a construction company;
Chicago, IL 60606 Chair, Miami Valley Hospital; Chair, Dayton
Development Coalition; formerly, Member,
Community Advisory Board, National City Bank,
Dayton, Ohio and Business Advisory Council,
Cleveland Federal Reserve Bank.
Judith M. Stockdale Trustee Executive Director, Gaylord and Dorothy 141
12/29/47 2003 Donnelley Foundation (since 1994); prior
333 West Wacker Drive thereto, Executive Director, Great Lakes
Chicago, IL 60606 Protection Fund (from 1990 to 1994).
Sheila W. Wellington(1) Trustee Retired. Formerly President (since 1993) of 142
2/24/32 2003 Catalyst (a not-for-profit organization focusing
333 West Wacker Drive on women's leadership development in business
Chicago, IL 60606 and the professions).
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(1) Mr. Leafstrand and Ms. Wellington will retire as trustees effective July 1, 2004, in accordance with the retirement policy currently in place.
POSITIONS AND NUMBER OF
OFFICES WITH PORTFOLIOS
THE FUND AND IN FUND
YEAR FIRST COMPLEX
NAME, BIRTHDATE AND ELECTED OR PRINCIPAL OCCUPATIONS INCLUDING OTHER OVERSEEN BY
ADDRESS APPOINTED DIRECTORSHIPS DURING PAST FIVE YEARS TRUSTEE
--------------------------- -------------------- ------------------------------------------------ -----------
OFFICERS OF THE FUND:
Gifford R. Zimmerman Chief Managing Director (since 2002), Assistant 142
9/9/56 Administrative Secretary and Associate General Counsel,
333 W. Wacker Drive Officer formerly, Vice President and Assistant General
Chicago, IL 60606 2003 Counsel, of Nuveen Investments, LLC; Managing
Director (since 2002), General Counsel (since
1998) and Assistant Secretary, formerly, Vice
President of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.; Managing Director
(since 2002) and Assistant Secretary and
Associate General Counsel, formerly, Vice
President (since 2000) of Nuveen Asset
Management, Inc.; Assistant Secretary of Nuveen
Investments, Inc. (since 1994); Assistant
Secretary of NWQ Investment Management Company,
LLC (since 2002); Vice President and Assistant
Secretary of Nuveen Investments Advisers Inc.
(since 2002); Managing Director, Associate
General Counsel and Assistant Secretary of
Rittenhouse Asset Management, Inc. (since
2003); Assistant Secretary (since 2003) of
Symphony Asset Management LLC; Chartered
Financial Analyst.
Michael T. Atkinson Vice President and Vice President (since 2002), formerly, Assistant 142
2/3/66 Assistant Secretary Vice President (since 2000), previously,
333 W. Wacker Drive 2003 Associate of Nuveen Investments.
Chicago, IL 60606
Paul L. Brennan Vice President Vice President (since 2002), formerly, Assistant 128
11/10/66 2003 Vice President (since 1997), of Nuveen Advisory
333 W. Wacker Drive Corp.; Chartered Financial Analyst and Certified
Chicago, IL 60606 Public Accountant.
Peter H. D'Arrigo Vice President and Vice President of Nuveen Investments, LLC (since 142
11/28/67 Treasurer 1999), prior thereto, Assistant Vice President
333 W. Wacker Drive 2003 (from 1997); Vice President and Treasurer (since
Chicago, IL 60606 1999) of Nuveen Investments, Inc.; Vice President
and Treasurer (since 1999) of Nuveen Advisory
Corp. and Nuveen Institutional Advisory Corp.;
Vice President and Treasurer (since 2002) of
Nuveen Asset Management, Inc. and of Nuveen
Investment Advisers Inc.; Assistant Treasurer
(since 2002) of NWQ Investment Management Company,
LLC; Treasurer (since 2003)of Symphony Asset
Management LLC; Chartered Financial Analyst.
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POSITIONS AND NUMBER OF
OFFICES WITH PORTFOLIOS
THE FUND AND IN FUND
YEAR FIRST COMPLEX
NAME, BIRTHDATE AND ELECTED OR PRINCIPAL OCCUPATIONS INCLUDING OTHER OVERSEEN BY
ADDRESS APPOINTED DIRECTORSHIPS DURING PAST FIVE YEARS TRUSTEE
--------------------------- -------------------- ------------------------------------------------ -----------
Susan M. DeSanto Vice President Vice President of Nuveen Advisory Corp. (since 142
9/8/54 2003 2001); previously, Vice President of Van Kampen
333 W. Wacker Drive Investment Advisory Corp. (since 1998).
Chicago, IL 60606
Jessica R. Droeger Vice President and Vice President (since 2002) and Assistant 142
9/24/64 Secretary Secretary and Assistant General Counsel (since
333 W. Wacker Drive 2003 1998); formerly, Assistant Vice President (since
Chicago, IL 60606 1998) of Nuveen Investments, LLC; Vice President
(since 2002) and Assistant Secretary (since
1998), formerly, Assistant Vice President of
Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.
Lorna C. Ferguson Vice President Vice President of Nuveen Investments, LLC; Vice 142
10/24/45 2003 President (since 1998) of Nuveen Advisory Corp.
333 W. Wacker Drive and Nuveen Institutional Advisory Corp.
Chicago, IL 60606
William M. Fitzgerald Vice President Managing Director (since 2002), formerly, Vice 142
3/2/64 2003 President of Nuveen Investments; Managing
333 W. Wacker Drive Director (since 1997), of Nuveen Advisory Corp.
Chicago, IL 60606 and Nuveen Institutional Advisory Corp.;
Managing Director of Nuveen Asset Management,
Inc. (since 2001); Vice President of Nuveen
Investments Advisers Inc. (since 2002);
Chartered Financial Analyst.
Stephen D. Foy Vice President and Vice President (since 1993) and Funds Controller 142
5/31/54 Controller (since 1998) of Nuveen Investments, LLC;
333 W. Wacker Drive 2003 Certified Public Accountant.
Chicago, IL 60606
J. Thomas Futrell Vice President Vice President of Nuveen Advisory Corp.; 128
7/5/55 2003 Chartered Financial Analyst.
333 W. Wacker Drive
Chicago, IL 60606
Steven J. Krupa Vice President Vice President of Nuveen Advisory Corp. 128
8/21/57 2003
333 W. Wacker Drive
Chicago, IL 60606
David J. Lamb Vice President Vice President (since 2000) of Nuveen 142
3/22/63 2003 Investments, LLC, previously Assistant Vice
333 W. Wacker Drive President (since 1999); prior thereto, Associate
Chicago, IL 60606 of Nuveen Investments; Certified Public
Accountant.
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POSITIONS AND NUMBER OF
OFFICES WITH PORTFOLIOS
THE FUND AND IN FUND
YEAR FIRST COMPLEX
NAME, BIRTHDATE AND ELECTED OR PRINCIPAL OCCUPATIONS INCLUDING OTHER OVERSEEN BY
ADDRESS APPOINTED DIRECTORSHIPS DURING PAST FIVE YEARS TRUSTEE
--------------------------- -------------------- ------------------------------------------------ -----------
Tina M. Lazar Vice President Vice President of Nuveen Investments, LLC (since 142
8/27/61 2003 1999); prior thereto, Assistant Vice President
333 W. Wacker Drive (since 1993).
Chicago, IL 60606
Larry W. Martin Vice President and Vice President, Assistant Secretary and 142
7/27/51 Assistant Secretary Assistant General Counsel of Nuveen Investments,
333 W. Wacker Drive 2003 LLC; Vice President and Assistant Secretary of
Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.; Assistant Secretary of Nuveen
Investments Inc.; Assistant Secretary of Nuveen
Asset Management, Inc., (since 1997); Vice
President (since 2000), Assistant Secretary and
Assistant General Counsel (since 1998) of
Rittenhouse Asset Management, Inc.; Vice
President and Assistant Secretary of Nuveen
Investments Advisers Inc. (since 2002);
Assistant Secretary of NWQ Investment Management
Company, LLC (since 2002); Assistant Secretary
(since 2003) of Symphony Asset Management LLC.
John V. Miller Vice President Vice President (since 2003), previously, credit 128
4/10/67 2003 analyst (since 1996), of Nuveen Advisory Corp.;
333 W. Wacker Drive Chartered Financial Analyst.
Chicago, IL 60606
Edward F. Neild, IV Vice President Managing Director (since 2002), formerly, Vice 142
7/7/65 2003 President of Nuveen Investments; Managing
333 W. Wacker Drive Director (since 1997) of Nuveen Advisory Corp.
Chicago, IL 60606 and Nuveen Institutional Advisory Corp.;
Managing Director of Nuveen Asset Management,
Inc. (since 1999); Chartered Financial Analyst.
Thomas J. O'Shaughnessy Vice President Vice President (since January 2002), formerly, 128
9/4/60 2003 Assistant Vice President (since 1998), of Nuveen
333 W. Wacker Drive Advisory Corp.; prior thereto, portfolio manager.
Chicago, IL 60606
Daniel S. Solender Vice President Vice President of Nuveen Advisory Corp. (since 128
10/27/65 2003 2003); previously, Principal and Portfolio
333 W. Wacker Drive Manager with The Vanguard Group (1999-2003);
Chicago, IL 60606 prior thereto, Assistant Vice President of
Nuveen Advisory Corp.; Chartered Financial
Analyst.
Thomas C. Spalding Vice President Vice President of Nuveen Advisory Corp. and 128
7/31/51 2003 Nuveen Institutional Advisory Corp.; Chartered
333 W. Wacker Drive Financial Analyst.
Chicago, IL 60606
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The Board of Trustees has five standing committees: the executive committee, the audit committee, the nominating and governance committee, the dividend committee and the valuation committee. Because the Fund is newly organized, none of the committees have met during the Fund's last fiscal year. The executive committee met once prior to the commencement of the Fund's operations.
Robert P. Bremner, Anne E. Impellizzeri and Timothy R. Schwertfeger, Chair, serve as members of the executive committee of the Board of Trustees of the Fund. The executive committee, which meets between regular meetings of the Board of Trustees, is authorized to exercise all of the powers of the Board of Trustees.
The audit committee monitors the accounting and reporting policies and practices of the Funds, the quality and integrity of the financial statements of the Funds, compliance by the Funds with legal and regulatory requirements and the independence and performance of the external and internal auditors. The members of the audit committee are William J. Schneider, Chair, William E. Bennett, Robert P. Bremner, Lawrence H. Brown, Jack B. Evans, Thomas E. Leafstrand and Peter R. Sawers.
The nominating and governance committee is responsible for Board selection and tenure; selection and review of committees; and Board education and operations. In addition, the committee monitors performance of legal counsel and other service providers; periodically reviews and makes recommendations about any appropriate changes to trustee compensation; and has the resources and authority to discharge its responsibilities--including retaining special counsel and other experts or consultants at the expense of the Fund. In the event of a vacancy on the Board, the nominating and governance committee receives suggestions from various sources as to suitable candidates. Suggestions should be sent in writing to Lorna Ferguson, Vice President for Board Relations, Nuveen Investments, LLC, 333 West Wacker Drive, Chicago, IL 60606. The nominating and governance committee sets appropriate standards and requirements for nominations for new trustees and reserves the right to interview all candidates and to make the final selection of any new trustees. The members of the nominating and governance committee are Robert P. Bremner, Lawrence H. Brown, Jack B. Evans, Anne E. Impellizzeri, William L. Kissick, Thomas E. Leafstrand, Peter R. Sawers, William J. Schneider, Judith M. Stockdale and Sheila W. Wellington.
The dividend committee is authorized to declare distributions on the Fund's shares including, but not limited to, regular and special dividends, capital gains and ordinary income distributions. The members of the dividend committee are Timothy R. Schwertfeger, Chair, Lawrence H. Brown, Jack B. Evans and Thomas E. Leafstrand.
The valuation committee oversees the Fund's Pricing Procedures including, but not limited to, the review and approval of fair value pricing determinations made by Nuveen's Valuation Group. The members of the valuation committee are Lawrence H. Brown, Thomas E. Leafstrand and Judith M. Stockdale.
Trustees Bennett, Evans, Kissick, Leafstrand, Schwertfeger and Wellington are directors or trustees, as the case may be, of 30 Nuveen open-end funds and 93 Nuveen closed-end funds managed by Nuveen Advisory and 6 open-end funds and 13 closed-end funds managed by Nuveen Institutional Advisory Corp. Trustees Bremner, Brown, Impellizzeri, Sawyers, Schneider and Stockdale are also directors or trustees, as the case may be, of 30 open-end and 93 closed-end funds managed by Nuveen Advisory and 6 open-end funds and 12 closed-end funds managed by Nuveen Institutional Advisory Corp. Mr. Schwertfeger.
None of the independent trustees, nor any of their immediate family members, has ever been a director, officer, or employee of, or a consultant to, Nuveen Advisory, Nuveen or their affiliates. In addition, none of the independent trustees owns beneficially or of record, any security of Nuveen Advisory, Nuveen or any person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with Nuveen Advisory or Nuveen.
The Common Shareholders of the Fund will elect trustees at the next annual meeting of Common Shareholders, unless any MuniPreferred shares are outstanding at that time, in which event holders of MuniPreferred shares, voting as a separate class, will elect two trustees and the remaining trustees shall be elected by Common Shareholders and holders of MuniPreferred shares, voting together as a single class. Holders of MuniPreferred shares will be entitled to elect a majority of the Fund's trustees under certain circumstances. See "Description of Shares--MuniPreferred Shares--Voting Rights."
The following table sets forth the dollar range of equity securities beneficially owned by each trustee as of December 31, 2002:
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED
INVESTMENT COMPANIES OVERSEEN
DOLLAR RANGE OF EQUITY BY TRUSTEE IN FAMILY OF
NAME OF TRUSTEE SECURITIES IN THE FUND INVESTMENT COMPANIES
------------------------------------ ---------------------- -----------------------------
Timothy R. Schwertfeger............. $0 over $100,000
William E. Bennett.................. $0 $50,001-$100,000
Robert P. Bremner................... $0 $10,001-$50,000
Lawrence H. Brown................... $0 Over-$100,000
Jack B. Evans....................... $0 Over $100,000
Anne E. Impellizzeri................ $0 Over-$100,000
William L. Kissick.................. $0 Over-$100,000
Thomas E. Leafstrand................ $0 Over $100,000
Peter R. Sawers..................... $0 Over $100,000
William S. Schneider................ $0 Over $100,000
Judith M. Stockdale................. $0 $50,001-$100,000
Sheila W. Wellington................ $0 Over $100,000
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No trustee who is not an interested person of the Fund owns beneficially or of record, any security of Nuveen Advisory, Nuveen, Citigroup Global Markets Inc. or any person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with Nuveen Advisory, Nuveen or Citigroup Global Markets Inc.
The following table sets forth estimated compensation to be paid by the Fund projected during the Fund's first full fiscal year after commencement of operation. The Fund does not have a retirement or pension plan. The officers and trustees affiliated with Nuveen serve without any compensation from the Fund. The Fund has a deferred compensation plan (the "Plan") that permits any trustee who is not an "interested person" of the Fund to elect to defer receipt of all or a portion of his or her compensation as a trustee. The deferred compensation of a participating trustee is credited to a book reserve account of the Trust when the compensation would otherwise have been paid to the trustee. The value of the trustee's deferral account at any time is equal to the value that the account would have had if contributions to the account had been invested and reinvested in shares of one or more of the eligible Nuveen funds. At the time for commencing distributions from a trustee's deferral account, the trustee may elect to receive distributions in a lump sum or over a period of five years. The Fund will not be liable for any other fund's obligations to make distributions under the Plan.
TOTAL
ESTIMATED AGGREGATE COMPENSATION FROM AMOUNT OF TOTAL
COMPENSATION FROM FUND AND FUND COMPENSATION THAT
NAME OF TRUSTEE THE FUND* COMPLEX** HAS BEEN DEFERRED
-------------------------------------- ------------------- ----------------- -----------------
Timothy R. Schwertfeger............... $ 0 $ 0 $ 0
William E. Bennett.................... $553 $53,050 $41,564
Robert P. Bremner..................... $553 $77,500 $ 8,780
Lawrence H. Brown..................... $579 $82,000 $ --
Jack B. Evans......................... $579 $49,100 $19,357
Anne E. Impellizzeri.................. $493 $77,500 $58,535
William L. Kissick.................... $493 $49,000 $18,000
Thomas E. Leafstrand.................. $579 $52,300 $20,542
Peter R. Sawers....................... $553 $79,250 $58,785
William J. Schneider.................. $568 $77,500 $58,535
Judith M. Stockdale................... $493 $77,750 $14,690
Sheila W. Wellington.................. $493 $47,600 $37,403
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The Fund has no employees. Its officers are compensated by Nuveen Investments, Inc. or its affiliates.
Nuveen Investments, Inc. maintains charitable contributions programs to encourage the active support and involvement of individuals in the civic activities of their community. These programs include a matching contributions program and a direct contributions program. The Independent Board Members of the funds managed by Nuveen Institutional Advisory Corp. are eligible to participate in the charitable contributions program of Nuveen Investments, Inc. Under the matching program, Nuveen Investments, Inc. will match the personal contributions of a Board Member to Section 501(c)(3) organizations up to an aggregate maximum amount of $10,000 during any calendar year. Under its direct (non-matching) program, Nuveen Investments, Inc. makes contributions to qualifying Section 501(c)(3) organizations, as approved by the Corporate Contributions Committee of Nuveen Investments, Inc. The Independent Board Members are also eligible to submit proposals to the committee requesting that contributions be made under this program to Section 501(c)(3) organizations identified by the Board member, in an aggregate amount not to exceed $5,000 during any calendar year. Any contribution made by Nuveen Investments, Inc. under the direct program is made solely at the discretion of the Corporate Contributions Committee.
INVESTMENT ADVISER
Nuveen Advisory acts as investment adviser to the Fund, with responsibility for the overall management of the Fund. Its address is 333 West Wacker Drive, Chicago, Illinois 60606. Nuveen Advisory is also responsible for managing the Fund's business affairs and providing day-to-day administrative services to the Fund. For additional information regarding the management services performed by Nuveen Advisory, see "Management of the Fund" in the Fund's prospectus.
Nuveen Advisory is a wholly owned subsidiary of Nuveen Investments, Inc. Founded in 1898, Nuveen Investments brings over a century of expertise to the municipal bond market. According to data from Thomson Wealth Management, Nuveen Investments, Inc. is the leading sponsor of municipal closed-end exchange-traded bond funds as measured by number of funds (97) and fund assets under
management ($35 billion) as of September 30, 2003. Overall, Nuveen through its various affiliates manages $90 billion in assets for clients in separate accounts, registered investment companies, and other collective investment vehicles as of September 30, 2003. Nuveen Investments, Inc. is a publicly-traded company that is approximately 79% owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is a publicly-traded company located in St. Paul, Minnesota, and is principally engaged in providing property-liability insurance through subsidiaries.
Nuveen Investments, Inc. provides high-quality investment services that are essential to building balanced core investment portfolios. Nuveen Investments, Inc. serves financial advisors, and their high-net-worth clients, as well as a growing number of institutional clients. The Company today markets its capabilities under four distinct brands: Nuveen, NWQ, Rittenhouse and Symphony. In total, the Company now manages approximately $90 billion in assets. Nuveen Investments, Inc. is listed on The New York Stock Exchange and trades under the symbol "JNC."
Pursuant to an investment management agreement between Nuveen Advisory and the Fund, the Fund has agreed to pay for the services and facilities provided by Nuveen Advisory an annual management fee, payable on a monthly basis, according to the following schedule:
AVERAGE DAILY MANAGED ASSETS* MANAGEMENT FEE
--------------------------------------------------- --------------
Up to $125 million................................. 0.7500%
$125 million to $250 million....................... 0.7375%
$250 million to $500 million....................... 0.7250%
$500 million to $1 billion......................... 0.7125%
$1 billion to $2 billion........................... 0.7000%
$2 billion and over................................ 0.6750%
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In addition to the fee of Nuveen Advisory, the Fund pays all other costs and expenses of its operations, including compensation of its trustees (other than those affiliated with Nuveen Advisory), custodian, transfer agency and dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses of issuing MuniPreferred shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies and taxes, if any. All fees and expenses are accrued daily and deducted before payment of dividends to investors.
For the first eight full years of the Fund's operation, Nuveen Advisory has contractually agreed to reimburse the Fund for fees and expenses in the amounts, and for the time periods, set forth below:
PERCENTAGE REIMBURSED PERCENTAGE REIMBURSED
YEAR ENDING (AS A PERCENTAGE OF YEAR ENDING (AS A PERCENTAGE OF
NOVEMBER 30, MANAGED ASSETS) NOVEMBER 30, MANAGED ASSETS)
--------------------------- --------------------- ------------ ---------------------
2003(1) 0.32% 2008 0.32%
2004 0.32% 2009 0.24%
2005 0.32% 2010 0.16%
2006 0.32% 2011 0.08%
2007
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Reducing Fund expenses in this manner will tend to increase the amount of income available for the common and MuniPreferred shareholders. Nuveen Advisory has not agreed to reimburse the Fund for any portion of its fees and expenses beyond November 30, 2011.
Unless earlier terminated as described below, the Fund's investment management agreement with Nuveen Advisory (the "management agreement") will remain in effect until August 1, 2005. The management agreement continues in effect from year to year so long as such continuation is approved at least annually by (1) the Board of Trustees or the vote of a majority of the outstanding voting securities of the Fund, and (2) a majority of the trustees who are not interested persons of any party to the investment management agreement, cast in person at a meeting called for the purpose of voting on such approval. The investment management agreement may be terminated at any time, without penalty, by either the Fund or Nuveen Advisory upon 60 days written notice, and is automatically terminated in the event of its assignment as defined in the 1940 Act.
The management agreement has been approved by a majority of the independent trustees of the Fund and the sole shareholder of the Fund. The independent trustees have determined that the terms of the Fund's management agreement are fair and reasonable and that the agreement is in the Fund's best interests. The independent trustees believe that the management agreement will enable the Fund to obtain high quality investment management services at a cost that they deem appropriate, reasonable, and in the best interests of the Fund and its shareholders. In making such determination, the independent trustees met independently from the interested trustee of the Fund and any officers of Nuveen Advisory and its affiliates. The independent trustees also relied upon the assistance of counsel to the independent trustees.
In evaluating the investment management agreement, the independent trustees reviewed materials furnished by Nuveen Advisory at the annual contract renewal meeting held in May 2003, including information regarding Nuveen Advisory, its affiliates and its personnel, operations and financial condition. The independent trustees discussed with representatives of Nuveen Advisory the Fund's operations and Nuveen Advisory's ability to provide advisory and other services to the Fund. The independent trustees also reviewed, among other things, the nature and quality of services to be provided by Nuveen Advisory, the proposed fees to be charged by Nuveen Advisory for investment management services, the profitability to Nuveen Advisory of its relationship with the Fund, fall-out benefits to Nuveen Advisory from that relationship, economies of scale achieved by Nuveen Advisory, the experience of the investment advisory and other personnel providing services to the Fund, the historical quality of the services provided by Nuveen Advisory and comparative fees and expense ratios of investment companies with similar objectives and strategies managed by other investment advisers, and other factors that the independent trustees deemed relevant.
The Fund, Nuveen Advisory, Nuveen and other related entities have adopted codes of ethics which essentially prohibit certain of their personnel, including the Nuveen fund portfolio manager, from engaging in personal investments which compete or interfere with, or attempt to take advantage of a client's, including the Fund's, anticipated or actual portfolio transactions, and are designed to assure that the interests of clients, including Fund shareholders, are placed before the interests of personnel in connection with personal investment transactions. Text-only versions of the codes of ethics of the Fund, Nuveen Advisory and Nuveen can be viewed online or downloaded from the EDGAR Database on the SEC's internet web site at www.sec.gov. You may also review and copy those documents by visiting the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-942-8090. In addition, copies of the codes of ethics may be obtained, after mailing the appropriate duplicating fee, by writing to the SEC's Public Reference Section, 450 5th Street, N.W., Washington, DC 20549-0102 or by e-mail request at publicinfo@sec.gov.
PROXY VOTING POLICIES
The Fund invests primarily in municipal securities. On rare occasions the Fund may acquire, directly or through a special purpose vehicle, equity securities of a municipal bond issuer whose bonds the Fund already owns when such bonds have deteriorated or are expected shortly to deteriorate significantly in credit quality. The purpose of acquiring equity securities generally will be to acquire control of the municipal bond issuer and to seek to prevent the credit deterioration or facilitate the liquidation or other workout of the distressed issuer's credit problem. In the course of exercising control of a distressed municipal issuer, Nuveen Advisory may pursue the Fund's interests in a variety of ways, which may entail negotiating and executing consents, agreements and other arrangements, and otherwise influencing the management of the issuer. Nuveen Advisory does not consider such activities proxy voting for purposes of Rule 206(4)-6 under the Investment Advisers Act of 1940, but nevertheless provides reports to the Fund's Board of Trustees on its control activities on a quarterly basis.
In the rare event that a municipal issuer held by the Fund were to issue a proxy, or that the Fund were to receive a proxy issued by a cash management security, Nuveen Advisory would either engage an independent third party to determine how the proxy should be voted or vote the proxy with the consent, or based on the instructions, of the Fund's Board of Trustees or its representative. In the case of a conflict of interest, the proxy would be submitted to the Fund's Board to determine how the proxy should be voted. A member of Nuveen Advisory's legal department would oversee the administration of the voting, and ensure that records were maintained in accordance with Rule 206(4)-6, reports were filed with the Securities and Exchange Commission ("SEC") on Form N-PX, and the results provided to the Fund's Board of Trustees and made available to shareholders as required by applicable rules.
PORTFOLIO TRANSACTIONS
Nuveen Advisory is responsible for decisions to buy and sell securities for the Fund and for the placement of the Fund's securities business, the negotiation of the prices to be paid for principal trades and the allocation of its transactions among various dealer firms. Portfolio securities will normally be purchased directly from an underwriter or in the over-the-counter market from the principal dealers in such securities, unless it appears that a better price or execution may be obtained through other means. Portfolio securities will not be purchased from Nuveen or its affiliates except in compliance with the 1940 Act.
The Fund expects that substantially all portfolio transactions will be effected on a principal (as opposed to an agency) basis and, accordingly, does not expect to pay any brokerage commissions. Purchases from underwriters will include a commission or concession paid by the issuer to the underwriter, and purchases from dealers will include the spread between the bid and asked price. On occasion, the Fund may clear portfolio transactions through Nuveen. It is the policy of Nuveen Advisory to seek the best execution under the circumstances of each trade. Nuveen Advisory evaluates price as the primary consideration, with the financial condition, reputation and responsiveness of the dealer considered secondary in determining best execution. Given the best execution obtainable, it will be Nuveen Advisory's practice to select dealers which, in addition, furnish research information (primarily credit analyses of issuers and general economic reports) and statistical and other services to Nuveen Advisory. It is not possible to place a dollar value on information and statistical and other services received from dealers. Since it is only supplementary to Nuveen Advisory's own research efforts, the receipt of research information is not expected to reduce significantly Nuveen Advisory's expenses. While Nuveen Advisory will be primarily responsible for the placement of the business of the Fund, the policies and practices of Nuveen Advisory in this regard must be consistent with the foregoing and will, at all times, be subject to review by the Board of Trustees of the Fund.
Nuveen Advisory may manage other investment accounts and investment companies for other clients which have investment objectives similar to those of the Fund. Subject to applicable laws and regulations, Nuveen Advisory seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities by the Fund and another advisory account. In making such allocations the main factors to be considered will be the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment and the size of investment commitments generally held. While this procedure could have a detrimental effect on the price or amount of the securities available to the Fund from time to time, it is the opinion of the Board of Trustees that the benefits available from Nuveen Advisory's organization will outweigh any disadvantage that may arise from exposure to simultaneous transactions.
NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of regular session trading (normally 4:00 p.m. eastern time) on each day the New York Stock Exchange is open for business. Net asset value is calculated by taking the fair value of the Fund's total assets, including interest or dividends accrued but not yet collected, less all liabilities, and dividing by the total number of shares outstanding. The result, rounded to the nearest cent, is the net asset value per share
In determining net asset value, expenses are accrued and applied daily and securities and other assets for which market quotations are available are valued at market value. The prices of municipal bonds are provided by a pricing service and based on the mean between the bid and asked price. When price quotes are not readily available (which is usually the case for municipal bonds), the pricing service establishes a fair market value based on prices of comparable municipal bonds. All valuations are subject to review by the Fund's Board of Trustees or its delegate, Nuveen Advisory.
ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR MUNIPREFERRED
GENERAL
Auction Agency Agreement. The Fund has entered into an Auction Agency Agreement (the "Auction Agency Agreement") with the Auction Agent (currently, Deutsche Bank Trust Company Americas) which provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for shares of each series of MuniPreferred so long as the Applicable Rate for shares of such series is to be based on the results of an Auction.
Broker-Dealer Agreements. Each Auction requires the participation of one or more Broker-Dealers. The Auction Agent has entered into agreements (collectively, the "Broker-Dealer Agreements") with several Broker-Dealers selected by the Fund, which provide for the participation of those Broker-Dealers in Auctions for shares of MuniPreferred. See "Broker-Dealers" below.
Securities Depository. The Depository Trust Company ("DTC") will act as the Securities Depository for the Agent Members (as defined below) with respect to shares of each series of MuniPreferred. One certificate for all of the shares of each series of MuniPreferred will be registered in the name of Cede & Co., as nominee of the Securities Depository. Such certificate will bear a legend to the effect that such certificate is issued subject to the provisions restricting transfers of shares of MuniPreferred contained in the Statement. The Fund will also issue stop-transfer instructions to the transfer agent for shares of each series of MuniPreferred. Prior to the commencement of the right of holders of preferred shares to elect a majority of the Fund's trustees, as described under "Description of MuniPreferred Shares--Voting Rights" in the Prospectus, Cede & Co. will be the holder of record of all
shares of each series of MuniPreferred and owners of such shares will not be entitled to receive certificates representing their ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs services for its participants (including the Agent Members), some of whom (and/or their representatives) own DTC. DTC maintains lists of its participants and will maintain the positions (ownership interests) held by each such participant (the "Agent Member") in shares of MuniPreferred, whether for its own account or as a nominee for another person.
CONCERNING THE AUCTION AGENT
The Auction Agent is acting as agent for the Fund in connection with Auctions. In the absence of bad faith or negligence on its part, the Auction Agent will not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Auction Agency Agreement and will not be liable for any error of judgment made in good faith unless the Auction Agent will have been negligent in ascertaining the pertinent facts.
The Auction Agent may rely upon, as evidence of the identities of the Existing Holders of shares of MuniPreferred, the Auction Agent's registry of Existing Holders, the results of Auctions and notices from any Broker-Dealer (or other Person, if permitted by the Fund) with respect to transfers described under "The Auction--Secondary Market Trading and Transfer of MuniPreferred" in the Prospectus and notices from the Fund. The Auction Agent is not required to accept any such notice for an Auction unless it is received by the Auction Agent by 3:00 p.m., New York City time, on the Business Day preceding such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon notice to the Fund on a date no earlier than 45 days after such notice. If the Auction Agent should resign, the Fund will use its best efforts to enter into an agreement with a successor Auction Agent containing substantially the same terms and conditions as the Auction Agency Agreement. The Fund may remove the Auction Agent provided that prior to such removal the Fund shall have entered into such an agreement with a successor Auction Agent.
BROKER-DEALERS
The Auction Agent after each Auction for shares of MuniPreferred will pay to each Broker-Dealer, from funds provided by the Fund, a service charge at the annual rate of 1/4 of 1% in the case of any Auction immediately preceding a Rate Period of less than 364 Rate Period Days, or a percentage agreed to by the Fund and the Broker-Dealers in the case of any Auction immediately preceding a Rate Period of 364 Rate Period Days or longer, of the purchase price of shares of MuniPreferred placed by such Broker-Dealer at such Auction. For the purposes of the preceding sentence, shares of MuniPreferred will be placed by a Broker-Dealer if such shares were (a) the subject of Hold Orders deemed to have been submitted to the Auction Agent by the Broker-Dealer and were acquired by such Broker-Dealer for its own account or were acquired by such Broker-Dealer for its customers who are Beneficial Owners or (b) the subject of an Order submitted by such Broker-Dealer that is (i) a Submitted Bid of an Existing Holder that resulted in such Existing Holder continuing to hold such shares as a result of the Auction or (ii) a Submitted Bid of a Potential Holder that resulted in such Potential Holder purchasing such shares as a result of the Auction or (iii) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer Agreement is in effect after such termination.
The Broker-Dealer Agreement provides that a Broker-Dealer (other than an affiliate of the Fund) may submit Orders in Auctions for its own account, unless the Fund notifies all Broker-Dealers that they may no longer do so, in which case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their own accounts. Any Broker-Dealer that is an affiliate of the Fund may submit Orders in Auctions, but only if such Orders are not for its own account. If a Broker-Dealer submits an Order for its own account in any Auction, it might have an advantage over other Bidders because it would have knowledge of all Orders submitted by it in that Auction; such Broker-Dealer, however, would not have knowledge of Orders submitted by other Broker-Dealers in that Auction.
DESCRIPTION OF COMMON SHARES
In addition to the MuniPreferred shares, the Declaration authorizes the issuance of an unlimited number of common shares, par value of $0.01 per share. All outstanding common shares have equal rights to the payment of dividends and the distribution of assets upon liquidation, are fully paid and, subject to matters discussed in "Certain Provisions in the Declaration of Trust," non-assessable, and have no pre-emptive or conversion rights or rights to cumulative voting. Whenever MuniPreferred shares are outstanding, holders of the Fund's common shares will not be entitled to receive any cash distributions from the Fund unless all accrued dividends on MuniPreferred shares have been paid, and unless asset coverage (as defined in the 1940 Act) with respect to MuniPreferred shares would be at least 200% after giving effect to the distributions.
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Declaration contains an express disclaimer of shareholder liability for debts or obligations of the Fund and requires that notice of such limited liability be given in each agreement, obligation or instrument entered into or executed by the Fund or the trustees. The Declaration further provides for indemnification out of the assets and property of the Fund for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations. The Fund believes that the likelihood of such circumstances is remote.
The Declaration includes provisions that could limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end status. Specifically, the Declaration requires a vote by holders of at least two-thirds of the common shares and MuniPreferred shares, voting together as a single class, except as described below, to authorize (1) a conversion of the Fund from a closed-end to an open-end investment company, (2) a merger or consolidation of the Fund, or a series or class of the Fund, with any corporation, association, trust or other organization or a reorganization of the Fund, or a series or class of the Fund, (3) a sale, lease or transfer of all or substantially all of the Fund's assets (other than in the regular course of the Fund's investment activities), (4) in certain circumstances, a termination of the Fund, or a series or class of the Fund or (5) removal of trustees by shareholders, and then only for cause, unless, with respect to (1) through (4), such transaction has already been authorized by the affirmative vote of two-thirds of the total number of trustees fixed in accordance with the Declaration or the By-laws, in which case the affirmative vote of the holders of at least a majority of the Fund's common shares and MuniPreferred shares outstanding at the time, voting together as a single class, is required, provided, however, that where only a particular class or series is affected (or, in the case of removing a trustee, when the trustee has been elected by only one class), the required vote only by the applicable class or series will be required. Approval of shareholders is not required, however, for any transaction, whether deemed a merger, consolidation, reorganization or otherwise whereby the Fund
issues shares in connection with the acquisition of assets (including those subject to liabilities) from any other investment company or similar entity. In the case of the conversion of the Fund to an open-end investment company, or in the case of any of the foregoing transactions constituting a plan of reorganization which adversely affects the holders of MuniPreferred shares, the action in question will also require the affirmative vote of the holders of at least two-thirds of the Fund's MuniPreferred shares outstanding at the time, voting as a separate class, or, if such action has been authorized by the affirmative vote of two-thirds of the total number of trustees fixed in accordance with the Declaration or the By-laws, the affirmative vote of the holders of at least a majority of the Fund's MuniPreferred shares outstanding at the time, voting as a separate class. None of the foregoing provisions may be amended except by the vote of at least two-thirds of the common shares and MuniPreferred shares, voting together as a single class. The votes required to approve the conversion of the Fund from a closed-end to an open-end investment company or to approve transactions constituting a plan of reorganization which adversely affects the holders of MuniPreferred shares are higher than those required by the 1940 Act. The Board of Trustees believes that the provisions of the Declaration relating to such higher votes are in the best interest of the Fund and its shareholders.
Reference should be made to the Declaration on file with the Securities and Exchange Commission for the full text of these provisions.
The Declaration provides that the obligations of the Fund are not binding upon the trustees of the Fund individually, but only upon the assets and property of the Fund, and that the trustees shall not be liable for errors of judgment or mistakes of fact or law. Nothing in the Declaration, however, protects a trustee against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its shareholders will not have the right to cause the Fund to redeem their shares. Instead, the Fund's common shares will trade in the open market at a price that will be a function of several factors, including dividend levels (which are in turn affected by expenses), net asset value, call protection, price, dividend stability, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Because shares of a closed-end investment company may frequently trade at prices lower than net asset value, the Fund's Board of Trustees has currently determined that, at least annually, it will consider action that might be taken to reduce or eliminate any material discount from net asset value in respect of common shares, which may include the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares at net asset value, or the conversion of the Fund to an open-end investment company. There can be no assurance, however, that the Board of Trustees will decide to take any of these actions, or that share repurchases or tender offers, if undertaken, will reduce market discount.
Notwithstanding the foregoing, at any time when the Fund's MuniPreferred shares are outstanding, the Fund may not purchase, redeem or otherwise acquire any of its common shares unless (1) all accrued MuniPreferred shares dividends have been paid and (2) at the time of such purchase, redemption or acquisition, the net asset value of the Fund's portfolio (determined after deducting the acquisition price of the common shares) is at least 200% of the liquidation value of the outstanding MuniPreferred shares (expected to equal the original purchase price per share plus any accrued and unpaid dividends thereon). The staff of the Securities and Exchange Commission currently requires that any tender offer made by a closed-end investment company for its shares must be at a price equal to the net asset value of such shares at the close of business on the last day of the tender offer. Any service fees incurred in connection with any tender offer made by the Fund will be borne by the Fund and will not reduce the stated consideration to be paid to tendering shareholders.
Subject to its investment limitations, the Fund may borrow to finance the repurchase of shares or to make a tender offer. Interest on any borrowings to finance share repurchase transactions or the accumulation of cash by the Fund in anticipation of share repurchases or tenders will reduce the Fund's net income. Any share repurchase, tender offer or borrowing that might be approved by the Board of Trustees would have to comply with the Securities Exchange Act of 1934, as amended, and the 1940 Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net
asset value will be made by the Board of the Fund at the time it considers such
issue, it is the Board's present policy, which may be changed by the Board, not
to authorize repurchases of common shares or a tender offer for such shares if
(1) such transactions, if consummated, would (a) result in the delisting of the
common shares from the American Stock Exchange, or (b) impair the Fund's status
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (which would make the Fund a taxable entity, causing the Fund's income
to be taxed at the corporate level in addition to the taxation of shareholders
who receive dividends from the Fund) or as a registered closed-end investment
company under the 1940 Act; (2) the Fund would not be able to liquidate
portfolio securities in an orderly manner and consistent with the Fund's
investment objectives and policies in order to repurchase shares; or (3) there
is, in the Board's judgment, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Fund, (b) general suspension of or limitation on prices
for trading securities on the American Stock Exchange, (c) declaration of a
banking moratorium by Federal or state authorities or any suspension of payment
by United States or state banks in which the Fund invests, (d) material
limitation affecting the Fund or the issuers of its portfolio securities by
federal or state authorities on the extension of credit by lending institutions
or on the exchange of foreign currency, (e) commencement of war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States, or (f) other event or condition which would have a
material adverse effect (including any adverse tax effect) on the Fund or its
shareholders if shares were repurchased. The Board of Trustees of the Fund may
in the future modify these conditions in light of experience.
Conversion to an open-end company would require the approval of the holders of at least two-thirds of the Fund's common shares and MuniPreferred shares outstanding at the time, voting together as a single class, and of the holders of at least two-thirds of the Fund's MuniPreferred shares outstanding at the time, voting as a separate class, provided however, that such separate class vote shall be a majority vote if the action in question has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of trustees fixed in accordance with the Declaration or By-laws. See the prospectus under "Certain Provisions in the Declaration of Trust" for a discussion of voting requirements applicable to conversion of the Fund to an open-end company. If the Fund converted to an open-end company, it would be required to redeem all MuniPreferred shares then outstanding, and the Fund's common shares would no longer be listed on the American Stock Exchange. Shareholders of an open-end investment company may require the company to redeem their shares on any business day (except in certain circumstances as authorized by or under the 1940 Act) at their net asset value, less such redemption charge, if any, as might be in effect at the time of redemption. In order to avoid maintaining large cash positions or liquidating favorable investments to meet redemptions, open-end companies typically engage in a continuous offering of their shares. Open-end companies are thus subject to periodic asset in-flows and out-flows that can complicate portfolio management. The Board of Trustees of the Fund may at any time propose conversion of the Fund to an open-end company depending upon their judgment as to the advisability of such action in light of circumstances then prevailing.
The repurchase by the Fund of its shares at prices below net asset value would result in an increase in the net asset value of those shares that remain outstanding. However, there can be no assurance that share repurchases or tenders at or below net asset value would result in the Fund's shares
trading at a price equal to their net asset value. Nevertheless, the fact that the Fund's shares may be the subject of repurchase or tender offers at net asset value from time to time, or that the Fund may be converted to an open-end company, may reduce any spread between market price and net asset value that might otherwise exist.
In addition, a purchase by the Fund of its common shares would decrease the Fund's total assets which would likely have the effect of increasing the Fund's expense ratio. Any purchase by the Fund of its common shares at a time when MuniPreferred shares are outstanding will increase the leverage applicable to the outstanding common shares then remaining.
Before deciding whether to take any action if the Fund's common shares trade below net asset value, the Board of the Fund would consider all relevant factors, including the extent and duration of the discount, the liquidity of the Fund's portfolio, the impact of any action that might be taken on the Fund or its shareholders and market considerations. Based on these considerations, even if the Fund's shares should trade at a discount, the Board of Trustees may determine that, in the interest of the Fund and its shareholders, no action should be taken.
FEDERAL INCOME TAX MATTERS
The following is intended to be a general summary of certain US federal income tax consequences of investing in shares of MuniPreferred. It is not intended to be a complete discussion of all such federal income tax consequences, nor does it purport to deal with all categories of investors. Investors are advised to consult with their own tax advisors before investing in the Fund.
The Fund intends to elect to be treated, and to qualify each year, as a regulated investment company, under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and to satisfy conditions which enable dividends on common shares and shares of MuniPreferred which are attributable to interest on municipal obligations to be exempt from federal income tax in the hands of owners of such stock, subject to the possible application of the federal alternative minimum tax.
To qualify under Subchapter M of the Code as a regulated investment company, the Fund must, among other things: (a) distribute to its shareholders each year at least 90% of the sum of (i) its investment company taxable income (as that term is defined in the Code, determined without regard to the deduction for dividends paid) and (ii) its net tax-exempt income (the excess of its gross tax-exempt interest income over certain disallowed deductions) and (b) diversify its holdings so that, at the end of each quarter of the Fund's taxable year (i) at least 50% of the market value of the Fund's assets is represented by cash, cash items, U.S. government securities, securities of other regulated investment companies, and other securities, with these other securities limited, with respect to any one issuer, to an amount not greater in value than 5% of the Fund's total assets, and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the market value of the Fund's assets is invested in the securities of any one issuer (other than U.S. government securities or securities of other regulated investment companies) or two or more issuers controlled by the Fund and engaged in the same, similar or related trades or businesses. In meeting these requirements, the Fund may be restricted in the utilization of certain of the investment techniques described under "Investment Policies and Techniques" and "Other Investment Policies and Techniques" above. If for any taxable year the Fund did not qualify as a regulated investment company for federal income tax purposes, it would be treated as a corporation subject to federal income tax and distributions to its shareholders would not be deducted by the Fund in computing its taxable income. In addition, in the event of a failure to qualify as a regulated investment company, the Fund's distributions, to the extent derived from the Fund's current or accumulated earnings and profits, would generally constitute ordinary dividends, which generally would
be eligible for the dividends received deduction available to corporate shareholders and the reduced rate of taxation for "qualified dividend income" available to noncorporate shareholders.
A regulated investment company that fails to distribute, by the close of each calendar year, an amount equal to the sum of 98% of its ordinary taxable income for such year and 98% of its capital gain net income for the one-year period ending October 31 in such year, plus any shortfalls from the prior years' required distribution, is liable for a nondeductible 4% federal excise tax on the excess of the required distribution for such calendar year over the distributed amount for such calendar year. To avoid the imposition of this excise tax, the Fund generally intends to make the required distributions of its ordinary taxable income, if any, and its capital gain net income, to the extent possible, by the close of each calendar year.
The Fund intends to qualify to pay "exempt-interest" dividends, as defined in the Code, on its common shares and shares of MuniPreferred by satisfying the requirement that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consist of tax-exempt municipal bonds. Exempt-interest dividends are dividends or any part thereof (other than a capital gain dividend) paid by the Fund which are attributable to interest on municipal bonds and are so designated by the Fund. Exempt-interest dividends will be exempt from federal income tax, subject to the possible application of the federal alternative minimum tax. Insurance proceeds received by the Fund under any insurance policies in respect of scheduled interest payments on defaulted municipal bonds, as described herein, will generally be excludable from federal gross income under Section 103(a) of the Code. In the case of non-appropriation by a political subdivision, however, there can be no assurance that payments made by the issuer representing interest on such "non-appropriation" municipal lease obligations will be excludable from gross income for federal income tax purposes. See "Investment Policies and Techniques" above. Gains of the Fund that are attributable to market discount on certain municipal obligations are treated as ordinary income to the extent of accrued market discount on the bond.
Distributions to shareholders of net investment income received by the Fund from taxable temporary investments, if any, and of net short-term capital gains realized by the Fund, if any, will be taxable to its shareholders as ordinary income. Distributions by the Fund of net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss), if any, are taxable as long-term capital gain, regardless of the length of time the shareholder has owned the shares with respect to which such distributions are made. The amount of taxable income allocable to the Fund's shares will depend upon the amount of such income realized by the Fund, but is not generally expected to be significant. Except for dividends paid on shares of MuniPreferred which include an allocable portion of any net capital gain or other taxable income, the Fund anticipates that all other dividends paid on shares of its MuniPreferred will constitute exempt-interest dividends for federal income tax purposes. Distributions, if any, in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a shareholder's shares and, after that basis has been reduced to zero, will constitute capital gain to the shareholder (assuming the shares are held as a capital asset). As long as the Fund qualifies as a regulated investment company under the Code, no part of its distributions to shareholders will qualify for the dividends-received deduction available to corporate shareholders or as "qualified dividend income" available to noncorporate shareholders.
The Internal Revenue Service (the "IRS") requires that a regulated investment company that has two or more classes of shares must designate to each such class proportionate amounts of each type of its income for each tax year based upon the percentage of total dividends distributed to each class for such year. The Fund intends each year to allocate, to the fullest extent practicable, net tax-exempt interest, net capital gain and other taxable income, if any, between its common shares and shares of MuniPreferred in proportion to the total dividends paid to each class with respect to such year. To the extent permitted under applicable law, the Fund reserves the right to make special allocations of income within a class,
consistent with the objectives of the Fund. The Fund will, in the case of a Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and may, in the case of any other Special Rate Period, notify the Auction Agent of the amount of any net capital gain or other income taxable for regular federal income tax purposes to be included in any dividend on shares of its MuniPreferred prior to the Auction establishing the Applicable Rate for such dividend. If (a) in the case of any Minimum Rate Period or any Special Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net capital gain or other income taxable for regular federal income tax purposes to a dividend paid on shares of MuniPreferred without having given advance notice thereof to the Auction Agent as required by the Statement solely by reason of the fact that such allocation is made retroactively as a result of the redemption of all or a portion of the outstanding shares of its MuniPreferred or the liquidation of the Fund or (b) in the case of any Special Rate Period of more than 28 Rate Period Days, the Fund allocates any net capital gain or other taxable income for regular federal income tax purposes to shares of its MuniPreferred without having given advance notice thereof as described above, the Fund will make certain payments to owners of shares of its MuniPreferred to which such allocation was made to offset the federal income tax effect thereof as described under "Description of MuniPreferred Shares--Dividends and Dividend Periods--Gross-up Payments" in the Prospectus.
In order for any distributions to owners of the shares of MuniPreferred to be eligible to be treated as exempt-interest dividends, such shares of MuniPreferred must be treated as stock for federal income tax purposes. Nuveen Advisory believes the shares of MuniPreferred should be treated as stock for federal income tax purposes.
If at any time when the Fund's shares of MuniPreferred are outstanding the Fund fails to meet the MuniPreferred Basic Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, the Fund will be required to suspend distributions to holders of its common shares until such maintenance amount or asset coverage, as the case may be, is restored. See "Description of MuniPreferred Shares--Dividends and Dividend Periods--Restrictions on Dividends and Other Distributions" in the Prospectus. This may prevent the Fund from distributing at least 90% of the sum of its investment company taxable income (as that term is defined in the Code, determined without regard to the deduction for dividends paid) and its net tax-exempt income, and may therefore jeopardize the Fund's qualification for taxation as a regulated investment company or cause the Fund to incur an income tax liability or a non-deductible 4% federal excise tax on the undistributed taxable income (including gain), or both. Upon failure to meet the MuniPreferred Basic Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, the Fund will be required to redeem its shares of MuniPreferred in order to maintain or restore such maintenance amount or asset coverage and avoid the adverse consequences to the Fund and its shareholders of failing to qualify as a regulated investment company. There can be no assurance, however, that any such redemption would achieve such objectives.
The Code provides that interest on indebtedness incurred or continued to purchase or carry the Fund's shares to which exempt-interest dividends are allocated is not deductible. Under rules used by the IRS for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase or ownership of shares may be considered to have been made with borrowed funds even though such funds are not directly used for the purchase or ownership of such shares.
The interest on private activity bonds in most instances is not federally tax-exempt to a person who is a "substantial user" of a facility financed by such bonds or a "related person" of such "substantial user." As a result, the Fund may not be an appropriate investment for a shareholder who is considered either a "substantial user" or a "related person" within the meaning of the Code. In general, a "substantial user" of a facility includes a "nonexempt person who regularly uses a part of such facility in his trade or business." "Related persons" are in general defined to include persons among whom there exists a
relationship, either by family or business, which would result in a disallowance of losses in transactions among them under various provisions of the Code (or if they are members of the same controlled group of corporations under the Code), including a partnership and each of its partners (and certain members of their families), an S corporation and each of its shareholders (and certain members of their families) and various combinations of these and other relationships. The foregoing is not a complete description of all of the provisions of the Code covering the definitions of "substantial user" and "related person."
The Fund may, at its option, redeem shares of its MuniPreferred in whole or in part, and is required to redeem shares of its MuniPreferred to the extent required to maintain the MuniPreferred Basic Maintenance Amount and the 1940 Act MuniPreferred Asset Coverage. Gain or loss, if any, resulting from a redemption of the shares of MuniPreferred will be taxed as gain or loss from the sale or exchange of the shares of MuniPreferred under Section 302 of the Code rather than as a dividend, but only if the redemption distribution (a) is deemed not to be essentially equivalent to a dividend, (b) is in complete redemption of an owner's interest in the Fund, (c) is substantially disproportionate with respect to the owner, or (d) with respect to non-corporate owners, is in partial liquidation of the Fund. In determining whether the above conditions are satisfied, shares owned by certain persons related to the owner will be treated as held by such owner and, for purposes of (a), (b) and (c) above, an owner's ownership of common shares will be taken into account.
Nonresident alien individuals and certain foreign corporations and other entities ("foreign investors") generally are subject to U.S. federal income tax withholding at the rate of 30% (or possibly a lower rate provided by an applicable tax treaty) on distributions of taxable net investment income and net short-term capital gain. To the extent received by foreign investors, exempt-interest dividends, distributions of net long-term capital gain and gain from the sale or other disposition of the shares of MuniPreferred generally are exempt from U.S. federal income taxation. Different tax consequences may result if the owner is engaged in a trade or business in the United States or, in the case of an individual, is present in the United States for more than 182 days during a taxable year and certain other conditions are met.
Although dividends generally will be treated as distributed when paid, dividends declared in October, November or December, payable to shareholders of record on a specified date in one of those months and paid during the following January, will be treated as having been distributed by the Fund (and received by the shareholders) on December 31 of the year declared.
Certain of the Fund's investment practices are subject to special provisions of the Code that, among other things, may defer the use of certain deductions or losses of the Fund, affect the holding period of securities held by the Fund, and alter the character of the gains or losses realized by the Fund. These provisions may also require the Fund to recognize income or gain without receiving cash with which to make distributions in the amounts necessary to satisfy the requirements for maintaining regulated investment company status and for avoiding income and excise taxes. The Fund will monitor its transactions and may make certain tax elections in order to mitigate the effect of these rules and prevent disqualification of the Fund as a regulated investment company.
The sale or other disposition of shares of MuniPreferred (other than redemptions, the rules for which are described above) will normally result in capital gain or loss to shareholders who hold their shares as capital assets. Present law taxes both long-term and short-term capital gains of corporations at the rates applicable to ordinary income. For non-corporate taxpayers, however, long-term capital gains are generally subject to reduced rates of taxation. Losses realized by a shareholder on the sale or exchange of shares of the Fund held for six months or less are disallowed to the extent of any distribution of exempt-interest dividends received with respect to such shares, and, if not disallowed, such losses are treated as long-term capital losses to the extent of any distribution of long-term capital gain received (or
designated amounts of undistributed capital gain that are treated as received) with respect to such shares. Under certain circumstances, a shareholder's holding period may have to restart after, or may be suspended for, any periods during which the shareholder's risk of loss is diminished as a result of holding one or more other positions in substantially similar or related property, or through certain options or short sales. Any loss realized on a sale or exchange of shares of the Fund will be disallowed to the extent those shares of the Fund are replaced by other substantially identical shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the original shares. In that event, the basis of the replacement shares of the Fund will be adjusted to reflect the disallowed loss.
Federal income tax law imposes an alternative minimum tax with respect to corporations, individuals, trusts and estates. Interest on certain municipal obligations, such as bonds issued to make loans for housing purposes or to private entities (but not to certain tax-exempt organizations such as universities and non-profit hospitals) is included as an item of tax preference in determining the amount of a taxpayer's alternative minimum taxable income. To the extent that the Fund receives income from municipal obligations subject to the federal alternative minimum tax, a portion of the dividends paid by the Fund, although otherwise exempt from federal income tax, will be taxable to its shareholders to the extent that their tax liability is determined under the federal alternative minimum tax. The Fund will annually provide a report indicating the percentage of the Fund's income attributable to municipal obligations subject to the federal alternative minimum tax. In addition, for certain corporations, federal alternative minimum taxable income is increased by 75% of the difference between an alternative measure of income ("adjusted current earnings") and the amount otherwise determined to be the alternative minimum taxable income. Interest on all municipal obligations, and therefore all distributions by the Fund that would otherwise be tax-exempt, is included in calculating a corporation's adjusted current earnings. Certain small corporations are not subject to the federal alternative minimum tax.
Tax-exempt income, including exempt-interest dividends paid by the Fund, is taken into account in calculating the amount of social security and railroad retirement benefits that may be subject to federal income tax.
The Fund is required in certain circumstances to withhold a portion of taxable dividends and certain other payments paid to certain holders of the Fund's shares who do not furnish to the Fund their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to a shareholder may be refunded or credited against such shareholder's federal income tax liability, provided the required information is furnished to the IRS.
The Code provides that every shareholder required to file a tax return must include for information purposes on such return the amount of tax-exempt interest received during the taxable year, including any exempt-interest dividends received from the Fund.
The foregoing is a general summary of certain provisions of the Code and regulations thereunder presently in effect as they directly govern the federal income taxation of the Fund and its shareholders. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. Moreover, the foregoing does not address many of the factors that may be determinative of whether an investor will be liable for the alternative minimum tax. Shareholders are advised to consult their own tax advisors for more detailed information concerning the federal, foreign, state and local tax consequences of purchasing, holding and disposing of Fund shares.
EXPERTS
The Financial Statements of the Fund as of November 3, 2003, appearing in this Statement of Additional Information have been audited by Ernst & Young, LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and is included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. Ernst & Young LLP provides accounting and auditing services to the Fund. The principal business address of Ernst & Young LLP is 233 South Wacker Drive, Chicago, Illinois 60606.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND REDEMPTION AGENT
The custodian of the assets of and transfer, shareholder services and dividend paying agent for the Fund is State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. The Custodian performs custodial, fund accounting and portfolio accounting services. Deutsche Bank Trust Company Americas, 100 Plaza One, 6th Floor, Jersey City, NJ 07311, a banking corporation organized under the laws of New York, is the Auction Agent with respect to shares of MuniPreferred and acts as transfer agent, registrar, dividend disbursing agent and redemption agent with respect to such shares.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto, relating to the shares of the Fund offered hereby, has been filed by the Fund with the Securities and Exchange Commission (the "Commission"), Washington, D.C. The Fund's prospectus and this Statement of Additional Information do not contain all of the information set forth in the Registration Statement, including any exhibits and schedules thereto. For further information with respect to the Fund and the shares offered hereby, reference is made to the Fund's Registration Statement. Statements contained in the Fund's prospectus and this Statement of Additional Information as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Copies of the Registration Statement may be inspected without charge at the Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the Commission upon the payment of certain fees prescribed by the Commission.
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Nuveen Municipal High Income Opportunity Fund
We have audited the accompanying statement of assets and liabilities of Nuveen Municipal High Income Opportunity Fund (the "Fund") as of November 3, 2003 and the related statement of operations for the period from October 8, 2003 (date of organization) through November 3, 2003. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund at November 3, 2003, and results of its operations for the period from October 8, 2003 (date of organization) through November 3, 2003, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
November 4, 2003
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NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
FINANCIAL STATEMENTS
Nuveen Municipal High Income Opportunity Fund Statement of Assets and Liabilities November 3, 2003
Assets:
Cash................................................................ $100,275
Offering costs...................................................... 600,000
Receivable from Adviser............................................. 11,500
--------
Total assets..................................................... 711,775
--------
Liabilities:
Accrued offering costs.............................................. 600,000
Payable for organization costs...................................... 11,500
--------
Total liabilities................................................ 611,500
--------
MuniPreferred Shares, $25,000 liquidation value; unlimited
number of shares authorized, no shares outstanding............... -
--------
Net assets applicable to Common Shares................................. $100,275
========
Net asset value per Common Share outstanding ($100,275 divided
by 7,000 Common Shares outstanding).............................. $ 14.325
========
Net Assets Applicable to Common Shares Represent:
Common Shares, $.01 par value; unlimited number of shares
authorized, 7,000 shares outstanding........................... 70
Paid-in surplus.................................................. 100,205
--------
$100,275
========
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Nuveen Municipal High Income Opportunity Fund Statement of Operations Period from October 8, 2003 (date of organization) through November 3, 2003
Investment income.................................................. $ --
--------
Expenses:
Organization costs................................................ 11,500
Expense reimbursement............................................. (11,500)
--------
Total expenses.................................................. --
--------
Net investment income.............................................. $ --
========
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Note 1: Organization
The Fund was organized as a Massachusetts business trust on October 8, 2003, and has been inactive since that date except for matters relating to its organization and registration as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended, and the sale of 7,000 Common Shares to Nuveen Advisory Corp., the Fund's investment adviser (the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc.
Nuveen Investments, LLC, also a wholly owned subsidiary of Nuveen Investments, Inc., has agreed to reimburse all organization expenses (approximately $11,500) and pay all Common Share offering costs (other than the sales load) that exceed $.03 per Common Share.
The Fund seeks to provide high current income exempt from regular federal income tax. The Fund's secondary investment objective is to seek attractive total return consistent with its primary objective.
The Fund is authorized by its Declaration of Trust to issue Preferred Shares ("MuniPreferred Shares") having a liquidation value of $25,000 per share in one or more classes or series, with dividend, liquidation preference and other rights as determined by the Fund's Board of Trustees without approval of the Common Shareholders.
Note 2: Significant Accounting Policies
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. Actual results may differ from those estimates.
The Fund's share of Common Share offering costs will be recorded as a reduction of the proceeds from the sale of Common Shares upon the commencement of Fund operations.
If the Fund offers MuniPreferred Shares, the offering costs will be borne by Common Shareholders as a direct reduction to paid-in surplus.
Note 3: Investment Management Agreement
Pursuant to an investment management agreement between the Adviser and the Fund, the Fund, upon commencement of Fund operations, has agreed to pay a management fee, payable on a monthly basis, at an annual rate ranging from .7500% of the first $125 million of the average daily net assets (including net assets attributable to MuniPreferred Shares ("Management Assets")) to .6750% of the average daily Managed Assets in excess of $2 billion.
In addition to the reimbursement and waiver of organization and Common Share offering costs discussed in Note 1, the Adviser has contractually agreed to reimburse the Fund for fees and expenses in the amount of .32% of average daily Managed Assets for the first five full years of the Fund's operations, .24% in year 6, .16% in year 7 and .08% in year 8. The Adviser has not agreed to reimburse the Fund for any portion of its fees and expenses beyond November 30, 2011.
Note 4: Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income, in addition to any significant amounts of net realized capital gains and/or market discount realized from investment transactions, if any.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
December 29, 2003
ASSETS
Investments, at market value
(cost $318,116,413) $322,441,203
Receivables:
Interest 3,448,774
Investments sold 27,644,353
------------
Total assets 353,534,330
------------
LIABILITIES
Cash overdraft 7,114,390
Payable for investments purchased 18,475,302
Accrued expenses:
Management fees 106,656
Organization and offering costs 5,000
Other 38,836
------------
Total liabilities 25,740,184
------------
Net assets applicable to Common shares $327,794,146
============
Common shares outstanding 22,507,000
============
Net asset value per Common share outstanding
(net assets applicable to Common shares
divided by Common shares outstanding) $ 14.56
============
Net assets applicable to Common shares consist of:
Common shares, $.01 par value per share $ 225,070
Paid-in surplus 321,512,705
Undistributed net investment income 1,018,548
Accumulated net realized gain from investments 713,033
Net unrealized appreciation of investments 4,324,790
------------
Net assets applicable to Common shares $327,794,146
============
Authorized shares:
Common Unlimited
MuniPreferred Unlimited
============
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See accompanying notes to financial statements.
STATEMENT OF OPERATIONS (UNAUDITED)
For the Period November 19, 2003 (commencement of operations) through
December 29, 2003
INVESTMENT INCOME $ 1,188,431
-----------
EXPENSES
Management fees 229,563
Shareholders' servicing agent fees and expenses 1,269
Custodian's fees and expenses 5,918
Trustees' fees and expenses 738
Professional fees 17,594
Shareholders' reports - printing and mailing expenses 10,819
Investor relations expense 3,272
-----------
Total expenses before expense reimbursement 269,173
Expense reimbursement (99,290)
-----------
Net expenses 169,883
-----------
Net investment income 1,018,548
-----------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investments 713,033
Change in net unrealized appreciation
of investments 4,324,790
-----------
Net gain from investments 5,037,823
-----------
Net increase in net assets applicable
to Common shares from operations $ 6,056,371
===========
|
See accompanying notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
For the Period November 19, 2003 (commencement of operations) through
December 29, 2003
OPERATIONS
Net investment income $ 1,018,548
Net realized gain from investments 713,033
Change in net unrealized appreciation of investments 4,324,790
------------
Net increase in net assets applicable to Common
shares from operations 6,056,371
------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of Common shares 321,637,500
------------
Net increase in net assets applicable to Common shares 327,693,871
Net assets applicable to Common shares at the beginning of period 100,275
------------
Net assets applicable to Common shares at the end of period $327,794,146
============
Undistributed net investment income at the end of period $ 1,018,548
============
|
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The Fund covered in this report and its corresponding Common share American Stock Exchange symbol is Nuveen Municipal High Income Opportunity Fund (NMZ) (the "Fund"). The Fund is registered under the Investment Company Act of 1940 as a diversified, closed-end management investment company.
Prior to the commencement of operations, the Fund had no operations other than those related to organizational matters, the initial capital contribution of $100,275 by Nuveen Advisory Corp. (the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc., and the recording of the organization expenses ($11,500) and their reimbursement by Nuveen Investments, LLC, also a wholly owned subsidiary of Nuveen Investments, Inc.
The Fund seeks to provide high current income exempt from regular federal income tax. The Fund's secondary investment objective is to seek attractive total return consistent with its primary objective. The Fund seeks to achieve its investment objectives by investing primarily in a portfolio of municipal obligations issued by state and local government authorities that the Adviser believes are underrated or undervalued.
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements in accordance with accounting principles generally accepted in the United States.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers, evaluations of anticipated
cash flows or collateral and general market conditions. If it is determined that
market prices for a security are unavailable or inappropriate, the Board of
Trustees of the Fund, or its designee, may establish a fair value for the
security. Temporary investments in securities that have variable rate and demand
features qualifying them as short-term securities are valued at amortized cost,
which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. The securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At December 29, 2003, the
Fund had outstanding when-issued and delayed delivery purchase commitments of
$17,470,808.
Investment Income
Interest income, which includes the amortization of premiums and accretion of
discounts for financial reporting purposes, is recorded on an accrual basis.
Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its net
investment income to its shareholders. Therefore, no federal income tax
provision is required. Furthermore, the Fund intends to satisfy conditions which
will enable interest from municipal securities, which is exempt from regular
federal income tax, to retain such tax-exempt status when distributed to
shareholders of the Fund.
Dividends and Distributions to Common Shareholders Dividends from tax-exempt net investment income are declared monthly. Net realized capital gains and/or market discount from investment transactions, if any, are distributed to shareholders not less frequently than annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards.
Distributions to Common shareholders of tax-exempt net investment income, net realized capital gains and/or market discount, if any, are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the period November 19, 2003 (commencement of operations)
through December 29, 2003.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments. During the period November 19, 2003 (commencement of operation)
through December 29, 2003 no such credit was recorded.
Organization and Offering Costs
Nuveen Investments, LLC, has agreed to reimburse all organization expenses
($11,500) and pay all Common share offering costs (other than the sales load)
that exceed $.03 per Common share. The Fund's share of offering costs ($675,000)
were recorded as a reduction of the proceeds from the sale of Common shares.
If the Fund offers MuniPreferred shares, the offering costs will be borne by Common shareholders as a direct reduction to paid-in surplus.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES The Fund sold 22,500,000 Common shares during the period November 19, 2003 (commencement of operations) through December 29, 2003.
3. SECURITIES TRANSACTIONS Purchases and sales (including maturities) of investments in long-term municipal securities for the period November 19, 2003 (commencement of operations) through December 29, 2003, were as follows:
--------------------------------------------------------------------------------
Purchases $378,987,262
Sales and maturities 61,505,049
============
--------------------------------------------------------------------------------
|
4. INCOME TAX INFORMATION The following information is presented on an income tax basis as of December 29, 2003. Differences between amounts for financial statement and federal income tax purposes are primarily due to timing differences in recognizing income on taxable market discount securities and timing differences in recognizing certain gains and losses on security transactions.
-------------------------------------------------------------------------------- Cost of investments $318,111,292 ================================================================================ -------------------------------------------------------------------------------- Gross unrealized: appreciation $ 4,411,226 depreciation (81,315) -------------------------------------------------------------------------------- Net unrealized appreciation on investments $ 4,329,911 ================================================================================ |
The Fund made no distributions during the period November 19, 2003 (commencement of operations) through December 29, 2003.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the Fund's investment management agreement with the Adviser, the Fund pays an annual management fee, payable monthly, at the rates set forth below, which are based upon the average daily net assets (including net assets attributable to MuniPreferred shares) of the Fund as follows:
AVERAGE DAILY NET ASSETS (including net assets attributable to MuniPreferred shares) MANAGEMENT FEE ----------------------------------------------------------------------------------------------------- For the first $125 million .7500% For the next $125 million .7375 For the next $250 million .7250 For the next $500 million .7125 For the next $1 billion .7000 For net assets over $2 billion .6750 ====================================================================================================== |
The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Fund pays no compensation directly to those of its Trustees who are affiliated with the Adviser or to its officers, all of whom receive remuneration for their services to the Fund from the Adviser.
For the first eight years of the Fund's operation, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to MuniPreferred shares), for fees and expenses in the amounts, and for the time periods set forth below:
YEAR ENDING YEAR ENDING NOVEMBER 30, NOVEMBER 30, ------------ ------------ 2003*........................ .32% 2009 ................ .24% 2004 ........................ .32 2010 ................ .16 2005 ........................ .32 2011 ................ .08 2006 ........................ .32 2007 ........................ .32 2008 ........................ .32 |
The Adviser has not agreed to reimburse the Fund for any portion of its fees and expenses beyond November 30, 2011.
6. SUBSEQUENT EVENTS
On January 7, 2004, the Fund issued an additional 650,000 Common shares in connection with the exercise by the underwriters of the over-allotment option.
The Fund declared a dividend distribution of $.0890 per Common share which will be paid on February 2, 2004, to shareholders of record on January 18, 2004.
PORTFOLIO OF INVESTMENTS
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND (NMZ)
December 29,2003
(Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION PROVISIONS* RATINGS** VALUE
ALABAMA - 2.4%
$ 2,000 The Baldwin County Eastern Shore Health Care Authority, Alabama, 4/06 at 102.00 BBB- $ 2,083,400
Hospital Revenue Bonds, Thomas Hospital, Series 1996, 6.750%, 4/01/15
6,200 The Baldwin County Eastern Shore Health Care Authority, Alabama, Hospital 4/08 at 102.00 BBB- 5,905,686
Revenue Bonds, Thomas Group, 5.750%, 4/01/27
ARIZONA - 4.2%
Phoenix Industrial Development Authority, Arizona, Educational
Revenue Bonds, Keystone Montessori School Project, Series 2004A:
350 6.375%, 11/01/13 (WI, settling 1/16/04) 11/11 at 103.00 N/R 350,000
790 7.250%, 11/01/23 (WI, settling 1/16/04) 11/11 at 103.00 N/R 790,000
1,615 7.500%, 11/01/33 (WI, settling 1/16/04) 11/11 at 103.00 N/R 1,615,000
1,150 Pinal County Industrial Development Authority, Arizona, Correctional 10/12 at 100.00 A 1,185,305
Facilities Contract Revenue Bonds, Florence West Prision LLC, Series
2002A, 5.250%, 10/01/22 - ACA Insured
9,000 Salt River Project Agricultural Improvement and Power District, Arizona,
Electric System Revenue Bonds, Series 2003, 5.000%, 12/01/16 12/13 at 100.00 AAA 9,873,900
CALIFORNIA - 10.0%
1,100 California Health Facilities Financing Authority, Hospital Revenue Bonds,
Downey Community Hospital, Series 1993, 5.750%, 5/15/15 2/04 at 102.00 BB+ 937,750
State of California, General Obligation Bonds, Series 2003:
10,000 5.250%, 2/01/16 - MBIA Insured 2/13 at 100.00 AAA 11,052,600
3,360 5.000%, 11/01/21 11/13 at 100.00 Baa1 3,408,048
State Public Works Board of the State of California, Lease
Revenue Bonds, Department of General Services, Series 2003D:
1,090 5.000%, 6/01/21 12/13 at 100.00 Baa2 1,096,311
1,170 5.100%, 6/01/23 12/13 at 100.00 Baa2 1,173,112
4,740 Castaic Lake Water Agency, California, Revenue Refunding Certificates No Opt. Call AAA 6,091,564
of Participation, Water System Improvement Projects, Series 1994A,
7.000%, 8/01/13 - MBIA Insured
3,500 Golden State Tobacco Securitization Corporation, California, Tobacco 6/13 at 100.00 BBB 3,450,125
Settlement Asset-Backed Bonds, Series 2003A-1, 6.750%, 6/01/39
4,975 Golden State Tobacco Securitization Corporation, California, Enhanced 6/13 at 100.00 Baa2 5,008,382
Tobacco Settlement Asset-Backed Bonds, Series 2003B, 5.625%, 6/01/33
250 Regional Airports Improvement Corporation, California, American 12/12 at 102.00 B- 247,095
Airlines Inc. Terminal 4 Project, Los Angeles International Airport,
Facilities Sublease Revenue Bonds, Series 2002C, 7.500%, 12/01/24
(Alternative Minimum Tax)
COLORADO - 5.9%
925 Bradburn Metropolitan District No. 3, Colorado, General Obligation Bonds,
Series 2003, 7.500%, 2/01/33 (WI, settling 12/30/03) 12/13 at 101.00 N/R 925,259
5,600 Buffalo Ridge Metropolitan District, Colorado, Limited Obligation 12/13 at 101.00 N/R 5,626,376
Assessment Bonds, Series 2003, 7.500%, 12/01/33
650 Colorado Educational and Cultural Facilities Authority, Charter School 9/11 at 100.00 Baa3 658,574
Revenue Bonds, Bromley East Charter School Project, Series 2000A,
7.250%, 9/15/30
400 Colorado Educational and Cultural Facilities Authority, Charter School 12/10 at 101.00 BBB 431,540
Revenue Bonds, Academy Charter School Project, Series 2000, 6.875%,
12/15/20
|
$ 3,500 Colorado Educational and Cultural Facilities Authority, Charter School 5/14 at 101.00 N/R $ 3,513,615
Revenue Bonds, Denver Arts and Technology Academy, Series 2003,
8.000%, 5/01/34
Colorado Educational and Cultural Facilities Authority, Charter School
Revenue Bonds, Excel Academy Charter School, Series 2003:
500 7.300%, 12/01/23 (WI, settling 12/30/03) 12/13 at 100.00 N/R 487,435
875 7.500%, 12/01/33 (WI, settling 12/30/03) 12/13 at 100.00 N/R 850,089
1,000 Colorado Housing and Finance Authority, Multifamily Project Bonds, 10/12 at 100.00 AA 1,029,050
Class II Series 2002-C6, 5.300%, 10/01/42
1,000 City and County of Denver, Colorado, Multifamily Housing Mortgage 7/08 at 102.00 AAA 1,032,230
Revenue Bonds, FHA-Insured Mortgage Loan Garden Court Community,
Series 1998, 5.400%, 7/01/39
1,250 Mesa County, Colorado, Residential Care Facilities Mortgage Revenue 12/11 at 101.00 AA 1,300,050
Bonds, Series 2001A, Hilltop Community Resources Inc. Obligated Group
Projects, 5.250%, 12/01/21 - RAAI Insured
2,000 Park Creek Metropolitan District, Colorado, Limited Tax Obligation 12/13 at 100.00 N/R 2,033,480
Revenue Bonds, Series 2003-CR2, 7.875%, 12/01/13
Tallyns Reach Metropolitan District 2, Colorado, Limited Tax
Obligation Bonds, Series 2004:
250 6.000%, 12/01/18 (WI, settling 1/06/04) 12/13 at 100.00 N/R 250,263
315 6.375%, 12/01/23 (WI, settling 1/06/04) 12/13 at 100.00 N/R 315,324
Tallyns Reach Metrolpolitan District 3, Colorado, Limited Tax
Obligation Bonds, Series 2004:
500 6.625%, 12/01/23 (WI, settling 1/06/04) 12/13 at 100.00 N/R 500,505
500 6.750%, 12/01/33 (WI, settling 1/06/04) 12/13 at 100.00 N/R 500,500
DISTRICT OF COLUMBIA - 4.4%
13,365 District of Columbia, Washington D.C. General Obligation Bonds, Series 6/13 at 100.00 AAA 14,280,636
2003B, 5.000%, 6/01/18 - AMBAC Insured
FLORIDA - 6.7%
3,000 Capital Trust Agency, Florida, Revenue Bonds, Seminole Tribe Convention 10/12 at 102.00 N/R 3,729,840
Center, Series 2002A, 10.000%, 10/01/33
5,785 Lee County Industrial Development Authority, Florida, Multifamily No Opt. Call A1 6,099,530
Housing Revenue Bonds, Legacy at Lehigh Project, Senior Series 2003A,
6.000%, 12/01/43
4,000 MMA Financial CDD Junior Securitization Trust, Florida, Pass Through 11/07 at 100.00 N/R 4,013,000
Certificates, Class A Series 2003I, 8.000%, 11/01/13
1,000 Orlando Utilities Commission, Florida, Water and Electric Subordinated No Opt. Call Aa1*** 1,264,300
Revenue Bonds, Series 1989D, 6.750%, 10/01/17
4,000 Palm Beach County Housing Finance Authority, Florida, Multifamily 7/09 at 103.00 N/R 3,979,600
Housing Revenue Bonds, Lake Delray Project, Series 1999A, 6.400%,
1/01/31 (Alternative Minimum Tax)
2,500 Westchester Community Development District No. 1, Florida, Special
Assessment Bonds, Series 2003, 6.125%, 5/01/35 5/13 at 101.00 N/R 2,489,375
GEORGIA - 0.6%
2,000 Fulton County Residential Care Facilities Authority, Georgia, St. Anne's 12/13 at 102.00 N/R 2,002,300
Terrace Project, Series 2003, 7.625%, 12/01/33
ILLINOIS - 10.0%
2,580 City of Chicago, Illinois, Midway Airport Revenue Bonds, Series 1998C, No Opt. Call AAA 2,923,037
5.500%, 1/01/15 - MBIA Insured
8,725 Illinois Health Facilities Authority, Revenue Bonds, Lake Forest 7/12 at 100.00 A- 9,139,961
Hospital, Series 2002A, 5.750%, 7/01/29
Illinois Health Facilities Authority, Revenue Bonds, Sinai Health
System, FHA Insured Mortgage Refunding, Series 2003:
5,000 5.000%, 8/15/24 8/13 at 100.00 AAA 5,039,650
5,000 5.150%, 2/15/37 8/13 at 100.00 AAA 5,027,600
10,000 5.100%, 8/15/33 8/13 at 100.00 AAA 10,040,900
305 Illinois Health Facilities Authority, Revenue Refunding Bonds, Proctor 1/04 at 100.00 BB+ 304,988
Community Hospital Project, Series 1991, 7.375%, 1/01/23
INDIANA - 0.5%
1,640 Jasper Hospital Authority, Indiana, Revenue Bonds, Little Company
of Mary Hospital of Indiana Inc. and Affiliates, Memorial Hospital 11/12 at 100.00 AA 1,790,273
Center Project, Series 2002, 5.500%, 11/01/17 - RAAI Insured
|
LOUISIANA - 3.7%
$ 8,500 Hodge, Louisiana, Combined Utility System Revenue Bonds, Stone No Opt. Call B $ 8,833,795
Containter Corporation, Series 2003, 7.450%, 3/01/24 (Alternative
Minimum Tax)
3,625 Saint James Parish, Lousiana, Solid Waste Disposal Revenue Bonds, 1/04 at 101.00 N/R 3,427,764
Freeport McMoran Project, Series 1992, 7.700%, 10/01/22 (Alternative
Minimum Tax) (DD1, settling 1/02/04)
MASSACHUSETTS - 0.8%
2,500 Massachusetts Housing Finance Agency, Rental Housing Mortgage Revenue 7/10 at 100.00 AAA 2,682,825
Bonds, Series 2000H, 6.650%, 7/01/41 (Alternative Minimum Tax) - MBIA
Insured
MICHIGAN - 0.9%
1,465 Detroit Local Development Finance Authority, Michigan, Tax Increment 5/09 at 101.00 BB- 1,191,089
Bonds, Series 1998A, 5.500%, 5/01/21
1,500 Michigan State Hospital Finance Authority, Hospital Revenue Refunding 3/13 at 100.00 A1 1,627,215
Bonds, Henry Ford Health System, Series 2003A, 5.500%, 3/01/15
MINNESOTA - 1.9%
Minneapolis, Minnesota, Student Housing Revenue Bonds, Riverton
Community Housing Project, Series 2000:
100 7.200%, 7/01/14 7/10 at 100.00 N/R 103,265
100 7.300%, 7/01/15 7/10 at 100.00 N/R 103,254
500 Minneapolis, Minnesota, Commercial Development Revenue Bonds, Thresher 5/04 at 100.00 N/R 501,935
Square Limited Partnership II Project, Series 1996, 7.250%, 5/01/15
340 New Brighton, Minnesota, Rental Housing Refunding Revenue Bonds, 4/05 at 102.00 N/R 342,594
Polynesian Village Apartment Project, Series 1995A, 7.000%,
10/01/08 (Alternative Minimum Tax)
5,000 Saint Louis Park, Minnesota, Revenue Bonds, Park Nicollet Health 7/04 at 100.00 A- 5,030,100
Services, Series 2003B, 5.250%, 7/01/30
250 Thief River Falls, Minnesota, Health Care Facilities Revenue Bonds, 11/09 at 100.00 N/R 244,993
Northwest Medical Center Project, Series 1999, 6.800%, 11/01/19
MONTANA - 1.0%
3,500 Montana Board of Investments, Exempt Facility Revenue Bonds, Stillwater 7/10 at 101.00 Ba3 3,378,865
Mining Company Project, Series 2000, 8.000%, 7/01/20 (Alternative
Minimum Tax)
NEVADA - 1.1%
1,500 Clark County, Nevada, Local Improvement Bonds, Mountain's Edge Special 2/04 at 103.00 N/R 1,520,640
Improvement District No. 142, Series 2003, 6.375%, 8/01/23
2,105 Washoe County School District, Nevada, General Obligation Bonds, Series 6/13 at 100.00 AAA 2,218,923
2003C, 5.000%, 6/01/21 - FGIC Insured
NEW JERSEY - 4.9%
1,510 New Jersey Economic Development Authority, Special Facility Revenue 9/09 at 101.00 B 1,260,065
Bonds, Continental Airlines, Inc. Project, Series 1999, 6.250%,
9/15/29 (Alternative Minimum Tax)
5,000 New Jersey Transportation Trust Fund Authority, Transportation System No Opt. Call AAA 5,828,400
Bonds, Series 2001C, 5.500%, 12/15/13 - FSA Insured
Tobacco Settlement Financing Corporation, New Jersey, Tobacco
Settlement Asset-Backed Bonds, Series 2003:
7,000 6.750%, 6/01/39 6/13 at 100.00 BBB 6,900,250
2,000 7.000%, 6/01/41 6/13 at 100.00 BBB 2,021,940
NEW MEXICO - 1.4%
4,500 Jicarilla Apache Nation, New Mexico, Revenue Bonds, Series 2002A, 9/13 at 101.00 N/R 4,659,795
5.000%, 9/01/18
|
NEW YORK - 7.0%
$ 750 New York City Industrial Development Agency, New York, Special No Opt. Call CCC $ 585,810
Facilities Revenue Bonds, American Airlines Inc., JFK Airport
Project, Series 2002A, 8.000%, 8/01/12 (Alternative Minimum Tax)
2,000 Dormitory Authority of the State of New York, Revenue Bonds, 7/13 at 100.00 AA 2,239,480
Brooklyn Law School, Series 2003A, 5.500%, 7/01/15 - RAAI Insured
8,175 New York State Municipal Bond Bank Agency, Special School Purpose 6/13 at 100.00 A+ 9,139,732
Revenue Bonds, Series 2003C, 5.500%, 12/01/14
Tobacco Settlement Financing Corporation of New York State, Asset
Backed Bonds, State Contingency Contract Backed, Series 2003B-1C:
5,000 5.500%, 6/01/21 6/13 at 100.00 AA- 5,334,850
5,000 5.500%, 6/01/22 6/13 at 100.00 AA- 5,323,050
OKLAHOMA - 2.6%
Oklahoma Development Finance Authority, Hillcrest Healthcare
System Revenue and Refunding Bonds, Series 1999A:
1,200 5.750%, 8/15/15 8/09 at 101.00 B1 996,348
8,680 5.625%, 8/15/29 (DD1, settling 1/02/04) 8/09 at 101.00 B1 6,653,828
1,110 Trustees of the Tulsa Municipal Airport Trust, Oklahoma 6/05 at 102.00 B- 912,753
Revenue Bonds, Series 1995 (American Airlines), 6.250%, 6/01/20
PENNSYLVANIA - 2.0%
Allegheny County Hospital Development Authority, Pennsylvania,
Revenue Bonds, West Penn Allegheny Health System, Series 2000B:
695 9.250%, 11/15/22 11/10 at 102.00 B 748,077
2,010 9.250%, 11/15/30 11/10 at 102.00 B 2,163,504
200 Monroeville Hospital Authority, Pennsylvania, Revenue Bonds, 10/04 at 100.00 B 172,484
Forbes Health System, Series 1992, 7.000%, 10/01/13
290 Monroeville Hospital Authority, Pennsylvania, Revenue Bonds, 10/05 at 102.00 B 228,207
Forbes Health System, Series 1995, 6.250%, 10/01/15
240 New Morgan Industrial Development Authority, Pennsylvania, Solid 4/04 at 102.00 BB- 224,880
Waste Disposal Revenue Bonds, New Morgan Landfill Company, Inc.
Project, Series 1994, 6.500%, 4/01/19 (Alternative Minimum Tax)
230 Pennsylvania Higher Educational Facilities Authority, Allegheny 1/04 at 100.00 B1 203,074
General Hospital Revenue Bonds, Series 1991A, 7.250%, 9/01/17
2,635 Philadelphia Municipal Authority, Pennsylvania, Lease Revenue 11/13 at 100.00 AAA 2,893,573
Bonds, Series 2003B, 5.250%, 11/15/18 - FSA Insured
RHODE ISLAND - 0.8%
3,000 Tobacco Settlement Financing Corporation of Rhode Island, Asset 6/12 at 100.00 BBB 2,720,640
Backed Bonds, Series 2002A, 6.250%, 6/01/42
SOUTH CAROLINA - 5.5%
Berkeley County School District, South Carolina, Installment
Purchase Revenue Securing Assets for Education, Series 2003:
3,640 5.250%, 12/01/14 12/13 at 100.00 A- 4,011,062
4,125 5.250%, 12/01/15 12/13 at 100.00 A- 4,503,098
2,100 Greenville County School District, South Carolina, Installment
Purchase Revenue Bonds, Series 2002, 5.500%, 12/01/13
(DD, settling 12/30/03) 12/12 at 101.00 AA- 2,390,997
Greenville County School District, South Carolina, Installment
Purchase Revenue Bonds, Series 2003:
1,000 5.250%, 12/01/15 12/13 at 100.00 AA- 1,096,790
4,450 5.250%, 12/01/17 12/13 at 100.00 AA- 4,812,675
1,150 South Carolina Jobs-Economic Development Authority, Hospital 8/11 at 100.00 AA 1,196,253
Revenue Bonds, Georgetown Memorial Hospital, Series 2001,
5.250%, 2/01/21 - RAAI Insured
TENNESSEE - 1.5%
4,500 Knox County Health, Educational and Housing Facilities Board, No Opt. Call AAA 5,020,200
Tennessee, Hospital Revenue Bonds, Fort Sanders Alliance
Obligated Group, Series 1993A, 5.250%, 1/01/15 - MBIA Insured
TEXAS - 2.0%
2,020 Houston, Texas, Airport System Special Facilities Revenue Bonds, 7/09 at 101.00 B- 1,528,898
Continental Project, Series 1998B, 5.700%, 7/15/29
(Alternative Minimum Tax)
975 City of Houston, Texas, Airport System Special Facilities Revenue 7/09 at 101.00 B- 729,495
Bonds, Continental Airlines Inc. Project, Series 1998C, 5.700%,
7/15/29 (Alternative Minimum Tax)
City of Houston, Texas, Airport System Special Facilities Revenue
Bonds, Continential Project, Series 2001E:
500 7.375%, 7/01/22 (DD, settling 1/02/04) 7/11 at 101.00 B- 479,975
4,250 6.750%, 7/01/29 (Alternative Minimum Tax) 7/11 at 101.00 B- 3,735,878
|
VIRGIN ISLANDS - 2.5%
$ 5,000 Virgin Islands Public Finance Authority, Refinery Revenue Bonds, 10/14 at 100.00 BBB- $ 5,115,150
Hovensa LLC Project, Series 2003, 6.125%, 7/01/22
3,000 Virgin Islands Public Finance Authority, Gross Receipts Taxes 10/14 at 100.00 AA 3,028,380
Loan Notes, Series 2003, 5.000%, 10/01/26 - RAAI Insured
VIRGINIA - 2.9%
2,000 Pocahontas Parkway Association, Virginia, Route 895 Connector 8/08 at 102.00 Baa3 1,598,700
Toll Road Senior Lien Revenue Bonds, Series 1998A, 5.500%,
8/15/28
Virginia Resources Authority, Infrastructure Revenue Bonds,
Pooled Loan Financing Program, Series 2003:
2,350 5.000%, 11/01/17 11/13 at 100.00 AAA 2,564,438
2,455 5.000%, 11/01/18 11/13 at 100.00 AAA 2,660,213
2,540 5.000%, 11/01/19 11/13 at 100.00 AAA 2,733,015
WASHINGTON - 5.9%
3,500 Pierce County School District No. 10 Tacoma, Washington, General 12/13 at 100.00 AAA 3,791,690
Obligation Bonds, Series 2003, 5.000%, 12/01/17 - FGIC Insured
5,000 Pierce County School District No. 401 Peninsula, Washington, 12/13 at 100.00 Aaa 5,425,250
General Obligation Bonds, Series 2003, 5.000%, 12/01/17 - FSA
Insured
3,000 Skagit County Public Hospital District No. 1, Washington, Revenue No Opt. Call Baa3 3,061,620
Bonds, Skagit Valley Hospital, Series 2003, 6.000%, 12/01/18
Vancouver Downtown Redevelopment Authority, Washington, Conference
Center Project Revenue Bonds, Series 2003A:
1,750 6.000%, 1/01/28 (WI, settling 12/30/03) 1/14 at 100.00 A 1,840,703
3,500 6.000%, 1/01/34 (WI, settling 12/30/03) 1/14 at 100.00 A 3,671,710
1,295 Washington Public Power Supply System, Nuclear Project 3 Revenue No Opt. Call AAA 1,693,174
Refunding Bonds, Series 1989B, 7.125%, 7/01/16 - MBIA Insured
WISCONSIN - 5.3%
550 Lac Courte Oreilles Band of Lake Superior Chippewa Indians, 12/14 at 101.00 N/R 551,815
Wisconsin, Revenue Bonds, Series 2003A, 7.750%, 6/01/16
200 Richland Center Housing Authority, Wisconsin, Revenue Bonds, No Opt. Call N/R 195,154
Series 1996A, Schmitt Woodland Hills Inc, Project, 6.500%, 9/01/11
300 Wisconsin Health and Educational Facilities Authority, Revenue 7/06 at 102.00 N/R 299,487
Bonds, Series 1996, Milwaukee Catholic Home, Inc Project, Series
1996, 7.250%, 7/01/17
500 Wisconsin Health and Educational Facilities Authority, Revenue 8/05 at 100.00 N/R 501,445
Bonds, Oakwood Village Project, Series 2000A, 7.000%, 8/15/15
5,000 Wisconsin Health and Educational Facilities Authority, Revenue 2/12 at 101.00 A 5,210,400
Bonds, Wheaton Franciscan Services Inc., Series 2002, 5.750%,
8/15/30
Wisconsin Health and Educational Facilities Authority, Revenue
Bonds, Aurora Health Care Inc., Series 1999A:
2,300 5.600%, 2/15/29 - ACA Insured 2/09 at 101.00 A 2,346,983
8,500 5.600%, 2/15/29 2/09 at 101.00 BBB+ 8,381,000
$ 313,115 Total Long-Term Investments (cost $318,116,413) - 98.4% 322,441,203
Other Assets Less Liabilities - 1.6% 5,352,943
Net Assets Applicable to Common Shares - 100% $327,794,146
* Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There may be other
call provisions at varying prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which
ensures the timely payment of principal and interest. Such securities are normally considered to be equivalent to AAA rated
securities.
N/R Investment is not rated.
(DD) Security purchased on a delayed delivery basis.
(DD1) Portion of security purchased on a delayed delivery basis.
(WI) Security purchased on a when-issued basis.
See accompanying notes to financial statements.
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APPENDIX A
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED SHARES ("MUNIPREFERRED")
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
TABLE OF CONTENTS
PAGE
----
DEFINITIONS......................................................................................................1
"AA" Composite Commercial Paper Rate..........................................................................1
Affiliate.....................................................................................................2
Agent Member..................................................................................................2
All Hold Order................................................................................................2
Anticipation Notes............................................................................................2
Applicable Rate...............................................................................................2
Auction.......................................................................................................2
Auction Agency Agreement......................................................................................2
Auction Agent.................................................................................................2
Auction Date..................................................................................................2
Auction Procedures............................................................................................2
Available MuniPeferred........................................................................................2
Benchmark Rate................................................................................................2
Beneficial Owner..............................................................................................3
Bid and Bids..................................................................................................3
Bidder and Bidders............................................................................................3
Board of Trustees.............................................................................................3
Broker-Dealer.................................................................................................3
Broker-Dealer Agreement.......................................................................................3
Business Day..................................................................................................3
Code..........................................................................................................3
Commercial Paper Dealers......................................................................................3
Common Shares.................................................................................................3
Cure Date.....................................................................................................3
Date of Original Issue........................................................................................3
Declaration...................................................................................................3
Deposit Securities............................................................................................3
Discounted Value..............................................................................................4
Dividend Payment Date.........................................................................................4
Dividend Period...............................................................................................4
Existing Holder...............................................................................................4
Failure to Deposit............................................................................................4
Federal Tax Rate Increase.....................................................................................4
Fund..........................................................................................................4
Gross-Up Payment..............................................................................................5
Hold Order and Hold Orders....................................................................................5
Holder........................................................................................................5
Independent Accountant........................................................................................5
Initial Rate Period...........................................................................................5
Interest Equivalent...........................................................................................5
Issue Type Category...........................................................................................5
Kenny Index...................................................................................................5
Late Charge...................................................................................................5
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TABLE OF CONTENTS
(continued)
PAGE
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Liquidation Preference........................................................................................5
Market Value..................................................................................................5
Maximum Potential Gross-Up Payment Liability..................................................................5
Maximum Rate..................................................................................................5
Minimum Rate Period...........................................................................................6
Moody's.......................................................................................................6
Moody's Discount Factor.......................................................................................6
Moody's Eligible Asset........................................................................................6
Moody's Exposure Period.......................................................................................7
Moody's Volatility Factor.....................................................................................7
Moody's Guidelines............................................................................................7
Municipal Obligations.........................................................................................7
MuniPreferred.................................................................................................7
MuniPreferred Basic Maintenance Amount........................................................................7
MuniPreferred Basic Maintenance Cure Date.....................................................................7
MuniPreferred Basic Maintenance Report........................................................................7
1940 Act......................................................................................................7
1940 Act Cure Date............................................................................................7
1940 Act MuniPreferred Asset Coverage.........................................................................7
Notice of Redemption..........................................................................................7
Notice of Special Rate Period.................................................................................7
Order and Orders..............................................................................................7
Other Issues..................................................................................................8
Other Rating Agency...........................................................................................8
Other Rating Agency Discount Factor...........................................................................8
Other Rating Agency Eligible Assets...........................................................................8
Other Rating Agency Guidelines................................................................................8
Outstanding...................................................................................................8
Person........................................................................................................8
Potential Beneficial Owner....................................................................................8
Potential Holder..............................................................................................8
Preferred Shares..............................................................................................8
Quarterly Valuation Date......................................................................................8
Rate Multiple.................................................................................................8
Rate Period...................................................................................................8
Rate Period Days..............................................................................................9
Rating Agency.................................................................................................9
Rating Agency Certificate.....................................................................................9
Rating Agency Guidelines......................................................................................9
Receivables For Municipal Obligations Sold....................................................................9
Redemption Price..............................................................................................9
Reference Rate................................................................................................9
Registration Statement........................................................................................9
S&P...........................................................................................................9
S&P Discount Factor...........................................................................................9
S&P Eligible Asset............................................................................................9
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TABLE OF CONTENTS
(continued)
PAGE
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S&P Exposure Period...........................................................................................9
S&P Guidelines...............................................................................................10
S&P Volatility Factor........................................................................................10
Secondary Market Insurance...................................................................................10
Securities Depository........................................................................................10
Sell Order and Sell Orders...................................................................................10
Special Rate Period..........................................................................................10
Special Redemption Provisions................................................................................10
Submission Deadline..........................................................................................10
Submitted Bid and Submitted Bids.............................................................................10
Submitted Hold Order and Submitted Hold Orders...............................................................10
Submitted Order and Submitted Orders.........................................................................10
Submitted Sell Order and Submitted Sell Orders...............................................................10
Subsequent Rate Period.......................................................................................10
Substitute Commercial Paper Dealer...........................................................................10
Substitute U.S. Government Securities Dealer.................................................................11
Sufficient Clearing Bids.....................................................................................11
Taxable Allocation...........................................................................................11
Taxable Equivalent of the Short-Term Municipal Bond Rate.....................................................11
Taxable Income...............................................................................................11
Treasury Bill................................................................................................11
Treasury Bill Rate...........................................................................................11
Treasury Note................................................................................................12
Treasury Note Rate...........................................................................................12
U.S. Government Securities Dealer............................................................................12
Valuation Date...............................................................................................12
Volatility Factor............................................................................................12
Voting Period................................................................................................12
Winning Bid Rate.............................................................................................12
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TABLE OF CONTENTS
(continued)
PAGE
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PART I .......................................................................................................13
1. Number of Authorized Shares...................................................................13
2. Dividends.....................................................................................13
(a) Ranking..............................................................................13
(b) Cumulative Cash Dividends............................................................13
(c) Dividends Cumulative From Date of Original Issue.....................................13
(d) Dividend Payment Dates and Adjustment Thereof........................................13
(e) Dividend Rates and Calculation of Dividends..........................................14
(f) Curing a Failure to Deposit..........................................................16
(g) Dividend Payments by Fund to Auction Agent...........................................16
(h) Auction Agent as Trustee of Dividend Payments by Fund................................16
(i) Dividends Paid to Holders............................................................16
(j) Dividends Credited Against Earliest Accumulated But Unpaid Dividends.................16
(k) Dividends Designated as Exempt-Interest Dividends....................................16
3. Gross-Up Payments.............................................................................16
(a) Minimum Rate Periods and Special Rate Periods of 28 Rate Period Days or Fewer........17
(b) Special Rate Periods of More Than 28 Rate Period Days................................17
(c) No Gross-Up Payments in the Event of a Reallocation..................................17
4. Designation of Special Rate Periods...........................................................17
(a) Length of and Preconditions for Special Rate Period..................................17
(b) Adjustment of Length of Special Rate Period..........................................17
(c) Notice of Proposed Special Rate Period...............................................18
(d) Notice of Special Rate Period........................................................18
(e) Failure to Deliver Notice of Special Rate Period.....................................19
5. Voting Rights.................................................................................19
(a) One Vote Per Share of MuniPreferred..................................................19
(b) Voting for Additional Trustees.......................................................19
(c) Holders of MuniPreferred to Vote on Certain Other Matters............................21
(d) Board May Take Certain Actions Without Shareholder Approval..........................22
(e) Voting Rights Set Forth Herein Are Sole Voting Rights................................22
(f) No Preemptive Rights or Cumulative Voting............................................22
(g) Voting for Trustees Sole Remedy for Fund's Failure to Pay Dividends..................22
(h) Holders Entitled to Vote.............................................................23
6. 1940 Act MuniPreferred Asset Coverage.........................................................23
7. MuniPreferred Basic Maintenance Amount........................................................23
8. [Reserved]....................................................................................23
9. Restrictions on Dividends and Other Distributions.............................................23
(a) Dividends on Preferred Shares Other Than MuniPreferred...............................23
(b) Dividends and Other Distributions with Respect to Common Shares Under the 1940 Act...24
(c) Other Restrictions on Dividends and Other Distributions..............................24
10. Rating Agency Restrictions....................................................................24
11. Redemption....................................................................................25
(a) Optional Redemption..................................................................25
(b) Mandatory Redemption.................................................................26
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TABLE OF CONTENTS
(continued)
PAGE
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(c) Notice of Redemption.................................................................26
(d) No Redemption Under Certain Circumstances............................................27
(e) Absence of Funds Available for Redemption............................................27
(f) Auction Agent as Trustee of Redemption Payments by Fund..............................27
(g) Shares for Which Notice of Redemption Has Been Given are No Longer Outstanding.......27
(h) Compliance with Applicable Law.......................................................28
(i) Only Whole Shares of MuniPreferred May Be Redeemed...................................28
12. Liquidation Rights............................................................................28
(a) Ranking..............................................................................28
(b) Distributions Upon Liquidation.......................................................28
(c) Pro Rata Distributions...............................................................29
(d) Rights of Junior Shares..............................................................29
(e) Certain Events Not Constituting Liquidation..........................................29
13. Miscellaneous.................................................................................29
(a) Amendment of Appendix A to Add Additional Series.....................................29
(b) Appendix A Incorporated By Reference.................................................29
(c) No Fractional Shares.................................................................29
(d) Status of Shares of MuniPreferred Redeemed, Exchanged or Otherwise Acquired
by the Fund..........................................................................29
(e) Board May Resolve Ambiguities........................................................29
(f) Headings Not Determinative...........................................................30
(g) Notices..............................................................................30
PART II.........................................................................................................31
1. Orders........................................................................................31
2. Submission of Orders by Broker-Dealers to Auction Agent.......................................33
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate...............34
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of
Shares........................................................................................36
5. Notification of Allocations...................................................................38
6. Auction Agent.................................................................................38
7. Transfer of Shares of MuniPreferred...........................................................39
8. Global Certificate............................................................................39
APPENDIX A.......................................................................................................1
Section 1. Designation as to Series..............................................................1
Section 2. Number of Authorized Shares Per Series................................................2
Section 3. Exceptions to Certain Definitions.....................................................2
Section 4. Certain Definitions...................................................................2
Section 5. Initial Rate Periods..................................................................4
Section 6. Date for Purposes of Paragraph (zzz) Contained Under the Heading "Definitions"
in this Statement.....................................................................4
Section 7. Party Named for Purposes of the Definition of "Rate Multiple" in this Statement.......4
Section 8. Additional Definitions................................................................4
Section 9. Dividend Payment Dates................................................................4
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TABLE OF CONTENTS
(continued)
PAGE
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Section 10. Amount for Purposes of Subparagraph (c)(i) of Section 5 of Part I of this
Statement.............................................................................5
Section 11. Redemption Provisions Applicable to Initial Rate Periods..............................5
Section 12. Applicable Rate for Purposes of Subparagraph (b)(iii) of Section 3 of
Part II of this Statement.............................................................5
Section 13. Certain Other Restrictions and Requirements...........................................5
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NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND, a Massachusetts business trust (the "Fund"), certifies that:
First: Pursuant to authority expressly vested in the Board of Trustees of the Fund by Article IV of the Fund's Declaration of Trust (which, as hereafter restated or amended from time to time is, together with this Statement, herein called the "Declaration"), the Board of Trustees has, by resolution, authorized the issuance of shares of the Fund's authorized Preferred Shares liquidation preference $25,000 per share, having such designation or designations as to series as is set forth in Section 1 of Appendix A hereto and such number of shares per such series as is set forth in Section 2 of Appendix A hereto.
Second: The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of each series of MuniPreferred described in Section 1 of Appendix A hereto are as follows (each such series being referred to herein as a series of MuniPreferred, and shares of all such series being referred to herein individually as a share of MuniPreferred and collectively as shares of MuniPreferred):
DEFINITIONS
Except as otherwise specifically provided in Section 3 of Appendix A hereto, as used in Parts I and II of this Statement, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires:
(a) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate Period of shares of a series of MuniPreferred, shall mean (i) (A) in the case of any Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period Days, the interest equivalent of the 30-day rate; provided, however, that if such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial Paper Rate is being used to determine the Applicable Rate for shares of such series when all of the Outstanding shares of such series are subject to Submitted Hold Orders, then the interest equivalent of the seven-day rate, and (B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70 Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but fewer than 85 Rate Period Days, the arithmetic average of the interest equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but fewer than 120 Rate Period Days, the arithmetic average of the interest equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141 Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and 180-day rates; and (7) 162 or more but fewer than 183 Rate Period Days, the interest equivalent of the 180-day rate, in each case on commercial paper placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or the equivalent of such rating by S&P or another rating agency, as made available on a discount basis or otherwise by the Federal Reserve Bank of New York for the Business Day next preceding such date; or (ii) in the event that the Federal Reserve Bank of New York does not make available any such rate, then the arithmetic average of such rates, as quoted on a discount basis or otherwise, by the Commercial Paper Dealers to the Auction Agent for the close of business on the Business Day next preceding such date. If any Commercial Paper Dealer does not quote a rate required to determine the "AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate shall be determined on the basis of the quotation or quotations furnished by the remaining Commercial Paper Dealer or Commercial Paper Dealers and any Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the Fund to provide such rate or rates not being supplied by any Commercial Paper Dealer or Commercial Paper Dealers, as the case may be, or, if the Fund does not select any such Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes of this definition, the
"interest equivalent" of a rate stated on a discount basis (a "discount rate") for commercial paper of a given days' maturity shall be equal to the quotient (rounded upwards to the next higher one-thousandth (.001) of 1%) of (A) the discount rate divided by (B) the difference between (x) 1.00 and (y) a fraction, the numerator of which shall be the product of the discount rate times the number of days in which such commercial paper matures and the denominator of which shall be 360.
(b) "AFFILIATE" shall mean, for purposes of the definition of "Outstanding," any Person known to the Auction Agent to be controlled by, in control of or under common control with the Fund; provided, however, that no Broker-Dealer controlled by, in control of or under common control with the Fund shall be deemed to be an Affiliate nor shall any corporation or any Person controlled by, in control of or under common control with such corporation one of the trustees, directors, or executive officers of which is a trustee of the Fund be deemed to be an Affiliate solely because such trustee, director or executive officer is also a trustee of the Fund.
(c) "AGENT MEMBER" shall mean a member of or participant in the Securities Depository that will act on behalf of a Bidder.
(d) "ALL HOLD ORDER" shall have the meaning specified in Section 12 of Appendix A of this Statement.
(e) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs), Revenue Anticipation Notes (RANs), Tax and Revenue Anticipation Notes (TRANs), Grant Anticipation Notes (GANs) that are rated by S&P and Bond Anticipation Notes (BANs) that are rated by S&P.
(f) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of Part I of this Statement.
(g) "AUCTION" shall mean each periodic implementation of the Auction Procedures.
(h) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Fund and the Auction Agent which provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for shares of a series of MuniPreferred so long as the Applicable Rate for shares of such series is to be based on the results of an Auction.
(i) "AUCTION AGENT" shall mean the entity appointed as such by a resolution of the Board of Trustees in accordance with Section 6 of Part II of this Statement.
(j) "AUCTION DATE," with respect to any Rate Period, shall mean the Business Day next preceding the first day of such Rate Period.
(k) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions set forth in Part II of this Statement.
(l) "AVAILABLE MUNIPREFERRED" shall have the meaning specified in paragraph (a) of Section 3 of Part II of this Statement.
(m) "BENCHMARK RATE" shall have the meaning specified in Section 12 of Appendix A hereto.
(n) "BENEFICIAL OWNER," with respect to shares of a series of MuniPreferred, means a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares of such series.
(o) "BID" and "BIDS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of this Statement.
(p) "BIDDER" and "BIDDERS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of this Statement; provided, however, that neither the Fund nor any affiliate thereof shall be permitted to be a Bidder in an Auction, except that any Broker-Dealer that is an affiliate of the Fund may be a Bidder in an Auction, but only if the Orders placed by such Broker-Dealer are not for its own account.
(q) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Fund or any duly authorized committee thereof.
(r) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other entity permitted by law to perform the functions required of a Broker-Dealer in Part II of this Statement, that is a member of, or a participant in, the Securities Depository or is an affiliate of such member or participant, has been selected by the Fund and has entered into a Broker-Dealer Agreement that remains effective.
(s) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Fund, the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures specified in Part II of this Statement.
(t) "BUSINESS DAY" shall mean a day on which the New York Stock Exchange is open for trading and which is neither a Saturday, Sunday nor any other day on which banks in The City of New York, New York, are authorized by law to close.
(u) "CODE" means the Internal Revenue Code of 1986, as amended.
(v) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated or, in lieu of any thereof, their respective affiliates or successors, if such entity is a commercial paper dealer.
(w) "COMMON SHARES" shall mean the common shares of beneficial interest, par value $.01 per share, of the Fund.
(x) "CURE DATE" shall mean the MuniPreferred Basic Maintenance Cure Date or the 1940 Act Cure Date, as the case may be.
(y) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of MuniPreferred, shall mean the date on which the Fund initially issued such shares.
(z) "DECLARATION" shall have the meaning specified on the first page of this Statement.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations
rated at least A-l+ or SP-l+ by S&P, except that, for purposes of subparagraph
(a)(v) of Section 11 of Part I of this
Statement, such Municipal Obligations shall be considered "Deposit Securities" only if they are also rated P-1, MIG-1 or VMIG-1 by Moody's.
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with respect to an S&P Eligible Asset, the quotient of the Market Value thereof divided by the applicable S&P Discount Factor and (ii)(a) with respect to a Moody's Eligible Asset that is not currently callable as of such Valuation Date at the option of the issuer thereof, the quotient of the Market Value thereof divided by the applicable Moody's Discount Factor, or (b) with respect to a Moody's Eligible Asset that is currently callable as of such Valuation Date at the option of the issuer thereof, the quotient of (1) the lesser of the Market Value or call price thereof, including any call premium, divided by (2) the applicable Moody's Discount Factor.
(cc) [Reserved]
(dd) [Reserved]
(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of MuniPreferred, shall mean any date on which dividends are payable on shares of such series pursuant to the provisions of paragraph (d) of Section 2 of Part I of this Statement.
(ff) "DIVIDEND PERIOD," with respect to shares of a series of MuniPreferred, shall mean the period from and including the Date of Original Issue of shares of such series to but excluding the initial Dividend Payment Date for shares of such series and any period thereafter from and including one Dividend Payment Date for shares of such series to but excluding the next succeeding Dividend Payment Date for shares of such series.
(gg) "EXISTING HOLDER," with respect to shares of a series of MuniPreferred, shall mean a Broker-Dealer (or any such other Person as may be permitted by the Fund) that is listed on the records of the Auction Agent as a holder of shares of such series.
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of MuniPreferred, shall mean a failure by the Fund to pay to the Auction Agent, not later than 12:00 noon, New York City time, (A) on the Business Day next preceding any Dividend Payment Date for shares of such series, in funds available on such Dividend Payment Date in The City of New York, New York, the full amount of any dividend (whether or not earned or declared) to be paid on such Dividend Payment Date on any share of such series or (B) on the Business Day next preceding any redemption date in funds available on such redemption date for shares of such series in The City of New York, New York, the Redemption Price to be paid on such redemption date for any share of such series after notice of redemption is mailed pursuant to paragraph (c) of Section 11 of Part I of this Statement; provided, however, that the foregoing clause (B) shall not apply to the Fund's failure to pay the Redemption Price in respect of shares of MuniPreferred when the related Notice of Redemption provides that redemption of such shares is subject to one or more conditions precedent and any such condition precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in the definition of "Moody's Volatility Factor."
(jj) "FUND" shall mean the entity named on the first page of this Statement, which is the issuer of the shares of MuniPreferred.
(kk) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4 of Appendix A hereto.
(ll) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of this Statement.
(mm) "HOLDER," with respect to shares of a series of MuniPreferred, shall mean the registered holder of such shares as the same appears on the record books of the Fund.
(nn) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized accountant, or firm of accountants, that is with respect to the Fund an independent public accountant or firm of independent public accountants under the Securities Act of 1933, as amended from time to time.
(oo) "INITIAL RATE PERIOD," with respect to shares of a series of MuniPreferred, shall have the meaning specified with respect to shares of such series in Section 5 of Appendix A hereto.
(pp) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a discount basis security which is equal to the yield on an equivalent interest-bearing security.
(qq) "ISSUE TYPE CATEGORY," if defined in Section 4 of Appendix A hereto, shall have the meaning specified in that section.
(rr) "KENNY INDEX" shall have the meaning specified in the definition of "Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "LATE CHARGE" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.
(tt) "LIQUIDATION PREFERENCE," with respect to a given number of shares of MuniPreferred, means $25,000 times that number.
(uu) "MARKET VALUE" of any asset of the Fund shall mean the market value thereof determined by the pricing service designated from time to time by the Board of Trustees. Market Value of any asset shall include any interest accrued thereon. The pricing service values portfolio securities at the mean between the quoted bid and asked price or the yield equivalent when quotations are readily available. Securities for which quotations are not readily available are valued at fair value as determined by the pricing service using methods which include consideration of: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating; indications as to value from dealers; and general market conditions. The pricing service may employ electronic data processing techniques or a matrix system, or both, to determine valuations.
(vv) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any Valuation Date, shall mean the aggregate amount of Gross-up Payments that would be due if the Fund were to make Taxable Allocations, with respect to any taxable year, estimated based upon dividends paid and the amount of undistributed realized net capital gains and other taxable income earned by the Fund, as of the end of the calendar month immediately preceding such Valuation Date, and assuming such Gross-up Payments are fully taxable.
(ww) "MAXIMUM RATE," for shares of a series of MuniPreferred on any Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction Date immediately prior to the first day of any proposed Special Rate Period designated by the Fund pursuant to Section 4 of Part I of this Statement, the product of (A) the Reference Rate on such Auction Date for the next Rate Period of shares of such series and (B) the Rate Multiple on such Auction Date, unless shares of such series have or had a Special Rate Period (other than a Special Rate Period of 28 Rate Period Days or fewer) and an Auction at which Sufficient Clearing Bids existed has not yet occurred for a Minimum Rate Period of shares of such series after such Special Rate Period, in which case the higher of:
(A) the dividend rate on shares of such series for the then-ending Rate Period; and
(B) the product of (1) the higher of (x) the Reference Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of shares of such series, if such then-ending Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of shares of such series, if such then-ending Rate Period was more than 364 Rate Period Days, and (y) the Reference Rate on such Auction Date for a Rate Period equal in length to such Special Rate Period of shares of such series, if such Special Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to such Special Rate Period, if such Special Rate Period was more than 364 Rate Period Days and (2) the Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date immediately prior to the first day of any proposed Special Rate Period designated by the Fund pursuant to Section 4 of Part I of this Statement, the product of (A) the highest of (1) the Reference Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of shares of such series, if such then-ending Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of shares of such series, if such then-ending Rate Period was more than 364 Rate Period Days, (2) the Reference Rate on such Auction Date for the Special Rate Period for which the Auction is being held if such Special Rate Period is 364 Rate Period Days or fewer or the Treasury Note Rate on such Auction Date for the Special Rate Period for which the Auction is being held if such Special Rate Period is more than 364 Rate Period Days, and (3) the Reference Rate on such Auction Date for Minimum Rate Periods and (B) the Rate Multiple on such Auction Date.
(xx) [Reserved]
(yy) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7 Rate Period Days.
(zz) "MOODY'S" shall mean Moody's Investors Service, a Delaware corporation, and its successors.
(aaa) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of Appendix A hereto.
(bbb) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in
Section 4 of Appendix A hereto.
(ccc) "MOODY'S EXPOSURE PERIOD" shall have the meaning specified in the Moody's Guidelines.
(ddd) "MOODY'S GUIDELINES" shall have the meaning specified in Section 4 of Appendix A hereto.
(eee) "MOODY'S VOLATILITY FACTOR" shall have the meaning specified in the Moody's Guidelines.
(fff) "MUNICIPAL OBLIGATIONS" shall mean municipal securities as described in the Funds' registration statement on Form N-2 on file with the Securities and Exchange Commission, as such registration statement may be amended from time to time ("Registration Statement").
(ggg) "MUNIPREFERRED" shall have the meaning set forth on the first page of this Statement.
(hhh) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any Valuation Date, has the meaning set forth in the Rating Agency Guidelines.
(iii) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to the failure by the Fund to satisfy the MuniPreferred Basic Maintenance Amount (as required by paragraph (a) of Section 7 of Part I of this Statement) as of a given Valuation Date, has the meaning set forth in the Rating Agency Guidelines.
(jjj) "MUNIPREFERRED BASIC MAINTENANCE REPORT" has the meaning set forth in the Rating Agency Guidelines.
(kkk) "1940 ACT" shall mean the Investment Company Act of 1940, as amended from time to time.
(lll) "1940 ACT CURE DATE," with respect to the failure by the Fund to maintain the 1940 Act MuniPreferred Asset Coverage (as required by Section 6 of Part I of this Statement) as of the last Business Day of each month, shall mean the last Business Day of the following month.
(mmm) "1940 ACT MUNIPREFERRED ASSET COVERAGE" shall mean asset coverage, as defined in Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Fund which are shares of beneficial interest, including all outstanding shares of MuniPreferred (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are shares or stock of a closed-end investment company as a condition of declaring dividends on its common shares or stock).
(nnn) "NOTICE OF REDEMPTION" shall mean any notice with respect to the redemption of shares of MuniPreferred pursuant to paragraph (c) of Section 11 of
Part I of this Statement.
(ooo) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect to a Special Rate Period of shares of MuniPreferred pursuant to subparagraph (d)(i) of Section 4 of Part I of this Statement.
(ppp) "ORDER" and "ORDERS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of this Statement.
(qqq) "OTHER ISSUES," if defined in Section 4 of Appendix A hereto, shall have the meaning specified in that section.
(rrr) "OTHER RATING AGENCY" shall have the meaning specified in Section 4 of Appendix A hereto.
(sss) "OTHER RATING AGENCY DISCOUNT FACTOR" shall have the meaning specified in Section 4 to Appendix A hereto.
(ttt) "OTHER RATING AGENCY ELIGIBLE ASSETS" shall have the meaning specified in Section 4 of Appendix A hereto.
(uuu) "OTHER RATING AGENCY GUIDELINES" shall have the meaning specified in Section 4 of Appendix A hereto.
(vvv) "OUTSTANDING" shall mean, as of any Auction Date with respect to shares of a series of MuniPreferred, the number of shares of such series theretofore issued by the Fund except, without duplication, (i) any shares of such series theretofore cancelled or delivered to the Auction Agent for cancellation or redeemed by the Fund, (ii) any shares of such series as to which the Fund or any Affiliate thereof shall be an Existing Holder and (iii) any shares of such series represented by any certificate in lieu of which a new certificate has been executed and delivered by the Fund.
(www) "PERSON" shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
(xxx) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of MuniPreferred, shall mean a customer of a Broker-Dealer that is not a Beneficial Owner of shares of such series but that wishes to purchase shares of such series, or that is a Beneficial Owner of shares of such series that wishes to purchase additional shares of such series.
(yyy) "POTENTIAL HOLDER," with respect to shares of a series of MuniPreferred, shall mean a Broker-Dealer (or any such other person as may be permitted by the Fund) that is not an Existing Holder of shares of such series or that is an Existing Holder of shares of such series that wishes to become the Existing Holder of additional shares of such series.
(zzz) "PREFERRED SHARES" shall mean the preferred shares of the Fund, and includes the shares of MuniPreferred.
(aaaa) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each February, May, August and November of each year, commencing on the date set forth in Section 6 of Appendix A hereto.
(bbbb) "RATE MULTIPLE" shall have the meaning specified in Section 4 of Appendix A hereto.
(cccc) "RATE PERIOD," with respect to shares of a series of MuniPreferred, shall mean the Initial Rate Period, and any Transitional Rate Period, of shares of such series and any Subsequent Rate Period, including any Special Rate Period, of shares of such series.
(dddd) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means the number of days that would constitute such Rate Period or Dividend Period but for the application of paragraph (d) of Section 2 of Part I of this Statement or paragraph (b) of Section 4 of Part I of this Statement.
(eeee) "RATING AGENCY" shall have the meaning specified in Appendix A hereto.
(ffff) "RATING AGENCY CERTIFICATE" shall have the meaning specified in paragraph (b) of Section 7 of Part I of this Statement.
(gggg) "RATING AGENCY GUIDELINES" shall have the meaning specified in Appendix A hereto.
(hhhh) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A) for purposes of calculation of Moody's Eligible Assets as of any Valuation Date, no more than the aggregate of the following: (i) the book value of receivables for Municipal Obligations sold as of or prior to such Valuation Date if such receivables are due within five business days of such Valuation Date, and if the trades which generated such receivables are (x) settled through clearing house firms with respect to which the Fund has received prior written authorization from Moody's or (y) with counterparties having a Moody's long-term debt rating of at least Baa3; and (ii) the Moody's Discounted Value of Municipal Obligations sold as of or prior to such Valuation Date which generated receivables, if such receivables are due within five business days of such Valuation Date but do not comply with either of the conditions specified in (i) above, and (B) for purposes of calculation of S&P Eligible Assets as of any Valuation Date, the book value of receivables for Municipal Obligations sold as of or prior to such Valuation Date if such receivables are due within five business days of such Valuation Date.
(iiii) "REDEMPTION PRICE" shall mean the applicable redemption price specified in paragraph (a) or (b) of Section 11 of Part I of this Statement.
(jjjj) "REFERENCE RATE" shall mean (i) the higher of the Taxable Equivalent of the Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper Rate in the case of Minimum Rate Periods and Special Rate Periods of 28 Rate Period Days or fewer, (ii) the "AA" Composite Commercial Paper Rate in the case of Special Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate Period Days; and (iii) the Treasury Bill Rate in the case of Special Rate Periods of more than 182 Rate Period Days but fewer than 365 Rate Period Days.
(kkkk) "REGISTRATION STATEMENT" has the meaning specified in the definition of "Municipal Obligations."
(llll) "S&P" shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., a New York corporation, and its successors.
(mmmm) "S&P DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of Appendix A hereto.
(nnnn) "S&P ELIGIBLE ASSET" shall have the meaning specified in Section 4 of Appendix A hereto.
(oooo) "S&P EXPOSURE PERIOD" shall have the meaning specified in the S&P Guidelines.
(pppp) "S&P GUIDELINES" shall have the meaning specified in Section 4 of Appendix A hereto.
(qqqq) "S&P VOLATILITY FACTOR" shall have the meaning specified in the S&P Guidelines.
(rrrr) "SECONDARY MARKET INSURANCE," if defined in Section 4 of Appendix A hereto, shall have the meaning specified in that section.
(ssss) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and its successors and assigns or any other securities depository selected by the Fund which agrees to follow the procedures required to be followed by such securities depository in connection with shares of MuniPreferred.
(tttt) "SELL ORDER" and "SELL ORDERS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of this Statement.
(uuuu) "SPECIAL RATE PERIOD," with respect to shares of a series of MuniPreferred, shall have the meaning specified in paragraph (a) of Section 4 of
Part I of this Statement.
(vvvv) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in subparagraph (a)(i) of Section 11 of Part I of this Statement.
(wwww) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time.
(xxxx) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(yyyy) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have the respective meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(zzzz) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(aaaaa) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have the respective meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(bbbbb) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of MuniPreferred, shall mean the period from and including the first day following the Initial Rate Period of shares of such series to but excluding the next Dividend Payment Date for shares of such series and any period thereafter from and including one Dividend Payment Date for shares of such series to but excluding the next succeeding Dividend Payment Date for shares of such series; provided, however, that if any Subsequent Rate Period is also a Special Rate Period, such term shall mean the period commencing on the first day of such Special Rate Period and ending on the last day of the last Dividend Period thereof.
(ccccc) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston Company or Morgan Stanley & Co. Incorporated or their respective affiliates or successors, if such entity is a commercial paper dealer; provided, however, that none of such entities shall be a Commercial Paper Dealer.
(ddddd) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean The First Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or their respective affiliates or successors, if such entity is a U.S. Government securities dealer; provided, however, that none of such entities shall be a U.S. Government Securities Dealer.
(eeeee) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in paragraph (a) of Section 3 of Part II of this Statement.
(fffff) "TAXABLE ALLOCATION" shall have the meaning specified in
Section 3 of Part I of this Statement.
(ggggg) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on
any date for any Minimum Rate Period or Special Rate Period of 28 Rate Period
Days or fewer, shall mean 90% of the quotient of (A) the per annum rate
expressed on an interest equivalent basis equal to the Kenny S&P 30 day High
Grade Index or any successor index (the "Kenny Index") (provided, however, that
any such successor index must be approved by Moody's (if Moody's is then rating
the shares of MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred)), made available for the Business Day immediately preceding such
date but in any event not later than 8:30 A.M., New York City time, on such date
by Kenny S&P Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny S&P Evaluation Services or any such successor from
time to time in its discretion, which component issuers shall include, without
limitation, issuers of general obligation bonds, but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section 57 (a)(5)
of the Code, or successor provisions, for purposes of the "alternative minimum
tax," divided by (B) 1.00 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater; provided, however, that if the
Kenny Index is not made so available by 8:30 A.M., New York City time, on such
date by Kenny S&P Evaluation Services or any successor, the Taxable Equivalent
of the Short-Term Municipal Bond Rate shall mean the quotient of (A) the per
annum rate expressed on an interest equivalent basis equal to the most recent
Kenny Index so made available for any preceding Business Day, divided by (B)
1.00 minus the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or the maximum marginal regular Federal corporate
income tax rate applicable to ordinary income (in each case expressed as a
decimal), whichever is greater.
(hhhhh) "TAXABLE INCOME" shall have the meaning specified in Section 12 of Appendix A hereto.
(iiiii) "TREASURY BILL" shall mean a direct obligation of the U.S. Government having a maturity at the time of issuance of 364 days or less.
(jjjjj) "TREASURY BILL RATE," on any date for any Rate Period, shall mean (i) the bond equivalent yield, calculated in accordance with prevailing industry convention, of the rate on the most recently auctioned Treasury Bill with a remaining maturity closest to the length of such Rate Period, as quoted in The Wall Street Journal on such date for the Business Day next preceding such date; or (ii) in the event that any such rate is not published in The Wall Street Journal, then the bond equivalent yield, calculated in accordance with prevailing industry convention, as calculated by reference to the arithmetic average of the bid price quotations of the most recently auctioned Treasury Bill with a remaining maturity closest to the length of such Rate Period, as determined by bid price quotations as of the close of business on the Business Day immediately preceding such date obtained from the U.S. Government Securities Dealers to the Auction Agent.
(kkkkk) "TREASURY NOTE" shall mean a direct obligation of the U.S. Government having a maturity at the time of issuance of five years or less but more than 364 days.
(lllll) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean (i) the yield on the most recently auctioned Treasury Note with a remaining maturity closest to the length of such Rate Period, as quoted in The Wall Street Journal on such date for the Business Day next preceding such date; or (ii) in the event that any such rate is not published in The Wall Street Journal, then the yield as calculated by reference to the arithmetic average of the bid price quotations of the most recently auctioned Treasury Note with a remaining maturity closest to the length of such Rate Period, as determined by bid price quotations as of the close of business on the Business Day immediately preceding such date obtained from the U.S. Government Securities Dealers to the Auction Agent. If any U.S. Government Securities Dealer does not quote a rate required to determine the Treasury Bill Rate or the Treasury Note Rate, the Treasury Bill Rate or the Treasury Note Rate shall be determined on the basis of the quotation or quotations furnished by the remaining U.S. Government Securities Dealer or U.S. Government Securities Dealers and any Substitute U.S. Government Securities Dealers selected by the Fund to provide such rate or rates not being supplied by any U.S. Government Securities Dealer or U.S. Government Securities Dealers, as the case may be, or, if the Fund does not select any such Substitute U.S. Government Securities Dealer or Substitute U.S. Government Securities Dealers, by the remaining U.S. Government Securities Dealer or U.S. Government Securities Dealers.
(mmmmm) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman Government Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc and Morgan Guaranty Trust Company of New York or their respective affiliates or successors, if such entity is a U.S. Government securities dealer.
(nnnnn) "VALUATION DATE" shall mean, for purposes of determining whether the Fund is maintaining the MuniPreferred Basic Maintenance Amount, each Business Day.
(ooooo) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the greater of the Moody's Volatility Factor and the S&P Volatility Factor.
(ppppp) "VOTING PERIOD" shall have the meaning specified in paragraph
(b) of Section 5 of Part I of this Statement.
(qqqqq) "WINNING BID RATE" shall have the meaning specified in paragraph (a) of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 8 of Appendix A hereto shall be incorporated herein and made part hereof by reference thereto.
PART I
1. NUMBER OF AUTHORIZED SHARES. The number of authorized shares constituting a series of MuniPreferred shall be as set forth with respect to such series in Section 2 of Appendix A hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a parity with each other, with shares of any other series of MuniPreferred and with shares of any other series of Preferred Shares as to the payment of dividends by the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of MuniPreferred
of any series shall be entitled to receive, when, as and if declared by the
Board of Trustees, out of funds legally available therefor in accordance with
the Declaration and applicable law, cumulative cash dividends at the Applicable
Rate for shares of such series, determined as set forth in paragraph (e) of this
Section 2, and no more (except to the extent set forth in Section 3 of this Part
I), payable on the Dividend Payment Dates with respect to shares of such series
determined pursuant to paragraph (d) of this Section 2. Holders of shares of
MuniPreferred shall not be entitled to any dividend, whether payable in cash,
property or shares, in excess of full cumulative dividends, as herein provided,
on shares of MuniPreferred. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on shares of
MuniPreferred which may be in arrears, and, except to the extent set forth in
subparagraph (e)(i) of this Section 2, no additional sum of money shall be
payable in respect of any such arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on shares of MuniPreferred of any series shall accumulate at the Applicable Rate for shares of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment Dates with respect to shares of a series of MuniPreferred shall be as set forth with respect to shares of such series in Section 9 of Appendix A hereto; provided, however, that:
(i) (A) in the case of a series of MuniPreferred designated as "Series F MuniPreferred" or "Series M MuniPreferred" in Section 1 of Appendix A hereto, if the Monday or Tuesday, as the case may be, on which dividends would otherwise be payable on shares of such series is not a Business Day, then such dividends shall be payable on such shares on the first Business Day that falls after such Monday or Tuesday, as the case may be, and (B) in the case of a series of MuniPreferred designated as "Series T MuniPreferred," "Series W MuniPreferred" or "Series TH MuniPreferred" in Section 1 of Appendix A hereto, if the Wednesday, Thursday or Friday, as the case may be, on which dividends would otherwise be payable on shares of such series is not a Business Day, then such dividends shall be payable on such shares on the first Business Day that falls prior to such Wednesday, Thursday or Friday, as the case may be; and
(ii) notwithstanding Section 9 of Appendix A hereto, the Fund in its discretion may establish the Dividend Payment Dates in respect of any Special Rate Period of shares of a series of MuniPreferred consisting of more than 28 Rate Period Days; provided, however, that such dates shall be set forth in the Notice of Special Rate Period relating to such Special Rate Period, as delivered to the Auction Agent, which Notice of Special Rate Period shall be filed with the Secretary of the Fund; and further provided that (1) any such Dividend Payment Date shall be a Business Day and (2) the last Dividend Payment Date in respect of such Special Rate Period shall be the Business Day immediately following the last day thereof, as such last day is determined in accordance with paragraph (b) of Section 4 of this Part I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.
(i) DIVIDEND RATES. The dividend rate on shares of MuniPreferred of any series during the period from and after the Date of Original Issue of shares of such series to and including the last day of the Initial Rate Period of shares of such series shall be equal to the rate per annum set forth with respect to shares of such series under "Designation" in Section 1 of Appendix A hereto. For each Subsequent Rate Period of shares of such series thereafter, the dividend rate on shares of such series shall be equal to the rate per annum that results from an Auction for shares of such series on the Auction Date next preceding such Subsequent Rate Period; provided, however, that if:
(A) an Auction for any such Subsequent Rate Period is not held for any reason other than as described below, the dividend rate on shares of such series for such Subsequent Rate Period will be the Maximum Rate for shares of such series on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with
respect to shares of such series during any Rate Period
thereof (other than any Special Rate Period consisting of more
than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not
been cured), but, prior to 12:00 Noon, New York City time, on
the third Business Day next succeeding the date on which such
Failure to Deposit occurred, such Failure to Deposit shall
have been cured in accordance with paragraph (f) of this
Section 2 and the Fund shall have paid to the Auction Agent a
late charge ("Late Charge") equal to the sum of (1) if such
Failure to Deposit consisted of the failure timely to pay to
the Auction Agent the full amount of dividends with respect to
any Dividend Period of the shares of such series, an amount
computed by multiplying (x) 200% of the Reference Rate for the
Rate Period during which such Failure to Deposit occurs on the
Dividend Payment Date for such Dividend Period by (y) a
fraction, the numerator of which shall be the number of days
for which such Failure to Deposit has not been cured in
accordance with paragraph (f) of this Section 2 (including the
day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which
shall be 360, and applying the rate obtained against the
aggregate Liquidation Preference of the outstanding shares of
such series and (2) if such Failure to Deposit consisted of
the failure timely to pay to the Auction Agent the Redemption
Price of the shares, if any, of such series for which Notice
of Redemption has been mailed by the Fund pursuant to
paragraph (c) of Section 11 of this Part I, an amount computed
by multiplying (x) 200% of the Reference Rate for the Rate
Period during which such Failure to Deposit occurs on the
redemption date by (y) a fraction, the numerator of which
shall be the number of days for which such Failure to Deposit
is not cured in accordance with paragraph (f) of this Section
2 (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the
denominator of which shall be 360, and applying the rate
obtained against the aggregate Liquidation Preference of the
outstanding shares of such series to be redeemed, no Auction
will be held in respect of shares of such series for the
Subsequent Rate Period thereof and the dividend rate for
shares of such series for such Subsequent Rate Period will be
the Maximum Rate for shares of such series on the Auction Date
for such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with respect to shares of such series during any Rate Period thereof (other than any Special Rate Period
consisting of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate Period consisting of more than 364 Rate Period Days during which a Failure to Deposit occurred that has not been cured), and, prior to 12:00 Noon, New York City time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall not have been cured in accordance with paragraph (f) of this Section 2 or the Fund shall not have paid the applicable Late Charge to the Auction Agent, no Auction will be held in respect of shares of such series for the first Subsequent Rate Period thereof thereafter (or for any Rate Period thereof thereafter to and including the Rate Period during which (1) such Failure to Deposit is cured in accordance with paragraph (f) of this Section 2 and (2) the Fund pays the applicable Late Charge to the Auction Agent (the condition set forth in this clause (2) to apply only in the event Moody's is rating such shares at the time the Fund cures such Failure to Deposit), in each case no later than 12:00 Noon, New York City time, on the fourth Business Day prior to the end of such Rate Period), and the dividend rate for shares of such series for each such Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate for shares of such series on the Auction Date for such Subsequent Rate Period (but with the prevailing rating for shares of such series, for purposes of determining such Maximum Rate, being deemed to be "Below "ba3"/BB2"); or
(D) any Failure to Deposit shall have occurred with
respect to shares of such series during a Special Rate Period
thereof consisting of more than 364 Rate Period Days, or
during any Rate Period thereof succeeding any Special Rate
Period consisting of more than 364 Rate Period Days during
which a Failure to Deposit occurred that has not been cured,
and, prior to 12:00 Noon, New York City time, on the fourth
Business Day preceding the Auction Date for the Rate Period
subsequent to such Rate Period, such Failure to Deposit shall
not have been cured in accordance with paragraph (f) of this
Section 2 or, in the event Moody's is then rating such shares,
the Fund shall not have paid the applicable Late Charge to the
Auction Agent (such Late Charge, for purposes of this
subparagraph (D), to be calculated by using, as the Reference
Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days but fewer than
365 Rate Period Days and (y) commencing on the date on which
the Rate Period during which Failure to Deposit occurs
commenced), no Auction will be held in respect of shares of
such series for such Subsequent Rate Period (or for any Rate
Period thereof thereafter to and including the Rate Period
during which (1) such Failure to Deposit is cured in
accordance with paragraph (f) of this Section 2 and (2) the
Fund pays the applicable Late Charge to the Auction Agent (the
condition set forth in this clause (2) to apply only in the
event Moody's is rating such shares at the time the Fund cures
such Failure to Deposit), in each case no later than 12:00
Noon, New York City time, on the fourth Business Day prior to
the end of such Rate Period), and the dividend rate for shares
of such series for each such Subsequent Rate Period shall be a
rate per annum equal to the Maximum Rate for shares of such
series on the Auction Date for such Subsequent Rate Period
(but with the prevailing rating for shares of such series, for
purposes of determining such Maximum Rate, being deemed to be
"Below "ba3"/BB2") (the rate per annum at which dividends are
payable on shares of a series of MuniPreferred for any Rate
Period thereof being herein referred to as the "Applicable
Rate" for shares of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share payable on shares of a series of MuniPreferred on any date on which dividends shall be payable on shares of such series shall be computed by multiplying the Applicable Rate for shares of such series in effect for such Dividend Period or Dividend Periods or part thereof for which dividends have not
been paid by a fraction, the numerator of which shall be the number of days in such Dividend Period or Dividend Periods or part thereof and the denominator of which shall be 365 if such Dividend Period consists of 7 Rate Period Days and 360 for all other Dividend Periods, and applying the rate obtained against $25,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of MuniPreferred shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Fund to make the
required payment to the Auction Agent) with respect to any Rate Period of shares
of such series if, within the respective time periods described in subparagraph
(e)(i) of this Section 2, the Fund shall have paid to the Auction Agent (A) all
accumulated and unpaid dividends on shares of such series and (B) without
duplication, the Redemption Price for shares, if any, of such series for which
Notice of Redemption has been mailed by the Fund pursuant to paragraph (c) of
Section 11 of Part I of this Statement; provided, however, that the foregoing
clause (B) shall not apply to the Fund's failure to pay the Redemption Price in
respect of shares of MuniPreferred when the related Redemption Notice provides
that redemption of such shares is subject to one or more conditions precedent
and any such condition precedent shall not have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall pay to
the Auction Agent, not later than 12:00 Noon, New York City time, on the
Business Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All moneys paid to the Auction Agent for the payment of dividends (or for the payment of any Late Charge) shall be held in trust for the payment of such dividends (and any such Late Charge) by the Auction Agent for the benefit of the Holders specified in paragraph (i) of this Section 2. Any moneys paid to the Auction Agent in accordance with the foregoing but not applied by the Auction Agent to the payment of dividends (and any such Late Charge) will, to the extent permitted by law, be repaid to the Fund at the end of 90 days from the date on which such moneys were so to have been applied.
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of MuniPreferred shall be paid on the Dividend Payment Date therefor to the Holders thereof as their names appear on the record books of the Fund on the Business Day next preceding such Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS. Any dividend payment made on shares of MuniPreferred shall first be credited against the earliest accumulated but unpaid dividends due with respect to such shares. Dividends in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holders as their names appear on the record books of the Fund on such date, not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board of Trustees.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on shares of MuniPreferred shall be designated as exempt-interest dividends up to the amount of tax-exempt income of the Fund, to the extent permitted by, and for purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS. Holders of shares of MuniPreferred shall be entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available therefor, dividends in an amount equal to the aggregate Gross-up Payments as follows:
(a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE PERIOD
DAYS OR FEWER. If, in the case of any Minimum Rate Period or any Special Rate
Period of 28 Rate Period Days or fewer, the Fund allocates any net capital gains
or other income taxable for Federal income tax purposes to a dividend paid on
shares of MuniPreferred without having given advance notice thereof to the
Auction Agent as provided in Section 5 of Part II of this Statement (such
allocation being referred to herein as a "Taxable Allocation") solely by reason
of the fact that such allocation is made retroactively as a result of the
redemption of all or a portion of the outstanding shares of MuniPreferred or the
liquidation of the Fund, the Fund shall, prior to the end of the calendar year
in which such dividend was paid, provide notice thereof to the Auction Agent and
direct the Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of such shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or last
appeared on the record books of the Fund.
(b) SPECIAL RATE PERIODS AND INITIAL RATE PERIODS OF MORE THAN 28
RATE PERIOD DAYS. If, in the case of any Special Rate Period and Initial Rate
Period of more than 28 Rate Period Days, the Fund makes a Taxable Allocation to
a dividend paid on shares of MuniPreferred, the Fund shall, prior to the end of
the calendar year in which such dividend was paid, provide notice thereof to the
Auction Agent and direct the Fund's dividend disbursing agent to send such
notice with a Gross-up Payment to each Holder of shares that was entitled to
such dividend payment during such calendar year at such Holder's address as the
same appears or last appeared on the record books of the Fund.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Fund shall not be required to make Gross-up Payments with respect to any net capital gains or other taxable income determined by the Internal Revenue Service to be allocable in a manner different from that allocated by the Fund.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Fund, at
its option, may designate any succeeding Subsequent Rate Period of shares of a
series of MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Fund pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such series, the Redemption Price with
respect to such shares shall have been deposited with the Auction Agent. In the
event the Fund wishes to designate any succeeding Subsequent Rate Period for
shares of a series of MuniPreferred as a Special Rate Period consisting of more
than 28 Rate Period Days, the Fund shall notify S&P (if S&P is then rating such
series) and Moody's (if Moody's is then rating such series) in advance of the
commencement of such Subsequent Rate Period that the Fund wishes to designate
such Subsequent Rate Period as a Special Rate Period and shall provide S&P (if
S&P is then rating such series) and Moody's (if Moody's is then rating such
series) with such documents as either may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Fund wishes to designate a Subsequent Rate Period as a Special Rate Period, but the day following what would otherwise be the last day of such Special Rate Period is not (a) a Tuesday that is a Business Day in the case of a series of MuniPreferred designated as "Series M MuniPreferred" in Section 1 of Appendix A hereto, (b) a Wednesday that is a Business Day in the case of a series of MuniPreferred designated as "Series T
MuniPreferred" in Section 1 of Appendix A hereto, (c) a Thursday that is a Business Day in the case of a series of MuniPreferred designated as "Series W MuniPreferred" in Section 1 of Appendix A hereto, (d) a Friday that is a Business Day in the case of a series of MuniPreferred designated as "Series TH MuniPreferred" in Section 1 of Appendix A hereto, or (e) a Monday that is a Business Day in the case of a series of MuniPreferred designated as "Series F MuniPreferred" in Section 1 of Appendix A hereto, then the Fund shall designate such Subsequent Rate Period as a Special Rate Period consisting of the period commencing on the first day following the end of the immediately preceding Rate Period and ending (a) on the first Monday that is followed by a Tuesday that is a Business Day preceding what would otherwise be such last day, in the case of Series M MuniPreferred, (b) on the first Tuesday that is followed by a Wednesday that is a Business Day preceding what would otherwise be such last day, in the case of Series T MuniPreferred, (c) on the first Wednesday that is followed by a Thursday that is a Business Day preceding what would otherwise be such last day, in the case of Series W MuniPreferred, (d) on the first Thursday that is followed by a Friday that is a Business Day preceding what would otherwise be such last day, in the case of Series TH MuniPreferred, and (e) on the first Sunday that is followed by a Monday that is a Business Day preceding what would otherwise be such last day, in the case of Series F MuniPreferred.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period pursuant to paragraph (a) of this Section
4, not less than 20 (or such lesser number of days as may be agreed to from time
to time by the Auction Agent) nor more than 30 days prior to the date the Fund
proposes to designate as the first day of such Special Rate Period (which shall
be such day that would otherwise be the first day of a Minimum Rate Period),
notice shall be (i) published or caused to be published by the Fund in a
newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Fund by
first-class mail, postage prepaid, to the Holders of shares of such series. Each
such notice shall state (A) that the Fund may exercise its option to designate a
succeeding Subsequent Rate Period of shares of such series as a Special Rate
Period, specifying the first day thereof and (B) that the Fund will, by 11:00
A.M., New York City time, on the second Business Day next preceding such date
(or by such later time or date, or both, as may be agreed to by the Auction
Agent) notify the Auction Agent of either (x) its determination, subject to
certain conditions, to exercise such option, in which case the Fund shall
specify the Special Rate Period designated, or (y) its determination not to
exercise such option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York City time, on the second Business Day next preceding the first day of any proposed Special Rate Period of shares of a series of MuniPreferred as to which notice has been given as set forth in paragraph (c) of this Section 4 (or such later time or date, or both, as may be agreed to by the Auction Agent), the Fund shall deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A)
that the Fund has determined to designate the next succeeding Rate
Period of shares of such series as a Special Rate Period, specifying
the same and the first day thereof, (B) the Auction Date immediately
prior to the first day of such Special Rate Period, (C) that such
Special Rate Period shall not commence if (1) an Auction for shares of
such series shall not be held on such Auction Date for any reason or
(2) an Auction for shares of such series shall be held on such Auction
Date but Sufficient Clearing Bids for shares of such series shall not
exist in such Auction, (D) the scheduled Dividend Payment Dates for
shares of such series during such Special Rate Period and (E) the
Special Redemption Provisions, if any, applicable to shares of such
series in respect of such Special Rate Period, such notice to be
accompanied by a MuniPreferred Basic Maintenance Report showing that,
as of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is then rating such series)
and S&P Eligible Assets
(if S&P is then rating such series) each have an aggregate Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount as of such Business Day (assuming for purposes of the foregoing calculation that (a) the Maximum Rate is the Maximum Rate on such Business Day as if such Business Day were the Auction Date for the proposed Special Rate Period, and (b) the Moody's Discount Factors applicable to Moody's Eligible Assets are determined by reference to the first Exposure Period longer than the Exposure Period then applicable to the Fund, as described in the definition of Moody's Discount Factor herein); or
(ii) a notice stating that the Fund has determined not to exercise its option to designate a Special Rate Period of shares of such series and that the next succeeding Rate Period of shares of such series shall be a Minimum Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Fund
fails to deliver either of the notices described in subparagraphs (d)(i) or
(d)(ii) of this Section 4 (and, in the case of the notice described in
subparagraph (d)(i) of this Section 4, a MuniPreferred Basic Maintenance Report
to the effect set forth in such subparagraph (if either Moody's or S&P is then
rating the series in question)) with respect to any designation of any proposed
Special Rate Period to the Auction Agent by 11:00 A.M., New York City time, on
the second Business Day next preceding the first day of such proposed Special
Rate Period (or by such later time or date, or both, as may be agreed to by the
Auction Agent), the Fund shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Rate Period to the effect set forth
in subparagraph (d)(ii) of this Section 4. In the event the Fund delivers to the
Auction Agent a notice described in subparagraph (d)(i) of this Section 4, it
shall file a copy of such notice with the Secretary of the Fund, and the
contents of such notice shall be binding on the Fund. In the event the Fund
delivers to the Auction Agent a notice described in subparagraph (d)(ii) of this
Section 4, the Fund will provide Moody's (if Moody's is then rating the series
in question) and S&P (if S&P is then rating the series in question) a copy of
such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF MUNIPREFERRED. Except as otherwise provided
in the Declaration of Trust or as otherwise required by law, (i) each Holder of
shares of MuniPreferred shall be entitled to one vote for each share of
MuniPreferred held by such Holder on each matter submitted to a vote of
shareholders of the Fund, and (ii) the holders of outstanding Preferred Shares,
including each share of MuniPreferred, and of Common Shares shall vote together
as a single class; provided, however, that, at any meeting of the shareholders
of the Fund held for the election of trustees, the holders of outstanding
Preferred Shares, including MuniPreferred, represented in person or by proxy at
said meeting, shall be entitled, as a class, to the exclusion of the holders of
all other securities and classes of shares of beneficial interest of the Fund,
to elect two trustees of the Fund, each Preferred Share, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding Common Shares and Preferred
Shares, including MuniPreferred, voting together as a single class, shall elect
the balance of the trustees.
(b) VOTING FOR ADDITIONAL TRUSTEES.
(i) VOTING PERIOD. During any period in which any one or more of the conditions described in subparagraphs (A) or (B) of this subparagraph (b)(i) shall exist (such period being referred to herein as a "Voting Period"), the number of trustees constituting the Board of Trustees shall be automatically increased by the smallest number that, when added to the two trustees elected exclusively by the holders of Preferred Shares, including shares of MuniPreferred, would constitute a majority of the Board of Trustees as so increased by such smallest number; and the holders of Preferred Shares, including MuniPreferred, shall be entitled, voting as a class on a one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of shares of beneficial interest of the Fund), to elect such smallest number of additional trustees, together with the two trustees that such holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any dividend payment date accumulated dividends (whether or not earned or declared) on any outstanding Preferred Share, including MuniPreferred, equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited with the Auction Agent for the payment of such accumulated dividends; or
(B) if at any time holders of Preferred Shares are entitled under the 1940 Act to elect a majority of the trustees of the Fund.
Upon the termination of a Voting Period, the voting rights described in this subparagraph (b)(i) shall cease, subject always, however, to the revesting of such voting rights in the Holders upon the further occurrence of any of the events described in this subparagraph (b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the accrual of any right of the holders of Preferred Shares to elect additional trustees as described in subparagraph (b)(i) of this Section 5, the Fund shall notify the Auction Agent and the Auction Agent shall instruct the Trustees to call a special meeting of such holders, and the Auction Agent shall 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 Fund fails to send such notice to the Auction Agent or if a special meeting is not called, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of Preferred Shares held during a Voting Period at which trustees are to be elected, such holders, voting together as a class (to the exclusion of the holders of all other securities and classes of shares of beneficial interest of the Fund), shall be entitled to elect the number of trustees prescribed in subparagraph (b)(i) of this Section 5 on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING TRUSTEES. The terms of office of all persons who are trustees of the Fund at the time of a special meeting of Holders and holders of other Preferred Shares to elect trustees shall continue, notwithstanding the election at such meeting by the Holders and such other holders of the number of trustees that they are entitled to elect, and the persons so elected by the Holders and such other holders, together with the two incumbent trustees elected by the Holders and such other holders of Preferred Shares and the remaining incumbent trustees elected by the holders of the Common Shares and Preferred Shares, shall constitute the duly elected trustees of the Fund.
(iv) TERMS OF OFFICE OF CERTAIN TRUSTEES TO TERMINATE UPON TERMINATION OF VOTING PERIOD. Simultaneously with the termination of a Voting Period, the terms of office of the additional trustees elected by the Holders and holders of other Preferred Shares pursuant to subparagraph (b)(i) of this Section 5 shall terminate, the remaining trustees shall constitute the trustees of the Fund and the voting rights of the Holders and such other holders to elect additional trustees pursuant to subparagraph (b)(i) of this Section 5 shall cease, subject to the provisions of the last sentence of subparagraph (b)(i) of this Section 5.
(c) HOLDERS OF MUNIPREFERRED TO VOTE ON CERTAIN OTHER MATTERS.
(i) INCREASES IN CAPITALIZATION. So long as any shares of
MuniPreferred are outstanding, the Fund shall not, without the
affirmative vote or consent of the Holders of at least a majority of
the shares of MuniPreferred outstanding at the time, in person or by
proxy, either in writing or at a meeting, voting as a separate class:
(a) authorize, create or issue any class or series of shares ranking
prior to or on a parity with shares of MuniPreferred with respect to
the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, or
authorize, create or issue additional shares of any series of
MuniPreferred (except that, notwithstanding the foregoing, but subject
to the provisions of Section 10 of this Part I, the Board of Trustees,
without the vote or consent of the Holders of MuniPreferred, may from
time to time authorize and create, and the Fund may from time to time
issue additional shares of, any series of MuniPreferred, or classes or
series of Preferred Shares ranking on a parity with shares of
MuniPreferred with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Fund; provided, however, that if Moody's or S&P is
not then rating the shares of MuniPreferred, the aggregate liquidation
preference of all Preferred Shares of the Fund outstanding after any
such issuance, exclusive of accumulated and unpaid dividends, may not
exceed the amount set forth in Section 10 of Appendix A hereto) or (b)
amend, alter or repeal the provisions of the Declaration, or this
Statement, whether by merger, consolidation or otherwise, so as to
affect any preference, right or power of such shares of MuniPreferred
or the Holders thereof; provided, however, that (i) none of the actions
permitted by the exception to (a) above will be deemed to affect such
preferences, rights or powers, (ii) a division of a share of
MuniPreferred will be deemed to affect such preferences, rights or
powers only if the terms of such division adversely affect the Holders
of shares of MuniPreferred and (iii) the authorization, creation and
issuance of classes or series of shares ranking junior to shares of
MuniPreferred with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Fund, will be deemed to affect such preferences,
rights or powers only if Moody's or S&P is then rating shares of
MuniPreferred and such issuance would, at the time thereof, cause the
Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage or the
MuniPreferred Basic Maintenance Amount. So long as any shares of
MuniPreferred are outstanding, the Fund shall not, without the
affirmative vote or consent of the Holders of at least 66 2/3% of the
shares of MuniPreferred outstanding at the time, in person or by proxy,
either in writing or at a meeting, voting as a separate class, file a
voluntary application for relief under Federal bankruptcy law or any
similar application under state law for so long as the Fund is solvent
and does not foresee becoming insolvent. If any action set forth above
would adversely affect the rights of one or more series (the "Affected
Series") of MuniPreferred in a manner different from any other series
of MuniPreferred, the Fund will not approve any such action without the
affirmative vote or consent of the Holders of at least a majority of
the shares of each such Affected Series outstanding at the time, in
person or by proxy, either in writing or at a meeting (each such
Affected Series voting as a separate class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in the Declaration, (A) the affirmative vote of the Holders of at least a majority of the Preferred Shares, including MuniPreferred, outstanding at the time, voting as a separate class, shall be required to approve any conversion of the Fund from a closed-end to an open-end investment company and (B) the affirmative vote of the Holders of a "majority of the outstanding Preferred Shares," including MuniPreferred, voting as a separate class, shall be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares. The affirmative vote of the Holders of a "majority of the outstanding Preferred Shares," including MuniPreferred, voting as a separate class, shall be required to approve any action not described in
the first sentence of this Section 5(c)(ii) requiring a vote of security holders of the Fund under Section 13(a) of the 1940 Act. For purposes of the foregoing, "majority of the outstanding Preferred Shares" means (i) 67% or more of such shares present at a meeting, if the Holders of more than 50% of such shares are present or represented by proxy, or (ii) more than 50% of such shares, whichever is less. In the event a vote of Holders of MuniPreferred is required pursuant to the provisions of Section 13(a) of the 1940 Act, the Fund shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify Moody's (if Moody's is then rating the shares of MuniPreferred) and S&P (if S&P is then rating the shares of MuniPreferred) that such vote is to be taken and the nature of the action with respect to which such vote is to be taken. The Fund shall, not later than ten Business Days after the date on which such vote is taken, notify Moody's (if Moody's is then rating the shares of MuniPreferred) of the results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The Board of Trustees, without the vote or consent of any holder of shares of Preferred Shares, including any series of MuniPreferred, or any other shareholder of the Fund, may from time to time adopt, amend, alter or repeal any or all of the definitions contained herein, add covenants and other obligations of the Fund, or confirm the applicability of covenants and other obligations set forth herein, in connection with obtaining or maintaining the rating of any Rating Agency which is then rating the MuniPreferred, and any such adoption, amendment, alteration or repeal will not be deemed to affect the preferences, rights or powers of Preferred Shares, including MuniPreferred, or the Holders thereof, provided that the Board of Trustees receives written confirmation from such Rating Agency, as applicable (with such confirmation in no event being required to be obtained from a particular Rating Agency with respect to definitions or other provisions relevant only to and adopted in connection with another Rating Agency's rating of any series of MuniPreferred) that any such amendment, alteration or repeal would not adversely affect the rating then assigned by such Rating Agency.
Notwithstanding anything herein to the contrary, the Rating Agency Guidelines, as they may be amended from time to time by the respective Rating Agency will be reflected in a written document and may be amended by the respective Rating Agency without the vote, consent or approval of the Fund, the Board of Trustees and any holder of shares of Preferred Shares, including any series of MuniPreferred, or any other shareholder of the Fund.
In addition, subject to compliance with applicable law, the Board of Trustees may amend the definition of Maximum Rate to increase the percentage amount by which the Reference Rate is multiplied to determine the Maximum Rate shown therein without the vote or consent of the holders of the Preferred Shares, including any series of MuniPreferred, or any other shareholder of the Fund, and without receiving any confirmation from any Rating Agency after consultation with the Broker-Dealers, provided that immediately following any such increase the Fund would be in compliance with the MuniPreferred Shares Basic Maintenance Amount.
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless otherwise required by law, the Holders of shares of MuniPreferred shall not have any relative rights or preferences or other special rights other than those specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR TRUSTEES SOLE REMEDY FOR FUND'S FAILURE TO PAY DIVIDENDS. In the event that the Fund fails to pay any dividends on the shares of MuniPreferred, the exclusive remedy of the Holders shall be the right to vote for trustees pursuant to the provisions of this Section 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of the Holders to vote on any matter, whether such right is created by this Statement, by the other provisions of the Declaration, by statute or otherwise, no Holder shall be entitled to vote any share of MuniPreferred and no share of MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or determining the number of shares required to constitute a quorum if, prior to or concurrently with the time of determination of shares entitled to vote or shares deemed outstanding for quorum purposes, as the case may be, the requisite Notice of Redemption with respect to such shares shall have been mailed as provided in paragraph (c) of Section 11 of this Part I and the Redemption Price for the redemption of such shares shall have been deposited in trust with the Auction Agent for that purpose. No share of MuniPreferred held by the Fund or any affiliate of the Fund (except for shares held by a Broker-Dealer that is an affiliate of the Fund for the account of its customers) shall have any voting rights or be deemed to be outstanding for voting or other purposes.
6. 1940 ACT MUNIPREFERRED ASSET COVERAGE. The Fund shall maintain, as of the last Business Day of each month in which any share of MuniPreferred is outstanding, the 1940 Act MuniPreferred Asset Coverage.
7. MUNIPREFERRED BASIC MAINTENANCE AMOUNT.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall maintain, on each Valuation Date, and shall verify to its satisfaction that it is maintaining on such Valuation Date, (i) S&P Eligible Assets having an aggregate Discounted Value equal to or greater than the MuniPreferred Basic Maintenance Amount (if S&P is then rating the shares of MuniPreferred) and (ii) Moody's Eligible Assets having an aggregate Discounted Value equal to or greater than the MuniPreferred Basic Maintenance Amount (if Moody's is then rating the shares of MuniPreferred).
(b) The Fund shall deliver to each Rating Agency which is then rating shares of MuniPreferred and any other party specified in the Rating Agency Guidelines all certificates that are set forth in the respective Rating Agency Guidelines regarding 1940 Act FundPreferred Shares Asset Coverage, MuniPreferred Basic Maintenance Amount and/or related calculations at such times and containing such information as set forth in the respective Rating Agency Guidelines (each, a "Rating Agency Certificate"). A failure by the Fund to deliver a Rating Agency Certificate with respect to the MuniPreferred Basic Maintenance Amount shall be deemed to be delivery of a Rating Agency Certificate indicating the Discounted Value for all assets of the Fund is less than the MuniPreferred Basic Maintenance Amount, as of the relevant Valuation Date.
8. [RESERVED].
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON PREFERRED SHARES OTHER THAN MUNIPREFERRED. Except as set forth in the next sentence, no dividends shall be declared or paid or set apart for payment on the shares of any class or series of shares of beneficial interest of the Fund ranking, as to the payment of dividends, on a parity with shares of MuniPreferred for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the shares of each series of MuniPreferred through its most recent Dividend Payment Date. When dividends are not paid in full upon the shares of each series of MuniPreferred through its most recent Dividend Payment Date or upon the shares of any other class or series of shares of beneficial interest of the Fund ranking on a parity as to the payment of dividends with shares of MuniPreferred through their most recent respective dividend payment dates, all dividends declared upon shares of MuniPreferred and any other such class or series of shares of beneficial interest ranking on a parity as to the payment of dividends with shares of MuniPreferred shall be declared pro rata so that the amount of dividends declared per share on shares of MuniPreferred and such other class or
series of shares of beneficial interest shall in all cases bear to each other the same ratio that accumulated dividends per share on the shares of MuniPreferred and such other class or series of shares of beneficial interest bear to each other (for purposes of this sentence, the amount of dividends declared per share of MuniPreferred shall be based on the Applicable Rate for such share for the Dividend Periods during which dividends were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES UNDER THE 1940 ACT. The Board of Trustees shall not declare any dividend (except a dividend payable in Common Shares), or declare any other distribution, upon the Common Shares, or purchase Common Shares, unless in every such case the Preferred Shares have, at the time of any such declaration or purchase, an asset coverage (as defined in and determined pursuant to the 1940 Act) of at least 200% (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are shares or stock of a closed-end investment company as a condition of declaring dividends on its common shares or stock) after deducting the amount of such dividend, distribution or purchase price, as the case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so
long as any share of MuniPreferred is outstanding, and except as set forth in
paragraph (a) of this Section 9 and paragraph (c) of Section 12 of this Part I,
(A) the Fund shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
in options, warrants or rights to subscribe for or purchase, Common Shares or
other shares, if any, ranking junior to the shares of MuniPreferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of the Common Shares or any other shares
of the Fund ranking junior to or on a parity with the shares of MuniPreferred as
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or otherwise
acquire for consideration any Common Shares or any other such junior shares
(except by conversion into or exchange for shares of the Fund ranking junior to
the shares of MuniPreferred as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up), or any such parity
shares (except by conversion into or exchange for shares of the Fund ranking
junior to or on a parity with MuniPreferred as to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up), unless
(i) full cumulative dividends on shares of each series of MuniPreferred through
its most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (ii) the Fund has redeemed the full number of shares of MuniPreferred
required to be redeemed by any provision for mandatory redemption pertaining
thereto, and (B) the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or in options, warrants or rights to subscribe for or purchase,
Common Shares or other shares, if any, ranking junior to shares of MuniPreferred
as to the payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of Common Shares or any other shares of
the Fund ranking junior to shares of MuniPreferred as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or winding
up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Fund ranking junior to shares of
MuniPreferred as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up), unless immediately after such
transaction the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of MuniPreferred) and S&P Eligible Assets (if S&P is then
rating the shares of MuniPreferred) would each at least equal the MuniPreferred
Basic Maintenance Amount.
10. RATING AGENCY RESTRICTIONS. For so long as any shares of MuniPreferred are Outstanding and any Rating Agency is then rating the shares of MuniPreferred, the Fund will not engage in certain proscribed transactions set forth in the Rating Agency Guidelines, unless it has received written
confirmation from each such Rating Agency that proscribes the applicable transaction in its Rating Agency Guidelines that any such action would not impair the rating then assigned by such Rating Agency to a series of MuniPreferred.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) Subject to the provisions of subparagraph (v) of this
paragraph (a), shares of MuniPreferred of any series may be redeemed,
at the option of the Fund, as a whole or from time to time in part, on
the second Business Day preceding any Dividend Payment Date for shares
of such series, out of funds legally available therefor, at a
redemption price per share equal to the sum of $25,000 plus an amount
equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to (but not including) the date fixed for
redemption; provided, however, that (1) shares of a series of
MuniPreferred may not be redeemed in part if after such partial
redemption fewer than 250 shares of such series remain outstanding; (2)
unless otherwise provided in Section 11 of Appendix A hereto, shares of
a series of MuniPreferred are redeemable by the Fund during the Initial
Rate Period thereof only on the second Business Day next preceding the
last Dividend Payment Date for such Initial Rate Period; and (3)
subject to subparagraph (ii) of this paragraph (a), the Notice of
Special Rate Period relating to a Special Rate Period of shares of a
series of MuniPreferred, as delivered to the Auction Agent and filed
with the Secretary of the Fund, may provide that shares of such series
shall not be redeemable during the whole or any part of such Special
Rate Period (except as provided in subparagraph (iv) of this paragraph
(a)) or shall be redeemable during the whole or any part of such
Special Rate Period only upon payment of such redemption premium or
premiums as shall be specified therein ("Special Redemption
Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of MuniPreferred for a Special Rate Period thereof may contain Special Redemption Provisions only if the Fund's Board of Trustees, after consultation with the Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such series, determines that such Special Redemption Provisions are in the best interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of MuniPreferred are to be redeemed pursuant to subparagraph (i) of this paragraph (a), the number of shares of such series to be redeemed shall be determined by the Board of Trustees, and such shares shall be redeemed pro rata from the Holders of shares of such series in proportion to the number of shares of such series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a), shares of any series of MuniPreferred may be redeemed, at the option of the Fund, as a whole but not in part, out of funds legally available therefor, on the first day following any Dividend Period thereof included in a Rate Period consisting of more than 364 Rate Period Days if, on the date of determination of the Applicable Rate for shares of such series for such Rate Period, such Applicable Rate equaled or exceeded on such date of determination the Treasury Note Rate for such Rate Period, at a redemption price per share equal to the sum of $25,000 plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed for redemption.
(v) The Fund may not on any date mail a Notice of Redemption pursuant to paragraph (c) of this Section 11 in respect of a redemption contemplated to be effected pursuant to this paragraph (a) unless on such date (a) the Fund has available Deposit Securities with
maturity or tender dates not later than the day preceding the applicable redemption date and having a value not less than the amount (including any applicable premium) due to Holders of shares of MuniPreferred by reason of the redemption of such shares on such redemption date and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is then rating the shares of MuniPreferred) and the Discounted Value of S&P Eligible Assets (if S&P is then rating the shares of MuniPreferred) each at least equal the MuniPreferred Basic Maintenance Amount, and would at least equal the MuniPreferred Basic Maintenance Amount immediately subsequent to such redemption if such redemption were to occur on such date. For purposes of determining in clause (b) of the preceding sentence whether the Discounted Value of Moody's Eligible Assets at least equals the MuniPreferred Basic Maintenance Amount, the Moody's Discount Factors applicable to Moody's Eligible Assets shall be determined by reference to the first Exposure Period longer than the Exposure Period then applicable to the Fund, as described in the definition of Moody's Discount Factor herein.
(b) MANDATORY REDEMPTION. The Fund shall redeem, at a redemption price equal to $25,000 per share plus accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed by the Board of Trustees for redemption, certain of the shares of MuniPreferred, if the Fund fails to have either Moody's Eligible Assets with a Discounted Value or S&P Eligible Assets with a Discounted Value greater than or equal to the MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act MuniPreferred Asset Coverage, in accordance with the requirements of the rating agency or agencies then rating the shares of MuniPreferred, and such failure is not cured on or before the MuniPreferred Basic Maintenance Cure Date or the 1940 Act Cure Date, as the case may be. The number of shares of MuniPreferred to be redeemed shall be equal to the lesser of (i) the minimum number of shares of MuniPreferred, together with all other Preferred Shares subject to redemption or retirement, the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Cure Date, would have resulted in the Fund's having both Moody's Eligible Assets with a Discounted Value and S&P Eligible Assets with a Discounted Value greater than or equal to the MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act MuniPreferred Asset Coverage, as the case may be, on such Cure Date (provided, however, that if there is no such minimum number of shares of MuniPreferred and other Preferred Shares the redemption or retirement of which would have had such result, all shares of MuniPreferred and Preferred Shares then outstanding shall be redeemed), and (ii) the maximum number of shares of MuniPreferred, together with all other Preferred Shares subject to redemption or retirement, that can be redeemed out of funds expected to be legally available therefor in accordance with the Declaration and applicable law. In determining the shares of MuniPreferred required to be redeemed in accordance with the foregoing, the Fund shall allocate the number required to be redeemed to satisfy the MuniPreferred Basic Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, as the case may be, pro rata among shares of MuniPreferred and other Preferred Shares (and, then, pro rata among each series of MuniPreferred) subject to redemption or retirement. The Fund shall effect such redemption on the date fixed by the Fund therefor, which date shall not be earlier than 20 days nor later than 40 days after such Cure Date, except that if the Fund does not have funds legally available for the redemption of all of the required number of shares of MuniPreferred and other Preferred Shares which are subject to redemption or retirement or the Fund otherwise is unable to effect such redemption on or prior to 40 days after such Cure Date, the Fund shall redeem those shares of MuniPreferred and other Preferred Shares which it was unable to redeem on the earliest practicable date on which it is able to effect such redemption. If fewer than all of the outstanding shares of a series of MuniPreferred are to be redeemed pursuant to this paragraph (b), the number of shares of such series to be redeemed shall be redeemed pro rata from the Holders of shares of such series in proportion to the number of shares of such series held by such Holders.
(c) NOTICE OF REDEMPTION. If the Fund shall determine or be required to redeem shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of this Section 11, it shall mail a
Notice of Redemption with respect to such redemption by first class mail,
postage prepaid, to each Holder of the shares of such series to be redeemed, at
such Holder's address as the same appears on the record books of the Fund on the
record date established by the Board of Trustees. Such Notice of Redemption
shall be so mailed not less than 20 nor more than 45 days prior to the date
fixed for redemption. Each such Notice of Redemption shall state: (i) the
redemption date; (ii) the number of shares of MuniPreferred to be redeemed and
the series thereof; (iii) the CUSIP number for shares of such series; (iv) the
Redemption Price; (v) the place or places where the certificate(s) for such
shares (properly endorsed or assigned for transfer, if the Board of Trustees
shall so require and the Notice of Redemption shall so state) are to be
surrendered for payment of the Redemption Price; (vi) that dividends on the
shares to be redeemed will cease to accumulate on such redemption date; and
(vii) the provisions of this Section 11 under which such redemption is made. If
fewer than all shares of a series of MuniPreferred held by any Holder are to be
redeemed, the Notice of Redemption mailed to such Holder shall also specify the
number of shares of such series to be redeemed from such Holder. The Fund may
provide in any Notice of Redemption relating to a redemption contemplated to be
effected pursuant to paragraph (a) of this Section 11 that such redemption is
subject to one or more conditions precedent and that the Fund shall not be
required to effect such redemption unless each such condition shall have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the provisions of paragraphs (a) or (b) of this Section 11, if any dividends on shares of a series of MuniPreferred (whether or not earned or declared) are in arrears, no shares of such series shall be redeemed unless all outstanding shares of such series are simultaneously redeemed, and the Fund shall not purchase or otherwise acquire any shares of such series; provided, however, that the foregoing shall not prevent the purchase or acquisition of all outstanding shares of such series pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to, and accepted by, Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any redemption for which Notice of Redemption has been mailed is not made by reason of the absence of legally available funds therefor in accordance with the Declaration and applicable law, such redemption shall be made as soon as practicable to the extent such funds become available. Failure to redeem shares of MuniPreferred shall be deemed to exist at any time after the date specified for redemption in a Notice of Redemption when the Fund shall have failed, for any reason whatsoever, to deposit in trust with the Auction Agent the Redemption Price with respect to any shares for which such Notice of Redemption has been mailed; provided, however, that the foregoing shall not apply in the case of the Fund's failure to deposit in trust with the Auction Agent the Redemption Price with respect to any shares where (1) the Notice of Redemption relating to such redemption provided that such redemption was subject to one or more conditions precedent and (2) any such condition precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption. Notwithstanding the fact that the Fund may not have redeemed shares of MuniPreferred for which a Notice of Redemption has been mailed, dividends may be declared and paid on shares of MuniPreferred and shall include those shares of MuniPreferred for which a Notice of Redemption has been mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND. All moneys paid to the Auction Agent for payment of the Redemption Price of shares of MuniPreferred called for redemption shall be held in trust by the Auction Agent for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on the Business Day next preceding the date fixed
for redemption thereby, in funds available on the next Business Day in The City of New York, New York) of funds sufficient to redeem the shares of MuniPreferred that are the subject of such notice, dividends on such shares shall cease to accumulate and such shares shall no longer be deemed to be outstanding for any purpose, and all rights of the Holders of the shares so called for redemption shall cease and terminate, except the right of such Holders to receive the Redemption Price, but without any interest or other additional amount, except as provided in subparagraph (e)(i) of Section 2 of this Part I and in Section 3 of this Part I. Upon surrender in accordance with the Notice of Redemption of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Trustees shall so require and the Notice of Redemption shall so state), the Redemption Price shall be paid by the Auction Agent to the Holders of shares of MuniPreferred subject to redemption. In the case that fewer than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued, representing the unredeemed shares, without cost to the Holder thereof. The Fund shall be entitled to receive from the Auction Agent, promptly after the date fixed for redemption, any cash deposited with the Auction Agent in excess of (i) the aggregate Redemption Price of the shares of MuniPreferred called for redemption on such date and (ii) all other amounts to which Holders of shares of MuniPreferred called for redemption may be entitled. Any funds so deposited that are unclaimed at the end of 90 days from such redemption date shall, to the extent permitted by law, be repaid to the Fund, after which time the Holders of shares of MuniPreferred so called for redemption may look only to the Fund for payment of the Redemption Price and all other amounts to which they may be entitled. The Fund shall be entitled to receive, from time to time after the date fixed for redemption, any interest on the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant to this Section 11, the Fund shall use its best efforts to comply with all applicable conditions precedent to effecting such redemption under the 1940 Act and any applicable Massachusetts law, but shall effect no redemption except in accordance with the 1940 Act and any applicable Massachusetts law.
(i) ONLY WHOLE SHARES OF MUNIPREFERRED MAY BE REDEEMED. In the case of any redemption pursuant to this Section 11, only whole shares of MuniPreferred shall be redeemed, and in the event that any provision of the Declaration would require redemption of a fractional share, the Auction Agent shall be authorized to round up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a parity with each other, with shares of any other series of MuniPreferred and with shares of any other series of Preferred Shares as to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or winding up of the affairs of the Fund, whether voluntary or involuntary, the Holders of shares of MuniPreferred then outstanding shall be entitled to receive and to be paid out of the assets of the Fund available for distribution to its shareholders, before any payment or distribution shall be made on the Common Shares or on any other class of shares of the Fund ranking junior to the MuniPreferred upon dissolution, liquidation or winding up, an amount equal to the Liquidation Preference with respect to such shares plus an amount equal to all dividends thereon (whether or not earned or declared) accumulated but unpaid to (but not including) the date of final distribution in same day funds, together with any payments required to be made pursuant to Section 3 of this Part I in connection with the liquidation of the Fund. After the payment to the Holders of the shares of MuniPreferred of the full preferential amounts provided for in this paragraph (b), the Holders of MuniPreferred as such shall have no right or claim to any of the remaining assets of the Fund.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Fund available for distribution to the Holders of shares of MuniPreferred upon any dissolution, liquidation, or winding up of the affairs of the Fund, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to paragraph (b) of this Section 12, no such distribution shall be made on account of any shares of any other class or series of Preferred Shares ranking on a parity with the shares of MuniPreferred with respect to the distribution of assets upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of MuniPreferred, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of shares of any series or class or classes of shares ranking on a parity with the shares of MuniPreferred with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund, after payment shall have been made in full to the Holders of the shares of MuniPreferred as provided in paragraph (b) of this Section 12, but not prior thereto, any other series or class or classes of shares ranking junior to the shares of MuniPreferred with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Holders of the shares of MuniPreferred shall not be entitled to share therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all or substantially all the property or business of the Fund, nor the merger or consolidation of the Fund into or with any Massachusetts business trust or corporation nor the merger or consolidation of any Massachusetts business trust or corporation into or with the Fund shall be a dissolution, liquidation or winding up, whether voluntary or involuntary, for the purposes of this Section 12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADD ADDITIONAL SERIES. Subject to the provisions of Section 10 of this Part I, the Board of Trustees may, by resolution duly adopted, without shareholder approval (except as otherwise provided by this Statement or required by applicable law), amend Appendix A hereto to (1) reflect any amendments hereto which the Board of Trustees is entitled to adopt pursuant to the terms of this Statement without shareholder approval or (2) add additional series of MuniPreferred or additional shares of a series of MuniPreferred (and terms relating thereto) to the series and shares of MuniPreferred theretofore described thereon. Each such additional series and all such additional shares shall be governed by the terms of this Statement.
(b) APPENDIX A INCORPORATED BY REFERENCE. Appendix A hereto is incorporated in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of MuniPreferred shall be issued.
(d) STATUS OF SHARES OF MUNIPREFERRED REDEEMED, EXCHANGED OR OTHERWISE ACQUIRED BY THE FUND. Shares of MuniPreferred which are redeemed, exchanged or otherwise acquired by the Fund shall return to the status of authorized and unissued Preferred Shares without designation as to series.
(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable law, the Board of Trustees may interpret or adjust the provisions of this Statement to resolve any inconsistency or ambiguity or to remedy any formal defect, and may amend this Statement with respect to any series of MuniPreferred prior to the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this Statement are for convenience of reference only and shall not affect the meaning or interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified in the By-Laws of the Fund or this Statement, shall be sufficiently given if in writing and delivered in person or mailed by first-class mail, postage prepaid.
PART II
1. ORDERS.
(a) Prior to the Submission Deadline on each Auction Date for shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner desires to continue to hold without regard to the Applicable Rate for shares of such series for the next succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner offers to sell if the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of such series shall be less than the rate per annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner offers to sell without regard to the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial Owners, shall in good faith for the purpose of conducting a competitive Auction in a commercially reasonable manner, contact Potential Beneficial Owners (by telephone or otherwise), including Persons that are not Beneficial Owners, on such lists to determine the number of shares, if any, of such series which each such Potential Beneficial Owner offers to purchase if the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of such series shall not be less than the rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent, of information referred to in clause (i)(A), (i), (B), (i), (C) or (ii) of this paragraph (a) is hereinafter referred to as an "Order" and collectively as "Orders" and each Beneficial Owner and each Potential Beneficial Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the Auction Agent, is hereinafter referred to as a "Bidder" and collectively as "Bidders"; an Order containing the information referred to in clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively as "Hold Orders"; an Order containing the information referred to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and collectively as "Bids"; and an Order containing the information referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of a series of MuniPreferred subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such Bid if the Applicable Rate for shares of such series determined on such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding
shares of such series to be determined as set forth in clause
(iv) of paragraph (a) of Section 4 of this Part II if the
Applicable Rate for shares of such series determined on such
Auction Date shall be equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified in such Bid if the rate specified therein shall be higher than the Maximum Rate for shares of such series, or such number or a lesser number of Outstanding shares of such series to be determined as set forth in clause (iii) of paragraph (b) of Section 4 of this Part II if the rate specified therein shall be higher than the Maximum Rate for shares of such series and Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of a series of MuniPreferred subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of such series as set forth in clause (iii) of paragraph (b) of Section 4 of this Part II if Sufficient Clearing Bids for shares of such series do not exist;
provided, however, that a Broker-Dealer that is an Existing Holder with respect to shares of a series of MuniPreferred shall not be liable to any Person for failing to sell such shares pursuant to a Sell Order described in the proviso to paragraph (c) of Section 2 of this Part II if (1) such shares were transferred by the Beneficial Owner thereof without compliance by such Beneficial Owner or its transferee Broker-Dealer (or other transferee person, if permitted by the Fund) with the provisions of Section 7 of this Part II or (2) such Broker-Dealer has informed the Auction Agent pursuant to the terms of its Broker-Dealer Agreement that, according to such Broker-Dealer's records, such Broker-Dealer believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of shares of a series of MuniPreferred subject to an Auction on any Auction Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in such Bid if the Applicable Rate for shares of such series determined on such Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding
shares of such series as set forth in clause (v) of paragraph
(a) of Section 4 of this Part II if the Applicable Rate for
shares of such series determined on such Auction Date shall be
equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other than whole shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders for shares of MuniPreferred of a series subject to an Auction on such Auction Date obtained by such Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as an Existing Holder in respect of shares subject to Orders submitted or deemed submitted to it by Beneficial Owners and as a Potential Holder in respect of shares subject to Orders submitted to it by Potential Beneficial Owners, and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares of such series:
(A) the number of shares, if any, of such series subject to any Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such series, the rate and number of shares of such series specified in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of MuniPreferred of a series held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted by or on behalf of such Existing Holder covering the number of Outstanding shares of such series held by such Existing Holder and not subject to Orders submitted to the Auction Agent; provided, however, that if an Order or Orders covering all of the Outstanding shares of such series held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline for an Auction relating to a Special Rate Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem a Sell Order to have been submitted by or on behalf of such Existing Holder covering the number of outstanding shares of such series held by such Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding shares of MuniPreferred of a series subject to an Auction held by such Existing Holder, such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered valid, but only up to and including in the aggregate the number of Outstanding shares of such series held by such Existing Holder, and if the number of shares of such series subject to such Hold Orders exceeds the number of Outstanding shares of such series held by such Existing Holder, the number of shares subject to each such Hold Order shall be reduced pro rata to cover the number of Outstanding shares of such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered valid up to and including the excess of the number of Outstanding shares of such series held by such Existing Holder over the number of shares of such series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing Holder for shares of such series is submitted to the Auction Agent with the same rate and the number of Outstanding shares of such series subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess, and the number of shares of such series subject to each Bid with the same rate shall be reduced pro rata to cover the number of shares of such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid of an Existing Holder for shares of such series is submitted to the Auction Agent with different rates, such Bids shall be considered valid in the ascending order of their respective rates up to and including the amount of such excess; and
(D) in any such event, the number, if any, of such Outstanding shares of such series subject to any portion of Bids considered not valid in whole or in part under this clause (ii) shall be treated as the subject of a Bid for shares of such series by or on behalf of a Potential Holder at the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered valid up to and including the excess of the number of Outstanding shares of such series held by such Existing Holder over the sum of shares of such series subject to valid Hold Orders referred to in clause (i) above and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of MuniPreferred is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted shall be a separate Bid with the rate and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE.
(a) Not earlier than the Submission Deadline on each Auction Date for shares of a series of MuniPreferred, the Auction Agent shall assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers in respect of shares of such series (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over the number of Outstanding shares of such series subject to Submitted Hold Orders (such excess being hereinafter referred to as the "Available MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject to Submitted Bids of Potential Holders specifying one or more rates equal to or lower than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject to Submitted Bids of Existing Holders specifying one or more rates higher than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject to Submitted Sell Orders (in the event such excess or such equality exists (other than because the number of shares of such series in subclauses (B) and (C) above is zero because all of the Outstanding shares of such series are subject to Submitted Hold Orders), such Submitted Bids in subclause (A) above being hereinafter referred to collectively as "Sufficient Clearing Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders specifying such lowest rate and (II) all other such Submitted Bids of Existing Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the shares of such series that are subject to such Submitted Bids; and
(B) (I) each such Submitted Bid of Potential Holders specifying such lowest rate and (II) all other such Submitted Bids of Potential Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above continuing to hold an aggregate number of Outstanding shares of such series which, when added to the number of Outstanding shares of such series to be purchased by such Potential Holders described in subclause (B) above, would equal not less than the Available MuniPreferred of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant to paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of the Maximum Rate for shares of the series of MuniPreferred for which an Auction is being held on the Auction Date and, based on such determination, the Applicable Rate for shares of such series for the next succeeding Rate Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be equal to the Winning Bid Rate for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not exist (other than because all of the Outstanding shares of such series are subject to Submitted Hold Orders), that the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be equal to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject to Submitted Hold Orders, that the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be as set forth in Section 12 of Appendix A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND ALLOCATION OF SHARES. Existing Holders shall continue to hold the shares of MuniPreferred that are subject to Submitted Hold Orders, and, based on the determinations made pursuant to paragraph (a) of Section 3 of this Part II, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the Auction Agent and the Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of
MuniPreferred have been made, all Submitted Sell Orders with respect to shares
of such series shall be accepted and, subject to the provisions of paragraphs
(d) and (e) of this Section 4, Submitted Bids with respect to shares of such
series shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids with respect to shares of such series
shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series specifying any rate that is higher than the Winning Bid Rate for shares of such series shall be accepted, thus requiring each such Existing Holder to sell the shares of MuniPreferred subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series specifying any rate that is lower than the Winning Bid Rate for shares of such series shall be rejected, thus entitling each such Existing Holder to continue to hold the shares of MuniPreferred subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such series specifying any rate that is lower than the Winning Bid Rate for shares of such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for
shares of such series shall be rejected, thus entitling such Existing
Holder to continue to hold the shares of MuniPreferred subject to such
Submitted Bid, unless the number of Outstanding shares of MuniPreferred
subject to all such Submitted Bids shall be greater than the number of
shares of MuniPreferred ("remaining shares") in the excess of the
Available MuniPreferred of such series over the number of shares of
MuniPreferred subject to Submitted Bids described in clauses (ii) and
(iii) of this paragraph (a), in which event such Submitted Bid of such
Existing Holder shall be rejected in part, and such Existing Holder
shall be entitled to continue to hold shares of MuniPreferred subject
to such Submitted Bid, but only in an amount equal to the number of
shares of MuniPreferred of such series obtained by multiplying the
number of remaining shares by a fraction, the numerator of which shall
be the number of Outstanding shares of MuniPreferred held by such
Existing Holder subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding shares of
MuniPreferred subject to such Submitted Bids made by all such Existing
Holders that specified a rate equal to the Winning Bid Rate for shares
of such series; and
(v) each Potential Holder's Submitted Bid for shares of such series specifying a rate that is equal to the Winning Bid Rate for shares of such series shall be accepted
but only in an amount equal to the number of shares of such series obtained by multiplying the number of shares in the excess of the Available MuniPreferred of such series over the number of shares of MuniPreferred subject to Submitted Bids described in clauses (ii) through (iv) of this paragraph (a) by a fraction, the numerator of which shall be the number of Outstanding shares of MuniPreferred subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of MuniPreferred subject to such Submitted Bids made by all such Potential Holders that specified a rate equal to the Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred have not been made (other than because all of the Outstanding shares of such series are subject to Submitted Hold Orders), subject to the provisions of paragraph (d) of this Section 4, Submitted Orders for shares of such series shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series specifying any rate that is equal to or lower than the Maximum Rate for shares of such series shall be rejected, thus entitling such Existing Holders to continue to hold the shares of MuniPreferred subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series specifying any rate that is equal to or lower than the Maximum Rate for shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such
series specifying any rate that is higher than the Maximum Rate for
shares of such series and the Submitted Sell Orders for shares of such
series of each Existing Holder shall be accepted, thus entitling each
Existing Holder that submitted or on whose behalf was submitted any
such Submitted Bid or Submitted Sell Order to sell the shares of such
series subject to such Submitted Bid or Submitted Sell Order, but in
both cases only in an amount equal to the number of shares of such
series obtained by multiplying the number of shares of such series
subject to Submitted Bids described in clause (ii) of this paragraph
(b) by a fraction, the numerator of which shall be the number of
Outstanding shares of such series held by such Existing Holder subject
to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the aggregate number of Outstanding shares of such
series subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of MuniPreferred are subject to Submitted Hold Orders, all Submitted Bids for shares of such series shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a share of a series of MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, round up or down the number of shares of MuniPreferred of such series to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date as a result of such procedures so that the number of shares so purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be whole shares of MuniPreferred.
(e) If, as a result of the procedures described in clause (v) of paragraph (a) of this Section 4, any Potential Holder would be entitled or required to purchase less than a whole share of a series of MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as it shall
determine in its sole discretion, allocate shares of MuniPreferred of such series for purchase among Potential Holders so that only whole shares of MuniPreferred of such series are purchased on such Auction Date as a result of such procedures by any Potential Holder, even if such allocation results in one or more Potential Holders not purchasing shares of MuniPreferred of such series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of MuniPreferred, the Auction Agent shall determine the aggregate number of shares of such series to be purchased and the aggregate number of shares of such series to be sold by Potential Holders and Existing Holders and, with respect to each Potential Holder and Existing Holder, to the extent that such aggregate number of shares to be purchased and such aggregate number of shares to be sold differ, determine to which other Potential Holder(s) or Existing Holder(s) they shall deliver, or from which other Potential Holder(s) or Existing Holder(s) they shall receive, as the case may be, shares of MuniPreferred of such series. Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event an Existing Holder or Beneficial Owner of shares of a series of MuniPreferred with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefor, partial deliveries of shares of MuniPreferred that have been made in respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares of such series that have been accepted in whole or in part shall constitute good delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of either shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial Owner or its respective Agent Member to deliver shares of MuniPreferred of any series or to pay for shares of MuniPreferred of any series sold or purchased pursuant to the Auction Procedures or otherwise.
5. NOTIFICATION OF ALLOCATIONS. Whenever the Fund intends to include any net capital gains or other income taxable for Federal income tax purposes in any dividend on shares of MuniPreferred, the Fund shall, in the case of a Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and may, in the case of any other Special Rate Period, notify the Auction Agent of the amount to be so included not later than the Dividend Payment Date next preceding the Auction Date on which the Applicable Rate for such dividend is to be established. Whenever the Auction Agent receives such notice from the Fund, it will be required in turn to notify each Broker-Dealer, who, on or prior to such Auction Date, in accordance with its Broker-Dealer Agreement, will be required to notify its Beneficial Owners and Potential Beneficial Owners of shares of MuniPreferred believed by it to be interested in submitting an Order in the Auction to be held on such Auction Date.
6. AUCTION AGENT. For so long as any shares of MuniPreferred are outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be in each case a commercial bank, trust company or other financial institution independent of the Fund and its affiliates (which however, may engage or have engaged in business transactions with the Fund or its affiliates) and at no time shall the Fund or any of its affiliates act as the Auction Agent in connection with the Auction Procedures. If the Auction Agent resigns or for any reason its appointment is terminated during any period that any shares of MuniPreferred are outstanding, the Board of Trustees shall use its best efforts promptly thereafter to appoint another qualified commercial bank, trust company or financial institution to act as the Auction Agent. The Auction Agent's registry of Existing Holders of shares of a series of MuniPreferred shall be conclusive and binding on the Broker-Dealers. A Broker-Dealer may inquire of the Auction Agent between 3:00 p.m. on the Business Day preceding an Auction for shares of a series of MuniPreferred and 9:30 a.m. on the Auction Date for such Auction to ascertain the number of shares of such series in respect of which the Auction Agent has determined such Broker-Dealer to be an Existing Holder. If such Broker-Dealer
believes it is the Existing Holder of fewer shares of such series than specified by the Auction Agent in response to such Broker-Dealer's inquiry, such Broker-Dealer may so inform the Auction Agent of that belief. Such Broker-Dealer shall not, in its capacity as Existing Holder of shares of such series, submit Orders in such Auction in respect of shares of such series covering in the aggregate more than the number of shares of such series specified by the Auction Agent in response to such Broker-Dealer's inquiry.
7. TRANSFER OF SHARES OF MUNIPREFERRED. Unless otherwise permitted by the Fund, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose of shares of MuniPreferred only in whole shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with the procedures described in this Part II or to a Broker-Dealer, provided, however, that (a) a sale, transfer or other disposition of shares of MuniPreferred from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such shares to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this Section 7 if such Broker-Dealer remains the Existing Holder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to Auctions, the Broker-Dealer (or other Person, if permitted by the Fund) to whom such transfer is made shall advise the Auction Agent of such transfer.
8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period,
(i) all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the name of the
Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of MuniPreferred shall be made on the books of the Fund to
any Person other than the Securities Depository or its nominee.
(Signature page follows)
IN WITNESS WHEREOF, NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND, has caused these presents to be signed on _________, 2004 in its name and on its behalf by its Vice President and attested by its Assistant Secretary. The Fund's Declaration of Trust is on file with the Secretary of State of the Commonwealth of Massachusetts, and the said officers of the Fund have executed this Statement as officers and not individually, and the obligations and rights set forth in this Statement are not binding upon any such officers, or the trustees or shareholders of the Fund, individually, but are binding only upon the assets and property of the Fund.
NUVEEN MUNICIPAL HIGH INCOME
OPPORTUNITY FUND
APPENDIX A
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
SECTION 1. DESIGNATION AS TO SERIES.
Series M: A series of 3,000 Preferred Shares, par value $.01 per share, liquidation preference $25,000 per share, is hereby designated "Municipal Auction Rate Cumulative Preferred Shares, Series M." Each of the 3,000 shares of Series M MuniPreferred issued on _________, 2004 shall, for purposes hereof, be deemed to have a Date of Original Issue of ________, 2004; have an Applicable Rate for its Initial Rate Period equal to _______% per annum; have an initial Dividend Payment Date of ________, 2004; and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Declaration of Trust applicable to Preferred Shares of the Fund, as set forth in Part I and Part II of this Statement. Any shares of Series M MuniPreferred issued thereafter shall be issued on the first day of a Rate Period of the then outstanding shares of Series M MuniPreferred, shall have, for such Rate Period, an Applicable Rate equal to the Applicable Rate for shares of such series established in the first Auction for shares of such series preceding the date of such issuance; and shall have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Declaration of Trust applicable to Preferred Shares of the Fund, as set forth in Part I and Part II of this Statement. The Series M MuniPreferred shall constitute a separate series of Preferred Shares of the Fund, and each share of Series M MuniPreferred shall be identical except as provided in Section 11 of Part I of this Statement.
Series T: A series of 1,600 Preferred Shares, par value $.01 per share, liquidation preference $25,000 per share, is hereby designated "Municipal Auction Rate Cumulative Preferred Shares, Series T." Each of the 1,600 shares of Series T MuniPreferred issued on _________, 2004 shall, for purposes hereof, be deemed to have a Date of Original Issue of ________, 2004; have an Applicable Rate for its Initial Rate Period equal to _______% per annum; have an initial Dividend Payment Date of ________, 2004; and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Declaration of Trust applicable to Preferred Shares of the Fund, as set forth in Part I and Part II of this Statement. Any shares of Series T MuniPreferred issued thereafter shall be issued on the first day of a Rate Period of the then outstanding shares of Series T MuniPreferred, shall have, for such Rate Period, an Applicable Rate equal to the Applicable Rate for shares of such series established in the first Auction for shares of such series preceding the date of such issuance; and shall have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Declaration of Trust applicable to Preferred Shares of the Fund, as set forth in Part I and Part II of this Statement. The Series T MuniPreferred shall constitute a separate series of Preferred Shares of the Fund, and each share of Series T MuniPreferred shall be identical except as provided in Section 11 of Part I of this Statement.
Series W: A series of 1,600 Preferred Shares, par value $.01 per share, liquidation preference $25,000 per share, is hereby designated "Municipal Auction Rate Cumulative Preferred Shares, Series W." Each of the 1,600 shares of Series W MuniPreferred issued on _________, 2004 shall, for purposes hereof, be deemed to have a Date of Original Issue of ________, 2004; have an Applicable Rate for its Initial Rate Period equal to _______% per annum; have an initial Dividend Payment Date of ________, 2004; and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Declaration of Trust applicable to Preferred Shares of the Fund, as set forth in Part I and Part II of this Statement. Any shares of Series W MuniPreferred issued thereafter shall be issued on the first day of a Rate Period of the then outstanding shares of Series W MuniPreferred, shall have, for such Rate Period, an Applicable Rate equal to the Applicable Rate for shares of such series established in the first Auction for shares of such series preceding the date
of such issuance; and shall have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to Preferred Shares of the Fund, as
set forth in Part I and Part II of this Statement. The Series W MuniPreferred
shall constitute a separate series of Preferred Shares of the Fund, and each
share of Series W MuniPreferred shall be identical except as provided in
Section 11 of Part I of this Statement.
SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES. The number of authorized shares constituting Series M, T and W MuniPreferred is 3,000, 1,600, and 1,600, respectively.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS. Notwithstanding the definitions contained under the heading "Definitions" in this Statement, the following terms shall have the following meanings for purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS. For purposes of this Statement, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires:
"ESCROWED BONDS" shall have the meaning set forth in the Rating Agency Guidelines.
"GROSS-UP PAYMENT" means payment to a Holder of shares of MuniPreferred of an amount which, when taken together with the aggregate amount of Taxable Allocations made to such Holder to which such Gross-up Payment relates, would cause such Holder's dividends in dollars (after Federal income tax consequences) from the aggregate of such Taxable Allocations and the related Gross-up Payment to be equal to the dollar amount of the dividends which would have been received by such Holder if the amount of such aggregate Taxable Allocations would have been excludable from the gross income of such Holder. Such Gross-up Payment shall be calculated (i) without consideration being given to the time value of money; (ii) assuming that no Holder of shares of MuniPreferred is subject to the Federal alternative minimum tax with respect to dividends received from the Fund; and (iii) assuming that each Taxable Allocation and each Gross-up Payment (except to the extent such Gross-up Payment is designated as an exempt-interest dividend under Section 852(b)(5) of the Code or successor provisions) would be taxable in the hands of each Holder of shares of MuniPreferred at the maximum marginal regular Federal individual income tax rate applicable to ordinary income or net capital gains, as applicable, or the maximum marginal regular Federal corporate income tax rate applicable to ordinary income or net capital gains, as applicable, whichever is greater, in effect at the time such Gross-up Payment is made.
"INVERSE FLOATER" shall have the meaning set forth in the Rating Agency Guidelines.
"MOODY'S DISCOUNT FACTOR" means the discount factors set forth in the Moody's Guidelines for use in calculating the Discounted Value of the Fund's assets in connection with Moody's ratings of shares of MuniPreferred.
"MOODY'S ELIGIBLE ASSETS" means assets of the Fund set forth in the Moody's Guidelines as eligible for inclusion in calculating the Discounted Value of the Fund's assets in connection with Moody's ratings of shares of MuniPreferred.
"MOODY'S GUIDELINES" mean the guidelines provided by Moody's, as may be amended from time to time, in connection with Moody's ratings of shares of MuniPreferred.
"OTHER ISSUES" shall have the meaning set forth in the Rating Agency Guidelines.
"OTHER RATING AGENCY" means each rating agency, if any, other than Moody's or S&P then providing a rating for the shares of MuniPreferred pursuant to the request of the Fund.
"OTHER RATING AGENCY DISCOUNT FACTOR" means the discount factors set forth in the Other Rating Agency Guidelines of each Other Rating Agency for use in calculating the Discounted Value of the Fund's assets in connection with the Other Rating Agency's rating of shares of MuniPreferred.
"OTHER RATING AGENCY ELIGIBLE ASSETS" means assets of the Fund set forth in the Other Rating Agency Guidelines of each Other Rating Agency as eligible for inclusion in calculating the Discounted Value of the Fund's assets in connection with the Other Rating Agency's rating of shares of MuniPreferred.
"OTHER RATING AGENCY GUIDELINES" mean the guidelines provided by each Other Rating Agency, as may be amended from time to time, in connection with the Other Rating Agency's rating of shares of MuniPreferred.
"RATE MULTIPLE," for shares of a series of MuniPreferred on any Auction Date for shares of such series, shall mean the percentage, determined as set forth below, based on the prevailing rating of shares of such series in effect at the close of business on the Business Day next preceding such Auction Date:
PREVAILING RATING PERCENTAGE
---------------- ----------
"aa3"/AA-- or higher........ 110%
"a3"/A--.................... 125%
"baa3"/BBB--................ 150%
"ba3"/BB--.................. 200%
Below "ba3"/BB--............ 250%
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provided, however, that in the event the Fund has notified the Auction Agent of its intent to allocate income taxable for Federal income tax purposes to shares of such series prior to the Auction establishing the Applicable Rate for shares of such series, the applicable percentage in the foregoing table shall be divided by the quantity 1 minus the maximum marginal combined regular Federal personal income tax rate applicable to ordinary income (taking into account the Federal income tax deductibility of state and local taxes paid or incurred) or the maximum marginal regular Federal corporate income tax rate applicable to ordinary income, whichever is greater.
For purposes of this definition, the "prevailing rating" of shares of a series of MuniPreferred shall be (i) "aa3"/AA-- or higher if such shares have a rating of "aa3" or better by Moody's and AA-- or better by S&P or the equivalent of such ratings by such agencies or a substitute rating agency or substitute rating agencies selected as provided below, (ii) if not "aa3"/AA-- or higher, then "a3"/A-- if such shares have a rating of "a3" or better by Moody's and A-- or better by S&P or the equivalent of such ratings by such agencies or a substitute rating agency or substitute rating agencies selected as provided below, (iii) if not "aa3"/AA-- or higher or "a3"/A--, then "baa3"/BBB-- if such shares have a
rating of "baa3" or better by Moody's and BBB-- or better by S&P or the equivalent of such ratings by such agencies or a substitute rating agency or substitute rating agencies selected as provided below, (iv) if not "aa3"/AA-- or higher, "a3"/A-- or "baa3"/BBB--, then "ba3"/BB-- if such shares have a rating of "ba3" or better by Moody's and BB-- or better by S&P or the equivalent of such ratings by such agencies or a substitute rating agency or substitute rating agencies selected as provided below, and (v) if not "aa3"/AA-- or higher, "a3"/A--, "baa3"/BBB--, or "ba3"/BB--, then Below "ba3"/BB--; provided, however, that if such shares are rated by only one rating agency, the prevailing rating will be determined without reference to the rating of any other rating agency. The Fund shall take all reasonable action necessary to enable either S&P or Moody's to provide a rating for shares of MuniPreferred. If neither S&P nor Moody's shall make such a rating available, the party set forth in Section 7 of Appendix A or its successor shall select at least one nationally recognized statistical rating organization (as that term is used in the rules and regulations of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended from time to time) to act as a substitute rating agency in respect of shares of the series of MuniPreferred set forth opposite such party's name in Section 7 of Appendix A and the Fund shall take all reasonable action to enable such rating agency to provide a rating for such shares.
"RATING AGENCY" means each of S&P (if S&P is then rating shares of MuniPreferred), Moody's (if Moody's is then rating shares of MuniPreferred) and any Other Rating Agency.
"RATING AGENCY GUIDELINES" mean S&P Guidelines (if S&P is then rating shares of MuniPreferred), Moody's Guidelines (if Moody's is then rating shares of MuniPreferred) and any Other Rating Agency Guidelines.
"S&P DISCOUNT FACTOR" means the discount factors set forth in the S&P Guidelines for use in calculating the Discounted Value of the Fund's assets in connection with S&P's ratings of MuniPreferred Shares.
"S&P ELIGIBLE ASSETS" means assets of the Fund set forth in the S&P Guidelines as eligible for inclusion in calculating the Discounted Value of the Fund's assets in connection with S&P's ratings of MuniPreferred Shares.
"S&P GUIDELINES" mean the guidelines provided by S&P, as may be amended from time to time, in connection with S&P's ratings of MuniPreferred Shares.
SECTION 5. INITIAL RATE PERIODS. The Initial Rate Period for shares of Series M, T and W MuniPreferred shall be the period from and including the Date of Original Issue thereof to but excluding ______, 200__, ________, 200__ and ________, 200__, respectively.
SECTION 6. DATE FOR PURPOSES OF PARAGRAPH (aaaa) CONTAINED UNDER THE HEADING "DEFINITIONS" IN THIS STATEMENT. ___________, 2004.
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN THIS STATEMENT.
PARTY SERIES OF MUNIPREFERRED
----- -----------------------
Series M
Series T
Series W
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SECTION 8. ADDITIONAL DEFINITIONS.
None
SECTION 9. DIVIDEND PAYMENT DATES. Except as otherwise provided in paragraph (d) of Section 2 of Part I of this Statement, dividends shall be payable on shares of:
Series M MuniPreferred, for the Initial Rate Period on ___________, 2004, and on each Tuesday thereafter.
Series T MuniPreferred, for the Initial Rate Period on ___________, 2004, and on the first business day of each month thereafter, until _________, 200_, and on each Wednesday thereafter.
Series W MuniPreferred, for the Initial Rate Period on ___________, 2004, and on the first business day of each month thereafter, until _________, 200_, and on each Thursday thereafter.
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (c)(i) OF SECTION 5 OF PART I OF THIS STATEMENT. $155,000,000.
SECTION 11. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS. Not applicable.
SECTION 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (b)(III)
OF SECTION 3 OF PART II OF THIS STATEMENT. For purposes of subparagraph (b)(iii)
of Section 3 of Part II of this Statement, the Applicable Rate for shares of
such series for the next succeeding Rate Period of shares of such series shall
be equal to the lesser of the Kenny Index (if such Rate Period consists of fewer
than 183 Rate Period Days) or the product of (A)(I) the "AA" Composite
Commercial Paper Rate on such Auction Date for such Rate Period, if such Rate
Period consists of fewer than 183 Rate Period Days; (II) the Treasury Bill Rate
on such Auction Date for such Rate Period, if such Rate Period consists of more
than 182 but fewer than 365 Rate Period Days; or (III) the Treasury Note Rate on
such Auction Date for such Rate Period, if such Rate Period is more than 364
Rate Period Days (the rate described in the foregoing clause (A)(I), (II) or
(III), as applicable, being referred to herein as the "Benchmark Rate") and (B)
1 minus the maximum marginal combined regular Federal personal income tax rate
applicable to ordinary income (taking into account the Federal income tax
deductibility of state and local taxes paid or incurred) or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; provided, however, that if the Fund has notified the
Auction Agent of its intent to allocate to shares of such series in such Rate
Period any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the Applicable Rate for shares of such series for
such Rate Period will be (i) if the Taxable Yield Rate (as defined below) is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the Taxable
Yield Rate is less than or equal to the Benchmark Rate, then the rate equal to
the sum of (x) the lesser of the Kenny Index (if such Rate Period consists of
fewer than 183 Rate Period Days) or the product of the Benchmark Rate multiplied
by the factor set forth in the preceding clause (B) and (y) the product of the
maximum marginal combined regular Federal personal income tax rate applicable to
ordinary income (taking into account the Federal income tax deductibility of
state and local taxes paid or incurred) or the maximum marginal regular Federal
corporate income tax applicable to ordinary income, whichever is greater,
multiplied by the Taxable Yield Rate. For purposes of the foregoing, Taxable
Yield Rate means the rate determined by (a) dividing the amount of Taxable
Income available for distribution per such share of MuniPreferred by the number
of days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360 (in
the case of any other Dividend Period), and (c) dividing the amount determined
in (b) above by $25,000.
SECTION 13. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS.
See Rating Agency Guidelines.
APPENDIX B
RATINGS OF INVESTMENTS
STANDARD & POOR'S CORPORATION--A brief description of the applicable Standard & Poor's Corporation, a division of The McGraw-Hill Companies ("Standard & Poor's" or "S&P") rating symbols and their meanings (as published by S&P) follows:
A Standard & Poor's issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program. It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days - including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term ratings address the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based in varying degrees, on the following considerations:
1. Likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above.
AAA An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated "AA" differs from the
highest-rated obligations only in small degree. The
obligor's capacity to meet its financial commitment
on the obligation is very strong.
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A An obligation rated "A" is somewhat more susceptible
to the adverse effects of changes in circumstances
and economic conditions than obligations in
higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the
obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate
protection parameters. However, adverse economic
conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
BB, B, CCC, CC, and C Obligations rated "BB", "B", "CCC", "CC", and "C"
are regarded as having significant speculative
characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such
obligations will likely have some quality and
protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated "BB" is less vulnerable to
nonpayment than other speculative issues. However,
it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions,
which could lead to the obligor's inadequate
capacity to meet its financial commitment on the
obligation.
B An obligation rated "B" is more vulnerable to
nonpayment than obligations rated "BB", but the
obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse
business, financial, or economic conditions will
likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
CCC An obligation rated "CCC" is currently vulnerable to
nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor
to meet its financial commitment on the obligation.
In the event of adverse business, financial, or
economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment
on the obligation.
CC An obligation rated "CC" is currently highly
vulnerable to nonpayment.
C The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed or
similar action has been taken, but payments on this
obligation are being continued.
D An obligation rated "D" is in payment default. The
"D" rating category is used when payments on an
obligation are not made on the date due even if the
applicable grace period has not expired, unless
Standard & Poor's believes that such payments will
be made during such grace period. The "D" rating
also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if
payments on an obligation are jeopardized.
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Plus (+) or minus (-) The ratings from `AA' to `CCC' may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
c The `c' subscript is used to provide additional
information to investors that the bank may terminate
its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an
investment-grade level and/or the issuer's bonds are
deemed taxable.
P The letter `p' indicates that the rating is
provisional. A provisional rating assumes the
successful completion of the project financed by the
debt being rated and indicates that payment of debt
service requirements is largely or entirely
dependent upon the successful, timely completion of
the project. This rating, however, while addressing
credit quality subsequent to completion of the
project, makes no comment on the likelihood of or
the risk of default upon failure of such completion.
The investor should exercise his own judgment with
respect to such likelihood and risk.
* Continuance of the ratings is contingent upon
Standard & Poor's receipt of an executed copy of the
escrow agreement or closing documentation confirming
investments and cash flows.
r The `r' highlights derivative, hybrid, and certain
other obligations that Standard & Poor's believes
may experience high volatility or high variability
in expected returns as a result of noncredit risks.
Examples of such obligations are securities with
principal or interest return indexed to equities,
commodities, or currencies; certain swaps and
options; and interest-only and principal-only
mortgage securities. The absence of an `r' symbol
should not be taken as an indication that an
obligation will exhibit no volatility or variability
in total return.
N.R. Not rated.
Debt obligations of issuers outside the United States and its
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territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties.
Bond Investment Quality Standards Under present commercial bank regulations issued by the Comptroller of the Currency, bonds rated in the top four categories ( `AAA', `AA', `A', `BBB', commonly known as investment-grade ratings) generally are regarded as eligible for bank investment. Also, the laws of various states governing legal investments impose certain rating or other standards for obligations eligible for investment by savings banks, trust companies, insurance companies, and fiduciaries in general.
SHORT-TERM ISSUE CREDIT RATINGS
NOTES
A Standard & Poor's note ratings reflects the liquidity factors and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment:
o Amortization schedule -- the larger the final maturity relative to other maturities, the more likely it will be treated as a note; and
o Source of payment -- the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information or based on other circumstances.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from `A' for the highest quality obligations to `D' for the lowest. These categories are as follows:
A-1 The A-1 designation indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with the designation A-2
is satisfactory. However, the relative degree of safety is not
as high as for issues designated A-1.
A-3 Issues with the A-3 designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues rated `B' are regarded as having only speculative
capacity for timely payment.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D Debt rated `D' is in payment default. The `D' rating category
is used when interest payments of principal payments are not
made on the date due, even if the applicable grace period has
not expired, unless Standard & Poor's believes such payments
will be made during such grace period.
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A commercial rating is not a recommendation to purchase, sell, or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information or based on other circumstances.
MOODY'S INVESTORS SERVICE, INC.--A brief description of the applicable Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings (as published by Moody's) follows:
MUNICIPAL BONDS
Aaa Bonds which are rated `Aaa' are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated `Aa' are judged to be of high quality by
all standards. Together with the `Aaa' group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in `Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in `Aaa' securities.
A Bonds which are rated `A' possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated `Baa' are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated `Ba' are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated `B' generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated `Caa' are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
Ca Bonds which are rated `Ca' represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds which are rated `C' are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
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Issues that are secured by escrowed funds held in trust, reinvested in direct, non-callable U.S. government obligations or non-callable obligations unconditionally guaranteed by the U.S. Government or Resolution Funding Corporation are identified with a # (hatchmark) symbol, e.g., #Aaa.
Con. (...): Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting condition attaches. The parenthetical rating denotes probable credit stature upon completion of construction or elimination of the basis of the condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
SHORT-TERM LOANS
MIG 1/VMIG 1 This designation denotes superior credit quality.
Excellent protection is afforded by established
cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for
refinancing.
MIG 2/VMIG 2 This designation denotes strong credit quality.
Margins of protection are ample, although not as
large as in the preceding group.
MIG 3/VMIG 3 This designation denotes acceptable credit
quality. Liquidity and cash-flow protection may
be narrow, and market access for refinancing is
likely to be less well-established.
SG This designation denotes speculative-grade credit
quality. Debt instruments in this category may
lack sufficient margins of protection.
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SHORT-TERM DEBT RATINGS
Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will normally be evidenced by the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
-- Well-established access to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term debt obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
FITCH RATINGS--A brief description of the applicable Fitch Ratings ("Fitch") ratings symbols and meanings (as published by Fitch) follows:
LONG-TERM CREDIT RATINGS
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is
not significantly vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is
the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility
of credit risk developing, particularly as the result of
adverse economic change over time; however, business or
financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are
not investment grade.
B Highly speculative. `B' ratings indicate that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.
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CCC, CC, C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic
developments. A `CC' rating indicates that default of some kind appears probable. `C' ratings signal imminent default.
DDD, DD, and D Default. The ratings of obligations in this category
are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor.
While expected recovery values are highly speculative and
cannot be estimated with any precision, the following serve as
general guidelines. `DDD' obligations have the highest
potential for recovery, around 90%-100% of outstanding amounts
and accrued interest. `DD' indicates potential recoveries in
the range of 50%-90%, and `D' the lowest recovery potential,
i.e., below 50%. Entities rated in this category have
defaulted on some or all of their obligations. Entities rated
`DDD' have the highest prospect for resumption of performance
or continued operation with or without a formal reorganization
process. Entities rated `DD' and `D' are generally undergoing
a formal reorganization or liquidation process; those rated
`DD' are likely to satisfy a higher portion of their
outstanding obligations, while entities rated `D' have a poor
prospect for repaying all obligations.
SHORT-TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most obligations, or up to three years for U.S. public finance securities, and thus places greater emphasis on the liquidity necessary to meet financial commitments in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for
timely payment of financial commitments; may have an added "+"
to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety is
not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term adverse
changes could result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes
in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
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Notes:
"+" or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the `AAA' long-term rating category, to categories below `CCC', or to short-term ratings other than `F1'.
`NR' indicates that Fitch does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of information available to be inadequate for rating purposes, or when an obligation matures, is called, or refinanced.
Rating Watch: Ratings are placed on Rating Watch to notify investors that there is a reasonable probability of a rating change and the likely direction of such change. These are designated as "Positive", indicating a potential upgrade, "Negative", for a potential downgrade, or "Evolving", if ratings may be raised, lowered or maintained. Rating Watch is typically resolved over a relatively short period.
A Rating Outlook indicates the direction a rating is likely to move over a one to two year period. Outlooks may be positive, stable, or negative. A positive or negative Rating Outlook does not imply a rating change is inevitable. Similarly, ratings for which outlooks are `stable' could be upgraded or downgraded before an outlook moves to positive or negative if circumstances warrant such an action. Occasionally, Fitch may be unable to identify the fundamental trend and in these cases, the Rating Outlook may be described as `evolving'.
APPENDIX C
HEDGING STRATEGIES AND RISKS
Set forth below is additional information regarding the various defensive hedging techniques.
FUTURES AND INDEX TRANSACTIONS
FINANCIAL FUTURES
A financial future is an agreement between two parties to buy and sell a security for a set price on a future date. They have been designed by boards of trade which have been designated "contracts markets" by the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging the Fund's existing or anticipated holdings of long-term debt securities. When the Fund purchases a financial future, it deposits in cash or securities an "initial margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's account is either credited or debited on a daily basis in correlation with the fluctuation in price of the underlying future or other requirements imposed by the exchange in order to maintain an orderly market. The Fund must make additional payments to cover debits to its account and has the right to withdraw credits in excess of the liquidity, the Fund may close out its position at any time prior to expiration of the financial future by taking an opposite position. At closing a final determination of debits and credits is made, additional cash is paid by or to the Fund to settle the final determination and the Fund realizes a loss or gain depending on whether on a net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging the Fund's existing or anticipated holdings of long-term debt securities. For example, if the Fund owns long-term bonds and interest rates were expected to increase, it might sell financial futures. If interest rates did increase, the value of long-term bonds in the Fund's portfolio would decline, but the value of the Fund's financial futures would be expected to increase at approximately the same rate thereby keeping the net asset value of the Fund from declining as much as it otherwise would have.
Among the risks associated with the use of financial futures by the Fund as a hedging device, perhaps the most significant is the imperfect correlation between movements in the price of the financial futures and movements in the price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price of the securities which are the subject of the hedge, the hedge will not be fully effective. To compensate for this imperfect correlation, the Fund may enter into financial futures in a greater dollar amount than the dollar amount of the securities being hedged if the historical volatility of the prices of such securities has been greater than the historical volatility of the financial futures. Conversely, the Fund may enter into fewer financial futures if the historical volatility of the price of the securities being hedged is less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other than interest rates. One of these factors is the possibility that rapid changes in the volume of closing transactions, whether due to volatile markets or movements by speculators, would temporarily distort the normal relationship between the markets in the financial future and the chosen debt securities. In these circumstances as well as in periods of rapid and large price movements. The Fund might find it difficult or impossible to close out a particular transaction.
OPTIONS ON FINANCIAL FUTURES
The Fund may also purchase put or call options on financial futures which are traded on a U.S. Exchange or board of trade and enter into closing transactions with respect to such options to terminate an existing position. Currently, options can be purchased with respect to financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The purchase of put options on financial futures is analogous to the purchase of put options by the Fund on its portfolio securities to hedge against the risk of rising interest rates. As with options on debt securities, the holder of an option may terminate his position by selling an option of the Fund. There is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
INDEX FUTURES
A tax-exempt bond index which assigns relative values to the tax-exempt bonds included in the index is traded on the Chicago Board of Trade. The index fluctuates with changes in the market values of all tax-exempt bonds included rather than a single bond. An index future is a bilateral agreement pursuant to which two parties agree to take or make delivery of an amount of cash-rather than any security-equal to a specified dollar amount times the difference between the index value at the close of the last trading day of the contract and the price at which the index future was originally written. Thus, an index future is similar to traditional financial futures except that settlement is made in cash.
INDEX OPTIONS
The Fund may also purchase put or call options on U.S. Government or tax- exempt bond index futures and enter into closing transactions with respect to such options to terminate an existing position. Options on index futures are similar to options on debt instruments except that an option on an index future gives the purchaser the right, in return for the premium paid, to assume a position in an index contract rather than an underlying security at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance of the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, is less than the exercise price of the option on the index future.
Bond index futures and options transactions would be subject to risks similar to transactions in financial futures and options thereon as described above. No series will enter into transactions in index or financial futures or related options unless and until, in the Adviser's opinion, the market for such instruments has developed sufficiently.
Nuveen Municipal High Income Opportunity Fund
STATEMENT OF ADDITIONAL INFORMATION
__________, 2004
PART C--OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements:
Statement of Assets and Liabilities, November 3, 2003
(audited)
Statement of Operations from October 8, 2003 (date of organization) to November 3, 2003 (audited)
Statement of Assets and Liabilities, December 29, 2003
(unaudited)
Statement of Operations from November 19, 2003 (commencement of operations) to December 29, 2003 (unaudited)
Statement of Changes in Net Assets from November 19, 2003 (commencement of operations) to December 29, 2003
(unaudited)
Portfolio of Investments, December 29, 2003 (unaudited)
2. Exhibits:
a.1 Declaration of Trust dated October 8, 2003. Filed on October 17, 2003 as Exhibit a to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
a.2 S&P Guidelines and Moody's Guidelines. **
b. By-laws of Registrant. Filed on October 17, 2003 as Exhibit b to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
c. None.
d. Form of Share Certificate.**
e. Terms and Conditions of the Dividend Reinvestment Plan. Filed on November 6, 2003 as Exhibit e to Pre-effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
f. None.
g. Investment Management Agreement between Registrant and Nuveen Advisory Corp. dated November 3, 2003. Filed on November 18, 2003 as Exhibit g to Pre-effective Amendment No. 3 to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
h.1 Form of Underwriting Agreement.**
h.2 Form of Master Selected Dealer Agreement.**
h.3 Form of Nuveen Master Selected Dealer Agreement.**
h.4 Form of Master Agreement Among Underwriters.**
i. Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for Independent Directors and Trustees. Filed on November 6, 2003 as Exhibit i to
Pre-effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No.
333-109801) and incorporated herein by reference.*
j. Master Custodian Agreement between Registrant and State Street Bank and Trust Company dated August 19, 2002. Filed on November 18, 2003 as Exhibit j to Pre-effective Amendment No. 3 to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
k.1 Shareholder Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust Company dated October 7, 2002. Filed on November 18, 2003 as Exhibit k.1 to Pre-effective Amendment No. 3 to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
k.2 Expense Reimbursement Agreement between Registrant and Nuveen Advisory Corp. dated November 3, 2003. Filed on November 18, 2003 as Exhibit k.2 to Pre-effective Amendment No. 3 to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
k.3 Form of Auction Agency Agreement.**
k.4 Form of Broker Dealer Agreement.**
k.5 Form of DTC Letter of Representations.**
l.1 Opinion and consent of Vedder, Price, Kaufman & Kammholz, P.C.**
l.2 Opinion and consent of Bingham McCutchen LLP.**
m. None.
n. Consent of Ernst & Young LLP.**
o. None.
p. Subscription Agreement of Nuveen Advisory Corp. dated November 3, 2003. Filed on November 18, 2003 as Exhibit p to Pre-effective Amendment No. 3 to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
q. None.
r. Code of Ethics of Nuveen Advisory Corp. Filed on November 6, 2003 as Exhibit r.1 to Pre-effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109801) and incorporated herein by reference.*
s. Powers of Attorney. Filed November 20, 2003 as Exhibit S to the Registrant's Registration Statement on Form N-2 (File No. 333-110618) and incorporated herein by reference).*
ITEM 25: MARKETING ARRANGEMENTS.
See Sections 2, 3, 5 and 6 of the Form of Underwriting Agreement filed as Exhibit h.1 to the Registration Statement.
See the Introductory Paragraph and Sections 2 and 3(d) of the Form of Master Selected Dealer Agreement filed as Exhibit h.2 to the Registration Statement and the Introductory Paragraph and Sections 2 and 3 of the Form of Nuveen Master Selected Dealer Agreement filed as Exhibit h.3 to the Registration Statement.
See the Introductory Paragraphs and Sections 1.2, 3.1, 3.2, 3.4-3.8, 4.1, 4.2, 5.1-5.4, 6.1, 10.9 and 10.10 of the Form of Master Agreement Among Underwriters filed as Exhibit h.4 to the Registration Statement.
ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission fees................. $ 12,555
Printing and engraving expenses......................... 55,000
Legal Fees.............................................. 80,000
Accounting expense...................................... 6,500
Rating Agency fees...................................... 93,000
Miscellaneous expenses.................................. 7,945
-----------
Total................................................ $ 255,000
===========
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ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 28: NUMBER OF HOLDERS OF SECURITIES
At November 21, 2003
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
------------------------------------- ----------
Common Shares, $0.01 par value 1
|
ITEM 29: INDEMNIFICATION
Section 4 of Article XII of the Registrant's Declaration of Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every person who is, or has been, a Trustee, officer, employee or agent of the Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been such a Trustee, director, officer, employee or agent and against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a final adjudication by the court or other body before which the proceeding was brought that he engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final adjudication (as provided in paragraph (a) or (b)) and resulting in a payment by a Covered Person, unless there has been either a determination that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office by the court or other body approving the settlement or other disposition or a reasonable determination, based on a review of readily available facts (as opposed to a full trial-type inquiry), that he did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be such a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel other than Covered Persons may be entitled by contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding subject to a claim for indemnification under this
Section 4 shall be advanced by the
Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate security or the Trust shall be insured against losses arising out of any such advances; or
(b) a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or independent legal counsel in a written opinion shall determine, based upon a review of the readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an Interested Person of the Trust (including anyone, as such Disinterested Trustee, who has been exempted from being an Interested Person by any rule, regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding" shall apply to all claims, actions, suits, proceedings (civil, criminal, administrative or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.
The trustees and officers of the Registrant are covered by Investment Trust Directors and Officers and Errors and Omission policies in the aggregate amount of $50,000,000 against liability and expenses of claims of wrongful acts arising out of their position with the Registrant, except for matters which involve willful acts, bad faith, gross negligence and willful disregard of duty (i.e., where the insured did not act in good faith for a purpose he or she reasonably believed to be in the best interest of Registrant or where he or she had reasonable cause to believe this conduct was unlawful). The policy has a $500,000 deductible, which does not apply to individual trustees or officers.
Section 8 of the Form of Underwriting Agreement filed as Exhibit h.1 to the Registration Statement provides for each of the parties thereto, including the Registrant and the Underwriters, to indemnify the others, their trustees, directors, certain of their officers, trustees, directors and persons who control them against certain liabilities in connection with the offering described herein, including liabilities under the federal securities laws.
Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
ITEM 30: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Advisory Corp. serves as investment adviser to the following open-end management type investment companies: Nuveen Multistate Trust I, Nuveen Multistate Trust II, Nuveen Multistate Trust III, Nuveen Multistate Trust IV and Nuveen Municipal Trust. Nuveen Advisory Corp. also serves as investment adviser to the following closed-end management type investment companies other than the Registrant: Nuveen Municipal Value Fund, Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc., Nuveen California Performance Plus Municipal Fund, Inc., Nuveen New York Performance Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc., Nuveen Municipal Market Opportunity Fund, Inc., Nuveen California Municipal Market Opportunity Fund, Inc., Nuveen New York Municipal Market Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc., Nuveen California Investment Quality Municipal Fund, Inc., Nuveen New York Investment Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund, Inc., Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality Municipal Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California Select Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal Fund, Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Municipal
Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund, Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income Municipal Fund, Inc., Nuveen Premium Municipal Income Fund, Inc., Nuveen Premium Insured Municipal Income Fund, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc., Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Premium Income Municipal Fund 2, Inc., Nuveen Select Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium Income Municipal Fund, Inc., Nuveen Michigan Premium Income Municipal Fund, Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California Premium Income Municipal Fund 2, Inc., Nuveen Insured New York Premium Income Municipal Fund 2, Nuveen Michigan Premium Income Municipal Fund 2, Nuveen Pennsylvania Premium Income Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income Municipal Fund, Nuveen Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North Carolina Premium Income Municipal Fund, Nuveen California Premium Income Municipal Fund, Nuveen Insured Premium Income Municipal Fund 2, Nuveen New York Dividend Advantage Municipal Fund, Nuveen California Dividend Advantage Municipal Fund, Nuveen Dividend Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Connecticut Dividend Advantage Municipal Fund, Nuveen Maryland Dividend Advantage Municipal Fund, Nuveen Massachusetts Dividend Advantage Municipal Fund, Nuveen North Carolina Dividend Advantage Municipal Fund, Nuveen Virginia Dividend Advantage Municipal Fund, Nuveen Dividend Advantage Municipal Fund 2, Nuveen California Dividend Advantage Municipal Fund 2, Nuveen New York Dividend Advantage Municipal Fund 2, Nuveen New Jersey Dividend Advantage Municipal Fund, Nuveen Ohio Dividend Advantage Municipal Fund, Nuveen Pennsylvania Dividend Advantage Municipal Fund, Nuveen Dividend Advantage Municipal Fund 3, Nuveen California Dividend Advantage Municipal Fund 3, Nuveen Georgia Dividend Advantage Municipal Fund, Nuveen Maryland Dividend Advantage Municipal Fund 2, Nuveen Michigan Dividend Advantage Municipal Fund, Nuveen Ohio Dividend Advantage Municipal Fund 2, Nuveen North Carolina Dividend Advantage Municipal Fund 2, Nuveen Virginia Dividend Advantage Municipal Fund 2, Nuveen Insured Dividend Advantage Municipal Fund, Nuveen Insured California Dividend Advantage Municipal Fund, Nuveen Insured New York Dividend Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2, Nuveen Connecticut Dividend Advantage Municipal Fund 2, Nuveen New Jersey Dividend Advantage Municipal Fund 2, Nuveen Pennsylvania Dividend Advantage Municipal Fund 2, Nuveen Ohio Dividend Advantage Municipal Fund 3, Nuveen Arizona Dividend Advantage Municipal Fund 3, Nuveen Connecticut Dividend Advantage Municipal Fund 3, Nuveen Georgia Dividend Advantage Municipal Fund 2, Nuveen Maryland Dividend Advantage Municipal Fund 3, Nuveen North Carolina Dividend Advantage Municipal Fund 3, Nuveen Insured Tax-Free Advantage Municipal Fund, Nuveen Insured California Tax-Free Advantage MunicipalFund, Nuveen Insured Florida Tax-Free Advantage Municipal Fund, Nuveen Insured Massachusetts Tax-Free Advantage Municipal Fund, Nuveen Insured New York Tax-Free Advantage Municipal Fund, and Nuveen Municipal High Income Opportunity Fund.
Nuveen Advisory Corp. has no other clients or business at the present time. For a description of other business, profession, vocation or employment of a substantial nature in which any director or officer of the investment adviser has engaged during the last two years for his or her account or in the capacity of director, officer, employee, partner or trustee, see the descriptions under "Management of the Fund" in Part A of the Registration Statement. Such information for the remaining senior officers of Nuveen Advisory Corp. appears below:
OTHER BUSINESS, PROFESSION, VOCATION OR
NAME AND POSITION WITH NAC EMPLOYMENT DURING PAST TWO YEARS
-------------------------------------------------------- --------------------------------------------------------
John P. Amboian, President.............................. President and Director, formerly Executive Vice
President of Nuveen Investments, Inc., Nuveen
Investments, LLC, Nuveen Institutional Advisory Corp.,
Nuveen Asset Management, Inc. and Executive Vice
President and Director of Rittenhouse Asset Management,
Inc.
Alan G. Berkshire, Senior Vice President and Secretary.. Senior Vice President, Secretary and General Counsel of Nuveen
Investments, Inc., Nuveen Investments, LLC, Nuveen Asset Management,
Inc., Nuveen Investments Holdings, Inc. and Rittenhouse Asset
Management, Inc.; Senior Vice President and Secretary of Nuveen
Institutional Advisory Corp. and Nuveen Investment Advisors Inc.;
Secretary of Symphony Assets Management, LLC (since 2003) and
Assistant Secretary of NWQ Investment Management Company, LLC.
Margaret E. Wilson, Senior Vice President,
Finance................................................. Senior Vice President, Finance of Nuveen Investments, Inc.,
Nuveen Investments, LLC, Nuveen Institutional Advisory Corp.,
Nuveen Asset Management, Inc., Nuveen Investments Holdings, Inc.
and Rittenhouse Asset Management, Inc.
|
ITEM 31: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606, maintains the Declaration of Trust, By-Laws, minutes of trustees and shareholders meetings and contracts of the Registrant and all advisory material of the investment adviser.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, maintains all general and subsidiary ledgers, journals, trial balances, records of all portfolio purchases and sales, and all other required records not maintained by Nuveen Advisory Corp.
ITEM 32: MANAGEMENT SERVICES
Not applicable.
ITEM 33: UNDERTAKINGS
1. Registrant undertakes to suspend the offering of its shares
until it amends its prospectus if: (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement; or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Registrant undertakes that:
a. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 497(h) under the Securities Act of 1933 shall be deemed to be part of the Registration Statement as of the time it was declared effective.
b. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in this City of Chicago, and State of Illinois, on the 15th day of January 2004.
NUVEEN MUNICIPAL HIGH INCOME
OPPORTUNITY FUND
/s/ Jessica R. Droeger ------------------------------------------------ Jessica R. Droeger, Vice President and Secretary |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
----------------------------------- ----------------------------------- ---------------------------
/s/ Stephen D. Foy Vice President and Controller January 15, 2004
-----------------------------------
Stephen D. Foy (Principal Financial and
Accounting Officer)
/s/ Gifford R. Zimmerman Chief Administrative Officer January 15, 2004
-----------------------------------
Gifford R. Zimmerman (Principal Executive Officer)
Timothy R. Schwertfeger* Chairman of the Board and Trustee By: /s/ Jessica R. Droeger
------------------------
Jessica R. Droeger
Attorney-In-Fact
January 15, 2004
William E. Bennett* Trustee
Robert P. Bremner* Trustee
Lawrence H. Brown* Trustee
Jack B. Evans* Trustee
Anne E. Impellizzeri* Trustee
William L. Kissick* Trustee
Thomas E. Leafstrand* Trustee
Peter R. Sawers* Trustee
William J. Schneider* Trustee
Judith M. Stockdale* Trustee
Sheila W. Wellington* Trustee
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INDEX TO EXHIBITS
a.1 Declaration of Trust dated October 8, 2003, filed on October 17, 2003.*
a.2 S&P Guidelines and Moody's Guidelines. **
b. By-laws of Registrant.*
c. None.
d. Form of Share Certificate.**
e. Terms and Conditions of the Dividend Reinvestment Plan.*
f. None.
g. Investment Management Agreement between Registrant and Nuveen Advisory Corp. dated November 3, 2003.*
h.1 Form of Underwriting Agreement.**
h.2 Form of Master Selected Dealer Agreement.**
h.3 Form of Nuveen Master Selected Dealer Agreement.**
h.4 Form of Master Agreement Among Underwriters.**
i. Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for Independent Directors and
Trustees.*
j. Master Custodian Agreement between Registrant and State Street Bank and Trust Company dated
August 19, 2002.*
k.1 Shareholder Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust
Company dated October 7, 2002.*
k.2 Expense Reimbursement Agreement between Registrant and Nuveen Advisory Corp. dated November 3, 2003.*
k.3 Form of Auction Agency Agreement.**
k.4 Form of Broker Dealer Agreement.**
k.5 Form of DTC Letter of Representations.**
l.1 Opinion and consent of Vedder, Price, Kaufman & Kammholz, P.C.**
l.2 Opinion and consent of Bingham McCutchen LLP.**
m. None.
n. Consent of Ernst & Young LLP.**
o. None.
p. Subscription Agreement of Nuveen Advisory Corp. dated November 3, 2003.*
q. None.
r. Code of Ethics of Nuveen Advisory Corp.*
s. Powers of Attorney.
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EXHIBIT A.2
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
S&P GUIDELINES
Below is set forth for its Nuveen Municipal High Income Opportunity Fund (the "Fund") the S&P Guidelines, as defined in the Statement Establishing and Fixing the Rights and Preferences of Municipal Auction Rate Cumulative Preferred Shares (the "Statement"). Capitalized terms not defined herein shall have the same meanings as defined in the Statement. S&P may amend, alter or change these S&P Guidelines, in its sole discretion, provided however, that S&P provide any such amendments, alterations or changes to the Fund in writing.
1. RATING AGENCY RESTRICTIONS.
For so long as any shares of MuniPreferred are Outstanding and S&P is then rating the shares of MuniPreferred, the Fund will not, unless it has received written confirmation from S&P (if S&P is then rating MuniPreferred), that any such action would not impair the rating then assigned by such rating agency to a series of MuniPreferred, engage in any one or more of the following transactions:
a. write unsecured put or uncovered call options on portfolio securities;
b. issue additional shares or series of MuniPreferred or any class or series of shares ranking prior to or on a parity with MuniPreferred with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the Fund, or reissue any shares of MuniPreferred previously purchased or redeemed by the Fund;
c. engage in any short sales of securities;
d. lend portfolio securities; or
e. merge or consolidate into or with any other corporation.
2. MUNIPREFERRED BASIC MAINTENANCE AMOUNT.
a. On or before 5:00 P.M., New York City time, on the third Business Day after a Valuation Date on which the Fund fails to satisfy the MuniPreferred Basic Maintenance Amount, and on the third Business Day after the MuniPreferred Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred) and the Auction Agent (if S&P is then rating the shares of MuniPreferred) a MuniPreferred Basic Maintenance Report as of the date of such failure or such MuniPreferred Basic Maintenance Cure Date, as the case may be, which will be deemed to have been delivered to the Auction Agent if the Auction Agent receives a copy or telecopy, telex or other electronic transcription thereof and on the same day the Fund mails to the Auction Agent for delivery on the next Business Day the full MuniPreferred Basic Maintenance Report. The Fund shall also deliver a MuniPreferred Basic Maintenance Report to (i) the Auction Agent (if S&P is then rating the shares of MuniPreferred) as of (A) the fifteenth day of each month (or, if such day is not a Business Day, the next succeeding Business Day) and (B) the last Business Day of each month and (ii) S&P (if S&P is then rating the shares of MuniPreferred) if and when
requested for any Valuation Date, on or before the third Business Day after such request. A failure by the Fund to deliver a MuniPreferred Basic Maintenance Report pursuant to the preceding sentence shall be deemed to be delivery of a MuniPreferred Basic Maintenance Report indicating the Discounted Value for all assets of the Fund is less than the MuniPreferred Basic Maintenance Amount, as of the relevant Valuation Date.
b. Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph a. above
relating to a Quarterly Valuation Date, the Fund shall cause the Independent
Accountant to confirm in writing to S&P (if S&P is then rating the shares of
MuniPreferred) and the Auction Agent (if S&P is then rating the shares of
MuniPreferred) (i) the mathematical accuracy of the calculations reflected in
such Report (and in any other MuniPreferred Basic Maintenance Report, randomly
selected by the Independent Accountant, that was delivered by the Fund during
the quarter ending on such Quarterly Valuation Date), (ii) that, in such Report
(and in such randomly selected Report), the Fund determined in accordance with
the Statement whether the Fund had, at such Quarterly Valuation Date (and at the
Valuation Date addressed in such randomly-selected Report), S&P Eligible Assets
(if S&P is then rating the shares of MuniPreferred) of an aggregate Discounted
Value at least equal to the MuniPreferred Basic Maintenance Amount (such
confirmation being herein called the "Accountant's Confirmation"), (iii) with
respect to the S&P ratings on Municipal Obligations, 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, (iv) 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 Fund's assets to the Fund for
purposes of valuing securities in the Fund'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 Fund 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 (v) with respect
to such confirmation to S&P, that the Fund has satisfied the requirements of
Section 13 of the Statement (such confirmation is herein called the
"Accountant's Confirmation").
c. Within ten Business Days after the date of delivery of a MuniPreferred Basic Maintenance Report in accordance with paragraph a. above relating to any Valuation Date on which the Fund failed to satisfy the MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred Basic Maintenance Cure Date with respect to such failure to satisfy the MuniPreferred Basic Maintenance Amount, the Fund shall cause the Independent Accountant to provide to S&P (if S&P is then rating the shares of MuniPreferred) and the Auction Agent (if S&P is then rating the shares of MuniPreferred) an Accountant's Confirmation as to such MuniPreferred Basic Maintenance Report.
d. If any Accountant's Confirmation delivered pursuant to paragraph b. or c. above shows that an error was made in the MuniPreferred Basic Maintenance Report for a particular Valuation Date for which such Accountant's Confirmation was required to be delivered, or shows that a lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets (if S&P is then rating the shares of MuniPreferred) of the Fund was determined by the Independent Accountant, the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Fund, and the Fund shall
accordingly amend and deliver the MuniPreferred Basic Maintenance Report to S&P (if S&P is then rating the shares of MuniPreferred) and the Auction Agent (if S&P is then rating the shares of MuniPreferred) promptly following receipt by the Fund of such Accountant's Confirmation.
e. On or before 5:00 p.m., New York City time, on the first Business Day after the Date of Original Issue of any shares of MuniPreferred, the Fund shall complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred) a MuniPreferred Basic Maintenance Report as of the close of business on such Date of Original Issue. Within five Business Days of such Date of Original Issue, the Fund shall cause the Independent Accountant to confirm in writing to S&P (if S&P is then rating the shares of MuniPreferred) (i) the mathematical accuracy of the calculations reflected in such Report and (ii) that the Discounted Value of S&P Eligible Assets reflected thereon equals or exceeds the MuniPreferred Basic Maintenance Amount reflected thereon.
f. On or before 5:00 p.m., New York City time, on the third Business Day after either (i) the Fund shall have redeemed Common Shares or (ii) the ratio of the Discounted Value of S&P Eligible Assets to the MuniPreferred Basic Maintenance Amount is less than or equal to 105% or (iii) whenever requested by S&P, the Fund shall complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred), as the case may be, a MuniPreferred Basic Maintenance Report as of the date of either such event.
3. DEFINITIONS.
a. "ESCROWED BONDS" shall mean Municipal Obligations that (i) have been determined to be legally defeased in accordance with S&P's legal defeasance criteria, (ii) have been determined to be economically defeased in accordance with S&P's economic defeasance criteria and assigned a rating of AAA by S&P, (iii) are not rated by S&P but have been determined to be legally defeased by S&P or (iv) have been determined to be economically defeased by S&P and assigned a rating no lower than the rating that is S&P equivalent of S&P's AAA rating. In the event that a defeased obligation which is an S&P Eligible Asset does not meet the criteria of an Escrowed Bond, such Municipal Obligation will be deemed to remain in the Issue Type Category into which it fell prior to such defeasance.
b. "INVERSE FLOATER" shall mean trust certificates or other instruments evidencing interests in one or more Municipal Obligations that qualify as S&P Eligible Assets, the interest rates on which are adjusted at short-term intervals on a basis that is inverse to the simultaneous readjustment of the interest rates on corresponding floating rate trust certificates or other instruments issued by the same issuer, provided that the ratio of the aggregate dollar amount of floating rate instruments to inverse floating rate instruments issued by the same issuer does not exceed one to one at their time of original issuance.
c. "MUNIPREFERRED BASIC MAINTENANCE AMOUNT" as of any Valuation Date, shall mean the dollar amount equal to the sum of (i)(A) the product of the number of shares of MuniPreferred outstanding on such date multiplied by $25,000 (plus the product of the number of shares of any other series of Preferred Shares outstanding on such date multiplied by the liquidation preference of such shares), plus any redemption premium applicable to shares of MuniPreferred (or other Preferred Shares) then subject to redemption; (B) the aggregate amount
of dividends that will have accumulated at the respective Applicable Rates
(whether or not earned or declared) to (but not including) the first respective
Dividend Payment Dates for shares of MuniPreferred outstanding that follow such
Valuation Date (plus the aggregate amount of dividends, whether or not earned or
declared, that will have accumulated in respect of other outstanding Preferred
Shares to, but not including, the first respective dividend payment dates for
such other shares that follow such Valuation Date); (C) the aggregate amount of
dividends that would accumulate on shares of each series of MuniPreferred
outstanding from such first respective Dividend Payment Date therefor through
the 56th day after such Valuation Date, at the Maximum Rate (calculated as if
such Valuation Date were the Auction Date for the Rate Period commencing on such
Dividend Payment Date) for a Minimum Rate Period of shares of such series to
commence on such Dividend Payment Date, assuming, solely for purposes of the
foregoing, that if on such Valuation Date the Fund shall have delivered a Notice
of Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of Part
I of the Statement with respect to shares of such series, such Maximum Rate
shall be the higher of (a) the Maximum Rate for the Special Rate Period of
shares of such series to commence on such Dividend Payment Date and (b) the
Maximum Rate for a Minimum Rate Period of shares of such series to commence on
such Dividend Payment Date, multiplied by the Volatility Factor applicable to a
Minimum Rate Period, or, in the event the Fund shall have delivered a Notice of
Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of Part I
of the Statement with respect to shares of such series designating a Special
Rate Period consisting of 56 Rate Period Days or more, the Volatility Factor
applicable to a Special Rate Period of that length (plus the aggregate amount of
dividends that would accumulate at the maximum dividend rate or rates on any
other Preferred Shares outstanding from such respective dividend payment dates
through the 56th day after such Valuation Date, as established by or pursuant to
the respective statements establishing and fixing the rights and preferences of
such other Preferred Shares) (except that (1) if such Valuation Date occurs at a
time when a Failure to Deposit (or, in the case of Preferred Shares other than
MuniPreferred, a failure similar to a Failure to Deposit) has occurred that has
not been cured, the dividend for purposes of calculation would accumulate at the
current dividend rate then applicable to the shares in respect of which such
failure has occurred and (2) for those days during the period described in this
subparagraph (C) in respect of which the Applicable Rate in effect immediately
prior to such Dividend Payment Date will remain in effect (or, in the case of
Preferred Shares other than MuniPreferred, in respect of which the dividend rate
or rates in effect immediately prior to such respective dividend payment dates
will remain in effect), the dividend for purposes of calculation would
accumulate at such Applicable Rate (or other rate or rates, as the case may be)
in respect of those days); (D) the amount of anticipated expenses of the Fund
for the 90 days subsequent to such Valuation Date; (E) the amount of the Fund's
Maximum Potential Gross-up Payment Liability in respect of shares of
MuniPreferred (and similar amounts payable in respect of other Preferred Shares
pursuant to provisions similar to those contained in Section 3 of Part I of the
Statement) as of such Valuation Date; and (F) any current liabilities as of such
Valuation Date to the extent not reflected in any of (i)(A) through (i)(E)
(including, without limitation, any payables for Municipal Obligations purchased
as of such Valuation Date and any liabilities incurred for the purpose of
clearing securities transactions) less (ii) the value (i.e., for purposes of
current S&P guidelines, the face value of cash, short-term Municipal Obligations
rated SP-1 or A-1 or Municipal Obligations rated A, provided in each case that
such securities mature on or prior to the date upon which any of (i)(A) though
(i)(F) became payable,
otherwise the S&P Discounted Value) of any of the Fund's assets irrevocably deposited by the Fund for the payment of any of (i)(A) through (i)(F).
d. "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to the failure by the Fund to satisfy the MuniPreferred Basic Maintenance Amount (as required by paragraph (a) of Section 7 of Part I of the Statement) as of a given Valuation Date, shall mean the seventh Business Day following such Valuation Date.
e. "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report signed by the President, Treasurer or any Senior Vice President or Vice President of the Fund which sets forth, as of the related Valuation Date, the assets of the Fund, the Market Value and the Discounted Value thereof (seriatim and in aggregate), and the MuniPreferred Basic Maintenance Amount.
f. "S&P DISCOUNT FACTOR" shall mean, for purposes of determining the Discounted Value of any S&P Eligible Asset, the percentage determined by reference to the rating on such asset and the shortest Exposure Period set forth opposite such rating that is the same length as or is longer than the S&P Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
REQUIRED O/C FOR "AAA" TRANSACTION RATING
---------------------------------------------------------------------------------------
COLLATERAL RATING*
---------------------------------------------------------------------------------------
HIGH
YIELD/
EXPOSURE PERIOD (DAYS) AAA AA A BBB BB B CCC NR
---------------------- --- ---- --- ----- ---- --- ----- ------
38 145% 148% 151% 154% 175% 195% 215% 220%
|
Notwithstanding the foregoing, (i) [the S&P Discount Factor for shares of Money Market Funds rated "AAAm" by S&P with an effective next day maturity shall be 106% and] the S&P Discount Factor for short-term Municipal Obligations shall be 115% so long as such Municipal Obligations are rated "A-1+" or "SP-1+" by S&P and mature or have a demand feature exercisable within 30 days or less, or 120% so long as such Municipal Obligations 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 Obligations are not rated by S&P but are rated equivalent to "A-1+" or "SP-1+" by another nationally recognized statistical rating organization, on a case by case basis; provided, however, that any such non-S&P rated short-term Municipal Obligations which have demand features exercisable within 30 days or less must be backed by a letter of credit, liquidity facility or guarantee from a bank or other financial institution with a short-term rating of at least "A-1+" from S&P; and further provided that such non-S&P rated short-term Municipal Obligations may comprise no more than 50% of short-term Municipal Obligations that qualify as S&P Eligible Assets; provided, however, that Municipal Obligations not rated by S&P but rated equivalent to "BBB" or lower by another nationally recognized statistical rating organization, rated "BB+" or lower by S&P or non-rated (such Municipal Obligations are hereinafter referred
to as "High Yield Securities") may comprise no more than 20% of the short-term Municipal Obligations that qualify as S&P Eligible Assets; (ii) the S&P Discount Factor for Receivables for Municipal Obligations Sold that are due in more than five Business Days from such Valuation Date will be the S&P Discount Factor applicable to the Municipal Obligations sold; (iii) no S&P Discount Factor will be applied to cash [or Money Market Funds rated "AAAm" by S&P with effective next day maturities] or to Receivables for Municipal Obligations Sold if such receivables are due within five Business Days of such Valuation Date; and (iv) except as set forth in clause (i) above, in the case of any Municipal Obligation that is not rated by S&P but qualifies as an S&P Eligible Asset pursuant to clause (iii) of that definition, such Municipal Obligation will be deemed to have an S&P rating one full rating category lower than the S&P rating category that is the equivalent of the rating category in which such Municipal Obligation is placed by a nationally recognized statistical rating organization. "Receivables for Municipal Obligations Sold," for purposes of calculating S&P Eligible Assets as of any Valuation Date, means the book value of receivables for Municipal Obligations sold as of or prior to such Valuation Date. For purposes of the foregoing, Anticipation Notes rated "SP-1+" or, if not rated by S&P, equivalent to "A-1+" or "SP-1+" by another nationally recognized statistical rating organization, on a case by case basis, which do not mature or have a demand feature at par exercisable in 30 days and which do not have a long-term rating, shall be considered to be short-term Municipal Obligations.
g. "S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably deposited by the Trust for the payment of any liabilities within the meaning of MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations Sold, or a Municipal Obligation owned by the Fund that (i) is interest bearing and pays interest at least semi-annually; (ii) is payable with respect to principal and interest in U.S. Dollars; (iii) is not subject to a covered call or put option written by the Fund; (iv) except for Inverse Floaters, is not part of a private placement of Municipal Obligations; and (v) except for Inverse Floaters, is part of an issue of Municipal Obligations with an original issue size of at least $10 million. Any Municipal Obligation that is a part of an original issue size of less than $10 million must carry a rating of at least "AA" by S&P or "AAA" by another nationally recognized statistical rating organization. Solely for purposes of this definition, the term "Municipal Obligation" means any obligation the interest on which is exempt from regular Federal income taxation and which is issued by any of the fifty United States, the District of Columbia or any of the territories of the United States, their subdivisions, counties, cities, towns, villages, school districts and agencies (including authorities and special districts created by the states), and federally sponsored agencies such as local housing authorities. Notwithstanding the foregoing limitations:
(i) Municipal Obligations (excluding Escrowed Bonds) of any one issuer or guarantor (excluding bond insurers) shall be considered S&P Eligible Assets only to the extent the Market Value of such Municipal Obligations (including short-term Municipal Obligations) does not exceed 10% of the aggregate Market Value of S&P Eligible Assets, provided that 2% is added to the applicable S&P Discount Factor for every 1% by which the Market Value of such Municipal Obligations exceeds 5% of the aggregate Market Value of S&P Eligible Assets or for any percentage over 5% add 10 percentage points to the S&P Discount Factor. High Yield Securities of any one issuer shall be considered S&P Eligible Assets only to the extent the Market Value of such Municipal Obligations does not exceed 5% of the aggregate Market Value of S&P
Eligible Assets. Non-rated securities of any issuer shall be considered S&P Eligible Assets to the extent the Market Value of such Municipal Obligation does not exceed 5% of the aggregate Market Value of S&P Eligible Assets. No more than 10% of the aggregate Market Value of the portfolio may consist of non-rated securities;
(ii) Municipal Obligations not rated by S&P shall be considered S&P Eligible Assets only to the extent the Market Value of such Municipal Obligations does not exceed 50% of the aggregate Market Value of S&P Eligible Assets; provided, however, that High Yield Securities shall be considered S&P Eligible Assets only to the extent the Market Value of such Municipal Obligations does not exceed 20% of the aggregate Market Value of S&P Eligible Assets;
(iii) Municipal Obligations issued by issuers in any one state or territory will be considered S&P Eligible Assets only to the extent that the Market Value of such Municipal Obligations does not exceed 25% of the aggregate Market Value of S&P Eligible Assets; and
(iv) Municipal Obligations (excluding Escrowed Bonds) of any one state or territory shall be considered S&P Eligible Assets only to the extent the Market Value of such Municipal Obligations does not exceed 25% of the aggregate Market Value of S&P Eligible Assets.
h. "S&P EXPOSURE PERIOD" shall mean the sum of (i) that number
of days from the last Valuation Date on which the Trust's Discounted Value of
S&P Eligible Assets were greater than the MuniPreferred Basic Maintenance Amount
to the Valuation Date on which the Fund's Discounted Value of S&P Eligible
Assets failed to exceed the MuniPreferred Basic Maintenance Amount, (ii) the
maximum number of days following a Valuation Date that the Fund has under the
Statement to cure any failure to maintain a Discounted Value of S&P Eligible
Assets at least equal to the MuniPreferred Basic Maintenance Amount, and (iii)
the maximum number of days the Fund has to effect a mandatory redemption under
Section 11(b) of the Statement.
i. "S&P VOLATILITY FACTOR" shall mean, as of any Valuation Date, a multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period or any Special Rate Period of 28 Rate Period Days or fewer, (ii) 268% in the case of any Special Rate Period of more than 28 Rate Period Days but fewer than 183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of more than 182 Rate Period Days.
4. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS.
a. For so long as any MuniPreferred are rated by S&P, the Fund will not purchase or sell futures contracts, write, purchase of sell options on futures contracts, 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 MuniPreferred by S&P, except that the Fund may purchase or sell futures contracts based on the Bond Buyer Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds or Notes ("Treasury Bonds") and write,
purchase or sell put and call options on such contracts or engage in interest rate swaps, caps and floors (collectively "S&P Hedging Transactions"), subject to the following limitations:
(i) the Fund will not engage in any S&P Hedging Transaction based on the Municipal Index (other than transactions which terminate a futures contract or option held by the Fund's taking an opposite position thereto), which would cause the Fund 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 Fund's total assets divided by $1,000 or (C) outstanding futures contracts based on the Municipal Index exceeding in number 10% of average number of daily traded futures contracts on the Municipal Index in the 30 days preceding the time of effecting such transaction as reported by The Wall Street Journal;
(ii) the Fund will not engage in any S&P Hedging Transaction based on Treasury Bonds (other than Closing Transactions) which would cause the Fund at the time of such transaction to own or have sold the lesser of (A) outstanding futures contracts based on Treasury Bonds exceeding in number 50% of the quotient of the Market Value of the Fund's total assets divided by $100,0000 ($200,000 in the case of the two-year United States Treasury Note) 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;
(iii) the Fund will engage in Closing Transactions to close out any outstanding futures contract which the Trust owns or has sold or any outstanding option thereon owned by the Fund in the event (A) the Fund does not have S&P Eligible Assets with an aggregate Discounted Value equal to or greater than the MuniPreferred Basic Maintenance Amount on two consecutive Valuation Dates and (B) the Fund is required to pay variation margin on the second such Valuation Date;
(iv) the Fund will engage in a Closing Transaction to close out any outstanding futures contract or option thereon in the month prior to the delivery month under the terms of such futures contract or option thereon unless the Fund holds the securities deliverable under such terms; and
(v) when the Fund writes a futures contract or option thereon, it will either maintain any amount of cash, cash equivalents or high grade (rated A or better by S&P), fixed-income securities in a segregated account with the Fund's custodian, so that the amount so segregated plus the amount of initial margin and variation margin held in the account of or on behalf of the Fund's broker with respect to such futures contract or option equals the Market Value of the futures contract or option, or, in the event the Fund writes a futures contract or option thereon which requires delivery of an underlying security, it shall hold such underlying security in its portfolio.
For purposes of determining whether the Fund has S&P Eligible Assets with a Discounted Value that equals or exceeds the MuniPreferred 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 Fund plus (ii) 25% of the aggregate settlement value, as marked to market, of any outstanding futures contracts based on Treasury Bonds which contracts are owned by the Fund.
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
MOODY'S GUIDELINES
Below is set forth for its Nuveen Municipal High Income Opportunity Fund (the "Fund") the Moody's Guidelines, as defined in the Statement Establishing and Fixing the Rights and Preferences of Municipal Auction Rate Cumulative Preferred Shares (the "Statement"). Capitalized terms not defined herein shall have the same meanings as defined in the Statement. Moody's may amend, alter or change these Moody's Guidelines, in its sole discretion, provided however, that Moody's provide any such amendments, alterations or changes to the Fund in writing.
1. RATING AGENCY RESTRICTIONS.
For so long as any shares of MuniPreferred are Outstanding and Moody's is then rating the shares of MuniPreferred, the Fund will not, unless it has received written confirmation from Moody's (if Moody's is then rating MuniPreferred), that any such action would not impair the rating then assigned by such rating agency to a series of MuniPreferred, engage in any one or more of the following transactions:
a. write unsecured put or uncovered call options on portfolio securities;
b. issue additional shares or series of MuniPreferred or any class or series of shares ranking prior to or on a parity with MuniPreferred with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the Fund, or reissue any shares of MuniPreferred previously purchased or redeemed by the Fund;
c. engage in any short sales of securities;
d. lend portfolio securities; or
e. merge or consolidate into or with any other corporation.
2. MUNIPREFERRED BASIC MAINTENANCE AMOUNT.
a. On or before 5:00 P.M., New York City time, on the
third Business Day after a Valuation Date on which the Fund fails to satisfy the
MuniPreferred Basic Maintenance Amount, and on the third Business Day after the
MuniPreferred Basic Maintenance Cure Date with respect to such Valuation Date,
the Fund shall complete and deliver to Moody's (if Moody's is then rating the
shares of MuniPreferred) and the Auction Agent (if Moody's is then rating the
shares of MuniPreferred) a MuniPreferred Basic Maintenance Report as of the date
of such failure or such MuniPreferred Basic Maintenance Cure Date, as the case
may be, which will be deemed to have been delivered to the Auction Agent if the
Auction Agent receives a copy or telecopy, telex or other electronic
transcription thereof and on the same day the Fund mails to the Auction Agent
for delivery on the next Business Day the full MuniPreferred Basic Maintenance
Report. The Fund shall also deliver a MuniPreferred Basic Maintenance Report to
(i) the Auction Agent (if Moody's is then rating the shares of MuniPreferred) as
of (A) the fifteenth day of each month (or, if such day is not a Business Day,
the next succeeding Business Day) and
(B) the last Business Day of each month and (ii) Moody's (if Moody's is then rating the shares of MuniPreferred) as of any Quarterly Valuation Date, in each case on or before the third Business Day after such day. A failure by the Fund to deliver a MuniPreferred Basic Maintenance Report pursuant to the preceding sentence shall be deemed to be delivery of a MuniPreferred Basic Maintenance Report indicating the Discounted Value for all assets of the Fund is less than the MuniPreferred Basic Maintenance Amount, as of the relevant Valuation Date.
b. Within ten Business Days after the date of delivery of a MuniPreferred Basic Maintenance Report in accordance with paragraph a. above relating to a Quarterly Valuation Date, the Fund shall cause the Independent Accountant to confirm in writing to Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if Moody's is then rating the shares of MuniPreferred) (i) the mathematical accuracy of the calculations reflected in such Report (and in any other MuniPreferred Basic Maintenance Report, randomly selected by the Independent Accountant, that was delivered by the Fund during the quarter ending on such Quarterly Valuation Date), (ii) that, in such Report (and in such randomly selected Report), the Fund determined in accordance with this Statement whether the Fund had, at such Quarterly Valuation Date (and at the Valuation Date addressed in such randomly selected Report), Moody's Eligible Assets (if Moody's is then rating the shares of MuniPreferred) of an aggregate Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount (such confirmation being herein called the "Accountant's Confirmation"), (iii) with respect to the Moody's ratings on Municipal Obligations, 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), (iv) 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 Fund's assets to the Fund for purposes of valuing securities in the Fund'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 Fund 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 (v) with respect to such confirmation to Moody's, that the Fund has satisfied the requirements of Section 13 of the Statement (such confirmation is herein called the "Accountant's Confirmation").
c. Within ten Business Days after the date of delivery of a MuniPreferred Basic Maintenance Report in accordance with paragraph a. above relating to any Valuation Date on which the Fund failed to satisfy the MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred Basic Maintenance Cure Date with respect to such failure to satisfy the MuniPreferred Basic Maintenance Amount, the Fund shall cause the Independent Accountant to provide to Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if Moody's is then rating the shares of MuniPreferred) an Accountant's Confirmation as to such MuniPreferred Basic Maintenance Report.
d. If any Accountant's Confirmation delivered pursuant to paragraph b. or c. above shows that an error was made in the MuniPreferred Basic Maintenance Report for a particular Valuation Date for which such Accountant's Confirmation was required to be delivered, or shows that a lower aggregate Discounted Value for the aggregate of all Moody's Eligible Assets (if Moody's is then rating the shares of MuniPreferred), as the case may be, of
the Fund was determined by the Independent Accountant, the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Fund, and the Fund shall accordingly amend and deliver the MuniPreferred Basic Maintenance Report to Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if Moody's is then rating the shares of MuniPreferred) promptly following receipt by the Fund of such Accountant's Confirmation.
e. On or before 5:00 p.m., New York City time, on the first Business Day after the Date of Original Issue of any shares of MuniPreferred, the Fund shall complete and deliver to Moody's (if Moody's is then rating the shares of MuniPreferred) a MuniPreferred Basic Maintenance Report as of the close of business on such Date of Original Issue.
f. On or before 5:00 p.m., New York City time, on the third Business Day after either (i) the Fund shall have redeemed Common Shares or (ii) the ratio of the Discounted Value of Moody's Eligible Assets to the MuniPreferred Basic Maintenance Amount is less than or equal to 105% or (iii) whenever requested by Moody's, the Fund shall complete and deliver to Moody's (if Moody's is then rating the shares of MuniPreferred) a MuniPreferred Basic Maintenance Report as of the date of either such event.
3. DEFINITIONS.
a. "ESCROWED BONDS" shall mean Municipal Obligations that (i) have been determined to be legally defeased in accordance with S&P's legal defeasance criteria, (ii) have been determined to be economically defeased in accordance with S&P's economic defeasance criteria and assigned a rating of AAA by S&P, (iii) are not rated by S&P but have been determined to be legally defeased by Moody's or (iv) have been determined to be economically defeased by Moody's and assigned a rating no lower than the rating that is Moody's equivalent of S&P's AAA rating.
b. "MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining the Discounted Value of any Moody's Eligible Asset, the percentage determined by reference to the rating on such asset and the shortest Exposure Period set forth opposite such rating that is the same length as or is longer than the Moody's Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
---------------------------------------------------------------------------------
SP-
EXPOSURE PERIOD AAA* AA* A* BAA* OTHER** (V)MIG-1*** 1+**** UNRATED*****
--------------- ---- --- -- ---- ------- ----------- ------ ------------
7 weeks................. 151% 159% 166% 173% 187% 136% 148% 225%
8 weeks or less but
greater than seven
weeks................ 154 161 168 176 190 137 149 231
9 weeks or less but
greater than eight
weeks................ 156 163 170 177 192 138 150 240
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Notwithstanding the foregoing, (i) the Moody's Discount Factor for short-term Municipal Obligations will be 115%, so long as such Municipal Obligations are rated at least MIG-1, VMIG-l or P-1 by Moody's and mature or have a demand feature at par exercisable in 30 days or less or 125% as long as such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at par exercisable in 30 days or less and (ii) no Moody's Discount Factor will be applied to cash or to Receivables for Municipal Obligations Sold.
c. "MOODY'S ELIGIBLE ASSETS" shall mean cash, Receivables for Municipal Obligations Sold or a Municipal Obligation that (i) pays interest in cash, (ii) does not have its Moody's rating, as applicable, suspended by Moody's, and (iii) is part of an issue of Municipal Obligations of at least $10,000,000. Municipal Obligations issued by any one issuer and rated BBB or lower by S&P, Ba or B by Moody's or not rated by S&P and Moody's ("Other Securities") may comprise no more than 4% of total Moody's Eligible Assets; such Other Securities, if any, together with any Municipal Obligations issued by the same issuer and rated Baa by Moody's or A by S&P, may comprise no more than 6% of total Moody's Eligible Assets; such Other Securities, Baa and A-rated Municipal Obligations, if any, together with any Municipal Obligations issued by the same issuer and rated A by Moody's or AA by S&P, may comprise no more than 10% of total Moody's Eligible Assets; and such Other Securities, Baa, A and AA-rated Municipal Obligations, if any, together with any Municipal Obligations issued by the same issuer and rated Aa by Moody's or AAA by S&P, may comprise no more than 20% of total Moody's Eligible Assets. For purposes of the foregoing sentence, any Municipal Obligation backed by the guaranty, letter of credit or insurance issued by a third party shall be deemed to be issued by such third party if the issuance of such third party credit is the sole determinant of the rating on such Municipal Obligation. Other Securities issued by issuers located within a single state or territory may comprise no more than 12% of total Moody's Eligible Assets; such Other Securities, if any, together with any Municipal Obligations issued by issuers located within a single state or territory and rated Baa by Moody's or A by S&P, may comprise no more than 20% of total Moody's Eligible Assets; such Other Securities, Baa and A-rated Municipal Obligations, if any, together with any Municipal Obligations issued by issuers located within a single state or territory and rated A by Moody's or AA by S&P, may comprise no more than 40% of total Moody's Eligible Assets; and such Other Securities, Baa, A and AA-rated Municipal Obligations, if any, together with any Municipal Obligations issued by issuers located within a single state or territory and rated Aa by Moody's or AAA by S&P, may comprise no more than 60% of total Moody's Eligible Assets. For purposes of this definition, a Municipal Obligation shall be deemed to be rated BBB by S&P if rated BBB or BBB+ by S&P. For purposes of applying the foregoing requirements, a Municipal Obligation shall be deemed to be rated BBB by S&P if rated BBB-, BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated without including cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1 or, if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered to have a long-term rating of A. When the Fund sells a Municipal Obligation and agrees to repurchase such Municipal Obligation at a future date, such Municipal Obligation shall be valued at its Discounted Value for purposes of determining Moody's Eligible Assets, and the amount of the repurchase price of such Municipal Obligation shall be included as a liability for purposes of calculating the MuniPreferred Basic Maintenance Amount. When the Fund purchases a Moody's Eligible Asset and agrees to sell it at a future date, such Eligible Asset shall be valued at the amount of cash to be received by the Fund upon such future date, provided that the
counterparty to the transaction has a long-term debt rating of at least A2 from Moody's and the transaction has a term of no more than 30 days, otherwise such Eligible Asset shall be valued at the Discounted Value of such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's Eligible Asset to the extent it is (i) subject to any material lien, mortgage, pledge, security interest or security agreement of any kind (collectively, "Liens"), except for (a) Liens which are being contested in good faith by appropriate proceedings and which Moody's has indicated to the Fund will not affect the status of such asset as a Moody's Eligible Asset, (b) Liens for taxes that are not then due and payable or that can be paid thereafter without penalty, (c) Liens to secure payment for services rendered or cash advanced to the Fund by Nuveen Advisory Corp., Chase Manhattan Bank or the Auction Agent and (d) Liens by virtue of any repurchase agreement; or (ii) deposited irrevocably for the payment of any liabilities for purposes of determining the MuniPreferred Basic Maintenance Amount.
d. "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a given Valuation Date and ending 56 days thereafter.
e. "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i) in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more, a multiplicative factor equal to 275%, except as otherwise provided in the last sentence of this definition; (ii) in the case of any Special Rate Period of more than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to 203%; (iii) in the case of any Special Rate Period of more than 35 but fewer than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the case of any Special Rate Period of more than 42 but fewer than 50 Rate Period Days, a multiplicative factor equal to 226%; and (v) in the case of any Special Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative factor equal to 235%. If, as a result of the enactment of changes to the Code, the greater of the maximum marginal Federal individual income tax rate applicable to ordinary income and the maximum marginal Federal corporate income tax rate applicable to ordinary income will increase, such increase being rounded up to the next five percentage points (the "Federal Tax Rate Increase"), until the effective date of such increase, the Moody's Volatility Factor in the case of any Rate Period described in (i) above in this definition instead shall be determined by reference to the following table:
FEDERAL TAX
RATE INCREASE VOLATILITY FACTOR
------------- -----------------
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
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f. "MUNIPREFERRED BASIC MAINTENANCE AMOUNT" as of any Valuation Date, shall mean the dollar amount equal to the sum of (i)(A) the product of the number of shares of MuniPreferred outstanding on such date multiplied by $25,000 (plus the product of the
number of shares of any other series of Preferred Shares outstanding on such date multiplied by the liquidation preference of such shares), plus any redemption premium applicable to shares of MuniPreferred (or other Preferred Shares) then subject to redemption; (B) the aggregate amount of dividends that will have accumulated at the respective Applicable Rates (whether or not earned or declared) to (but not including) the first respective Dividend Payment Dates for shares of MuniPreferred outstanding that follow such Valuation Date (plus the aggregate amount of dividends, whether or not earned or declared, that will have accumulated in respect of other outstanding Preferred Shares to, but not including, the first respective dividend payment dates for such other shares that follow such Valuation Date); (C) the aggregate amount of dividends that would accumulate on shares of each series of MuniPreferred outstanding from such first respective Dividend Payment Date therefor through the 56th day after such Valuation Date, at the Maximum Rate (calculated as if such Valuation Date were the Auction Date for the Rate Period commencing on such Dividend Payment Date) for a Minimum Rate Period of shares of such series to commence on such Dividend Payment Date, assuming, solely for purposes of the foregoing, that if on such Valuation Date the Fund shall have delivered a Notice of Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of Part I of the Statement with respect to shares of such series, such Maximum Rate shall be the higher of (a) the Maximum Rate for the Special Rate Period of shares of such series to commence on such Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period of shares of such series to commence on such Dividend Payment Date, multiplied by the Volatility Factor applicable to a Minimum Rate Period, or, in the event the Fund shall have delivered a Notice of Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of Part I of the Statement with respect to shares of such series designating a Special Rate Period consisting of 56 Rate Period Days or more, the Volatility Factor applicable to a Special Rate Period of that length (plus the aggregate amount of dividends that would accumulate at the maximum dividend rate or rates on any other Preferred Shares outstanding from such respective dividend payment dates through the 56th day after such Valuation Date, as established by or pursuant to the respective statements establishing and fixing the rights and preferences of such other Preferred Shares) (except that (1) if such Valuation Date occurs at a time when a Failure to Deposit (or, in the case of Preferred Shares other than MuniPreferred, a failure similar to a Failure to Deposit) has occurred that has not been cured, the dividend for purposes of calculation would accumulate at the current dividend rate then applicable to the shares in respect of which such failure has occurred and (2) for those days during the period described in this subparagraph (C) in respect of which the Applicable Rate in effect immediately prior to such Dividend Payment Date will remain in effect (or, in the case of Preferred Shares other than MuniPreferred, in respect of which the dividend rate or rates in effect immediately prior to such respective dividend payment dates will remain in effect), the dividend for purposes of calculation would accumulate at such Applicable Rate (or other rate or rates, as the case may be) in respect of those days); (D) the amount of anticipated expenses of the Fund for the 90 days subsequent to such Valuation Date; (E) the amount of the Fund's Maximum Potential Gross-up Payment Liability in respect of shares of MuniPreferred (and similar amounts payable in respect of other Preferred Shares pursuant to provisions similar to those contained in Section 3 of Part I of the Statement) as of such Valuation Date; and (F) any current liabilities as of such Valuation Date to the extent not reflected in any of (i)(A) through (i)(E) (including, without limitation, any payables for Municipal Obligations purchased as of such Valuation Date and any liabilities incurred for the purpose of clearing securities transactions) less (ii) the value (i.e., for purposes of current Moody's guidelines, the face value of cash, short-term Municipal
Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities that are direct obligations of the U.S. Government, provided in each case that such securities mature on or prior to the date upon which any of (i)(A) though (i)(F) became payable, otherwise the Moody's Discounted Value) of any of the Fund's assets irrevocably deposited by the Fund for the payment of any of (i)(A) through (i)(F).
g. "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to the failure by the Fund to satisfy the MuniPreferred Basic Maintenance Amount (as required by paragraph (a) of Section 7 of Part I of the Statement) as of a given Valuation Date, shall mean the seventh Business Day following such Valuation Date.
h. "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report signed by the President, Treasurer or any Senior Vice President or Vice President of the Fund which sets forth, as of the related Valuation Date, the assets of the Fund, the Market Value and the Discounted Value thereof (seriatim and in aggregate), and the MuniPreferred Basic Maintenance Amount.
2. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS.
a. For so long as any MuniPreferred are rated by Moody's, the Fund 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 MuniPreferred by Moody's, except that the Fund may purchase or sell exchange-traded futures contracts based on the Municipal Index or Treasury Bonds and purchase, write or sell exchange-traded put options on such futures contracts and purchase, write or sell exchange-traded call options on such futures contracts (collectively, "Moody's Hedging Transactions"), subject to the following limitations:
(i) the Fund will not engage in any Moody's Hedging Transaction based on the Municipal Index (other than Closing Transactions), which would cause the Fund at the time of such transaction to own or have sold (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 50% of the Market Value of all Municipal Bonds constituting Moody's Eligible Assets owned by the Fund (other than Moody's Eligible Assets already subject to a Moody's Hedging Transaction);
(ii) the Fund will not engage in any Moody's Hedging Transaction based on Treasury Bonds (other than Closing Transactions) which would cause the Fund at the time of such transaction to own or have sold (A) outstanding futures contracts based on Treasury Bonds having an aggregate Market Value exceeding 20% of the aggregate Market Value of Moody's Eligible Assets owned by the Fund and rated Aa by Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P) or (B) outstanding futures contracts based on Treasury Bonds having an aggregate Market
Value exceeding 40% of the aggregate Market Value of all Municipal Bonds constituting Moody's Eligible Assets owned by the Fund (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 Fund shall be deemed to own the number of futures contracts that underlie any outstanding options written by the Fund);
(iii) the Fund will engage in Closing Transactions to close out any outstanding futures contract based on the Municipal Index if the amount of open interest in the Municipal Index as reported by The Wall Street Journal is less than 5,000;
(iv) the Fund will engage in a Closing Transaction to close out any outstanding futures contract by no later than the fifth Business Day of the month in which such contract expires and will engage in a Closing Transaction to close out any outstanding option on a futures contract by no later than the first Business Day of the month in which such option expires;
(v) the Fund 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;
(vi) the Fund 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
(vii) the Fund will not enter into an option or futures transaction unless, after giving effect thereto, the Fund would continue to have Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the MuniPreferred Basic Maintenance Amount.
For purposes of determining whether the Fund has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
MuniPreferred Basic Maintenance Amount, the Discounted Value of Moody's Eligible
Assets which the Fund is obligated to deliver or receive pursuant to an
outstanding futures contract or option shall be as follows: (i) assets subject
to call options written by the Fund 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 Fund; (ii) assets
subject to call options written by the Fund not meeting the requirements of
clause (i) of this sentence shall have no value; (iii) assets subject to put
options written by the Fund shall be valued at the lesser of (A) the exercise
price and (B) the Discounted Value of 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 Fund
is the seller the contract may be valued at the settlement price and where the
Fund is the buyer the contract may be valued at the Discounted Value of the
subject securities; and (v) where delivery may be made
to the Fund with any security of a class of securities, the Fund shall assume that it will take delivery of the security with the lowest Discounted Value.
For purposes of determining whether the Fund has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
MuniPreferred Basic Maintenance Amount, the following amounts shall be
subtracted from the aggregate Discounted Value of the Moody's Eligible Assets
held by the Fund: (i) 10% of the exercise price of a written call option; (ii)
the exercise price of any written put option; (iii) where the Fund is the seller
under a futures contract, 10% of the settlement price of the futures contract;
(iv) where the Fund is the purchaser under a futures contract, the settlement
price of assets purchased under such futures contract; (v) the settlement price
of the underlying futures contract if the Fund writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Fund writes call options on a futures contract and does not own the
underlying contract.
b. For so long as any MuniPreferred are rated by Moody's, the Fund will not enter into any contract to purchase securities for a fixed price at a future date beyond customary settlement time (other than such contracts that constitute Moody's Hedging Transactions that are permitted under Section 13 of the Statement), except that the Fund may enter into such contracts to purchase newly-issued securities on the date such securities are issued ("Forward Commitments"), subject to the following limitation:
(i) the Fund will maintain in a segregated account with its custodian cash, cash equivalents or short-term, fixed-income securities rated P-1, MTG-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 Fund's obligations under any Forward Commitments to which it is from time to time a party or long-term fixed income securities with a Discounted Value that equals or exceeds the amount of the Fund's obligations under any Forward Commitment to which it is from time to time a party; and
(ii) the Fund will not enter into a Forward Commitment unless, after giving effect thereto, the Fund would continue to have Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the MuniPreferred Maintenance Amount.
For purposes of determining whether the Fund has Moody's Eligible Assets with an aggregate Discounted Value that equals or exceeds the MuniPreferred Basic Maintenance Amount, the Discounted Value of all Forward Commitments to which the Fund is a party and of all securities deliverable to the Fund pursuant to such Forward Commitments shall be zero.
EXHIBIT d.
CERTIFICATE NUMBER OF
NUMBER SHARES
Nuveen Municipal High Income Opportunity Fund Organized Under the Laws of the Commonwealth of Massachusetts MuniPreferred Shares Series __ $.01 Par Value Per Share $25,000 Liquidation Preference Per Share
Cusip No. [ ]
This Certifies that _________________________________________________ is the owner of _(____)_ fully paid and non-assessable shares of beneficial interest of MuniPreferred Shares, Series ______, $.01 par value per share, $25,000 liquidation preference per share, of Nuveen Municipal High Income Opportunity Fund (the "Fund") transferable only on the books of the Fund by the holder thereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications, limitations, restrictions and special or relative rights of the shares of beneficial interest of each class authorized to be issued, will be furnished by the Fund to any shareholders upon request and without charge. The Fund is organized as a Massachusetts business trust.
This Certificate is executed on behalf of the Fund by the officers as officers and not individually and the obligations hereof are not binding upon any of the trustees, officers, or shareholders individually but are binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, the Fund has caused this Certificate to be signed by its duly authorized officers this _____ day of _________ A.D. 20___.
DEUTSCHE BANK TRUST COMPANY AMERICAS
As Transfer Agent and Registrar Nuveen Municipal High Income
Opportunity Fund
By: __________________________ By:
Authorized Signature Vice President
Attest:
Assistant Secretary
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FOR VALUE RECEIVED, _____ hereby sell, assign and transfer unto _______________ _____________ Shares of beneficial interest represented by the within Certificate, and do hereby irrevocably constitute and appoint ____________ Attorney to transfer the said Shares on the books of the within named Fund with full power of substitution in the premises. Dated _____________, ______
Shares of Municipal Auction Rate Cumulative Preferred Shares evidenced by this Certificate may be sold, transferred, or otherwise disposed of only pursuant to the provisions of the Fund's Statement Establishing and Fixing the Rights and Preferences of such Shares, copies of which will be furnished by the Fund to any shareholders upon request and without charge.
The Fund will furnish to any shareholder, upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series of the Fund authorized to be issued, so far as they have been determined, and the authority of the Board of Trustees to determine the relative rights and preferences of subsequent classes or series. Any such request should be addressed to the Secretary of the Fund.
EXHIBIT h.1
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
NUVEEN MUNICIPAL HIGH INCOME OPPORTUNITY FUND
MUNIPREFERRED SHARES
3,000 Shares, Series M
1,600 Shares, Series T
1,600 Shares, Series W
Liquidation Preference $25,000 Per Share
UNDERWRITING AGREEMENT
New York, New York
January [__], 2004
Citigroup Global Markets Inc.
Nuveen Investments, LLC
A.G. Edwards & Sons, Inc.
Wachovia Securities
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Nuveen Municipal High Income Opportunity Fund, a Massachusetts business trust (the "Fund") proposes to sell to you (the "Underwriters"), upon the terms and conditions set forth herein, 3,000 MuniPreferred Shares, Series M (the "Series M Shares"), 1,600 MuniPreferred Shares, Series T (the "Series T Shares"), and 1,600 MuniPreferred Shares, Series W (the "Series W Shares"), each with a par value of $0.01 per share and a liquidation preference of $25,000 per share (collectively, the "Securities"). The securities will be authorized by the Fund's Declaration of Trust and the Statement Establishing and Fixing the Rights and Preferences of MuniPreferred Shares (the "Statement"), and subject to the terms and conditions of the Statement in the form thereof filed as an exhibit to the registration statement referred to in Section 1(a) of this Underwriting Agreement (the "Agreement"). Nuveen Advisory Corp., a Delaware corporation (the "Adviser"), is the Fund's investment adviser.
The Fund and the Adviser wish to confirm as follows their agreements with the Underwriters in connection with the several purchases of the Securities by the Underwriters.
The Fund has entered into an Investment Management Agreement with the Adviser dated as of November 3, 2003, a Custodian Agreement with State Street Bank and Trust Company dated as of August 19, 2002, effective as of September 25, 2003, and a Shareholder Transfer Agency and Service Agreement with State Street Bank and Trust Company dated as of October 7, 2002, effective as of September 25, 2003, and will enter into an Auction Agency Request and Acceptance letter with Deutsche Bank Trust Company to be dated the Closing Date, incorporating the Nuveen Auction Agency Agreement Basic Term For Acting as Auction Agent dated November 1, 1993, and such agreements are herein referred to as the "Management Agreement," the "Custodian Agreement," the "Transfer Agency Agreement" and the "Auction Agency Agreement," respectively and are hereinafter collectively referred to as the "Fund Agreements".
1. Representations and Warranties of the Fund and the Adviser. The Fund and the Adviser, jointly and severally, represent and warrant to, and agree with, each Underwriter as set forth below in this Section 1.
(a) The Fund has prepared and filed with the Commission a registration statement (file numbers 333-111630 and 811-21449) on Form N-2, including a related preliminary prospectus (including the statement of additional information incorporated by reference therein), for registration under the Act and the 1940 Act of the offering and sale of the Securities. The Fund may have filed one or more amendments thereto, including a related preliminary prospectus (including the statement of additional information incorporated by reference therein), each of which has previously been furnished to you. The Fund will next file with the Commission one of the following: either (1) prior to the Effective Date of such registration statement, a further amendment to such registration statement (including the form of final prospectus (including the statement of additional information incorporated by reference therein)) or (2) after the Effective Date of such registration statement, a final prospectus (including the statement of additional information incorporated by reference therein) in accordance with Rules 430A and 497. In the case of clause (2), the Fund has included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information) required by the Act and the 1940 Act and the Rules and Regulations to be included in such registration statement and the Prospectus. As filed, such amendment and form of final prospectus (including the statement of additional information incorporated by reference therein) (in the case of clause (1) above), or such final prospectus (including the statement of additional information incorporated by reference therein) (in the case of clause (2) above), shall contain all Rule 430A Information, together with all other such required information, and, except to the extent the Underwriters shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Fund has advised you, prior to the Execution Time, will be included or made therein.
(b) Each Preliminary Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, complied when so filed in all material respects with the provisions of the Act, the 1940 Act and the Rules and Regulations.
(c) The Registration Statement, in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective and the Prospectus and any amendment or supplement thereto when filed with the Commission under Rule 497 of the Act Rules and Regulations and the 1940 Act Notification when originally filed with the Commission and any amendment or supplement thereto when filed with the Commission complied or will comply in all material respects with the provisions of the Act, the 1940 Act and the Rules and Regulations and did not or will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of a the Prospectus, in the light of the circumstances under which they were made) not misleading; except that this representation and warranty does not apply to statements in or omissions from the Registration Statement or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Fund in writing by or on behalf of any Underwriter through you expressly for use therein.
(d) All the outstanding common shares of beneficial interests, par value $0.01 per share, of the Fund (the "Common Shares") have been duly authorized and validly issued, are fully paid and nonassessable, except that, as set forth in the Registration Statement, shareholders of a Massachusetts business trust may under certain circumstances be held personally liable for its obligations, and are free of any preemptive or similar rights that entitle or will entitle any person to acquire any securities upon issuance thereof by the Fund, except as stated above; the Securities have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable, except that, as set forth in the Registration Statement, shareholders of a Massachusetts business trust may under certain circumstances be held personally liable for its obligations, and are free of any preemptive or similar rights that entitle or will entitle any person to acquire any securities upon issuance thereof by the Fund, except as stated above, and the shares of beneficial interest of the Fund, including the Securities and the Common Shares, conforms to the description thereof in the Registration Statement and the Prospectus (and any amendment or supplement to either of them).
(e) The Fund has been duly formed and is validly existing in good standing as a business trust under the laws of The Commonwealth of Massachusetts, with full power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) and is duly registered and qualified to conduct business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or to qualify does not have a material, adverse effect on the condition
(financial or other), business, properties, net assets or results of operations of the Fund. The Fund has no subsidiaries.
(f) There are no legal or governmental proceedings pending or, to the knowledge of the Fund, threatened, against the Fund or to which the Fund or any of its properties is subject, whether or not arising from transactions in the ordinary course of business, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) but are not described as required by the Act, the 1940 Act or the Rules and Regulations.
(g) There are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the Act, the 1940 Act or the Rules and Regulations.
(h) The Fund is not in violation of the Statement, its Declaration of Trust or By-Laws or in material violation of any material law, ordinance, administrative or governmental rule or regulation applicable to the Fund, including, without limitation, the applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, or of any material decree of the Commission, the National Association of Securities Dealers (the "NASD"), any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official having jurisdiction over the Fund or in breach or default in any material respect in the performance of any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or in any agreement, indenture, lease or other instrument to which the Fund is a party or by which it or any of its properties may be bound.
(i) Neither the issuance and sale of the Securities, the execution, delivery or performance of this Agreement nor any of the Fund Agreements by the Fund, nor the consummation by the Fund of the transactions contemplated hereby or thereby (i) requires any consent, approval, authorization or other order of or registration or filing which has not yet been obtained or made with the Commission, the NASD, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official (except compliance with the securities or Blue Sky laws of various jurisdictions which have been or will be effected in accordance with this Agreement and except for filing the Statement with the Secretary of State of the Commonwealth of Massachusetts or conflicts or will conflict with or constitutes or will constitute a breach of the Declaration of Trust or By-Laws of the Fund or (ii) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any material agreement, indenture, lease or other instrument to which the Fund is a party or by which it or any of its properties may be bound or materially violates or will materially violate any material statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Fund or any of its properties or will result in the creation or imposition of any material lien, charge or encumbrance upon any property
or assets of the Fund pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of the property or assets of the Fund is subject.
(j) Since the date as of which information is given in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), except as otherwise stated therein, (i) there has been no material, adverse change in the condition (financial or other), business, properties, net assets or results of operations of the Fund or business prospects (other than as a result of a change in the financial markets generally) of the Fund, whether or not arising in the ordinary course of business, and (ii) there have been no transactions entered into by the Fund which are material to the Fund other than those in the ordinary course of its business as described in the Prospectus (and any amendment or supplement thereto).
(k) The accountants, Ernst & Young LLP, who have audited or shall audit at or prior to the Closing Date the Statement of Assets and Liabilities and the related Statement of Operations included or incorporated by reference in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), are an independent public accounting firm as required by the Act, the 1940 Act and the Rules and Regulations.
(l) The financial statements, together with related schedules and notes, included or incorporated by reference in the Registration Statement and the Prospectus (or any amendment or supplement to either of them) present fairly the financial position of the Fund on the basis stated or incorporated by reference in the Registration Statement and the Prospectus at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data included in the Registration Statement or the Prospectus (or any amendment or supplement thereto) are accurately derived from such financial statements and the books and records of the Fund.
(m) The Fund, subject to the Registration Statement having been declared effective and, except for the filing of the Prospectus or a certification under Rule 497 under the Act Rules and Regulations, has taken all required action under the Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Securities as contemplated by this Agreement.
(n) The execution and delivery of, and the performance by the Fund of its obligations under, this Agreement and the Fund Agreements have been duly and validly authorized by the Fund and this Agreement and the Fund Agreements have been duly executed and delivered by the Fund, and the Fund Agreements constitute the valid and legally binding agreements of the Fund, enforceable against the Fund in accordance with their terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Fund's obligations hereunder and thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles.
(o) Except as disclosed in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), the Fund has not incurred any liability or obligation, direct or contingent, that is material to the Fund and there has not been any change in the shares of beneficial interest or material increase in the short-term debt or long-term debt of the Fund.
(p) The Fund has not distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Securities, will not distribute to the public in either printed or electronic form any offering material in connection with the offering and sale of the Securities other than the Registration Statement, the Preliminary Prospectuses included in Pre-Effective Amendment No. 1 to the Registration Statement and the Prospectus.
(q) The Fund has such licenses, permits, and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its property and to conduct its business in the manner described in the Prospectus (and any amendment or supplement thereto); the Fund has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows or, after notice or lapse of time, would allow, revocation or termination thereof or results in any other material impairment of the rights of the Fund under any such permit, subject in each case to such qualification as may be set forth in the Prospectus (and any amendment or supplement thereto); and, except as described in the Prospectus (and any amendment or supplement thereto), none of such permits contains any restriction that is materially burdensome to the Fund.
(r) The Fund maintains and will maintain a system of internal
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general
or specific authorization and with the investment policies and
restrictions of the Fund and the applicable requirements of the 1940
Act, the 1940 Act Rules and Regulations and the Internal Revenue Code
of 1986, as amended (the "Code"); (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles, to calculate net asset
value, to maintain accountability for assets and to maintain material
compliance with the books and records requirements under the 1940 Act
and the 1940 Act Rules and Regulations; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded account for assets is compared
with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(s) The conduct by the Fund of its business (as described in the Prospectus) does not require it to be the owner, possessor or licensee of any patents, patent licenses, trademarks, service marks or trade names which it does not own, possess or license.
(t) Except as stated in this Agreement and in the Prospectus (and any amendment or supplement thereto), the Fund has not taken and will not take, directly or indirectly, any action designed to or which should reasonably be expected to cause or result in or which will constitute stabilization or manipulation of the price of the Common Shares or the Securities in violation of federal securities laws and the Fund is not aware of any such action taken or to be taken by any affiliates of the Fund.
(u) The Fund is duly registered under the 1940 Act as a
closed-end, diversified management investment company and the 1940 Act
Notification has been duly filed with the Commission and, at the time
of filing thereof and at the time of filing any amendment or supplement
thereto, conformed in all material respects with all applicable
provisions of the 1940 Act and the 1940 Act Rules and Regulations. The
Fund has not received any notice from the Commission pursuant to
Section 8(e) of the 1940 Act with respect to the 1940 Act Notification
or the Registration Statement (or any amendment or supplement to either
of them).
(v) The Fund has filed in a timely manner each document or report required to be filed by it pursuant to the 1940 Act, the 1940 Act Rules and Regulations, the Exchange Act and the rules and regulations of the Commission promulgated thereunder; each such document or report at the time it was filed conformed to the requirements of the 1940 Act, the 1940 Act Rules and Regulations and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as the case may be, and none of such documents or reports contained an untrue statement of any material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made not misleading.
(w) All advertising, sales literature or other promotional material (including "prospectus wrappers" and "broker kits"), whether in printed or electronic form, authorized in writing by or prepared by the Fund or the Adviser for use in connection with the offering and sale of the Securities (collectively, "sales material") complied and comply in all material respects with the applicable requirements of the Act, the Act Rules and Regulations and the rules and interpretations of the NASD and if required to be filed with the NASD under the NASD's conduct rules were so filed. No sales material contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(x) This Agreement and each of the Fund Agreements complies in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules and regulations adopted by the Commission under the Advisers Act (the "Advisers Act Rules and Regulations").
(y) No holder of any security of the Fund has any right to require registration of the Securities or any other security of the Fund because of the filing of the registration statement or consummation of the transactions contemplated by this Agreement.
(z) The Fund has filed all tax returns required to be filed and the Fund is not in material default in the payment of any taxes which were shown as payable on said returns or any assessments with respect thereto.
(aa) The Fund intends to direct the investment of the proceeds of the offering of the Securities in such a manner as to comply with the requirements of Subchapter M of the Code.
(bb) The Fund's directors and officers errors and omissions insurance policy and its fidelity bond required by Rule 17g-1 of the 1940 Act Rules and Regulations are in full force and effect; the Fund is in compliance with the terms of such policy and fidelity bond in all material respects; and there are no claims by the Fund under any such policy or fidelity bond as to which any insurance company is denying liability or defending under a reservation of rights clause; the Fund has not been refused any insurance coverage sought or applied for; and the Fund has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(cc) Except as disclosed in the Prospectus, no trustee of the Fund is an "interested person" (as defined in the 1940 Act) of the Fund or an "affiliated person" (as defined in the 1940 Act) of any Underwriter listed in Schedule I hereto.
(dd) The form of certificate for each of the Series M, the Series T Shares and the Series W Shares is in due and proper form and complies with the requirements of all applicable laws.
(ee) The Common Shares are duly listed on the American Stock Exchange (the "AMEX").
2. Representations, Warranties and Agreements of the Adviser. The Adviser represents and warrants to each Underwriter as follows:
(a) The Adviser is a corporation, limited liability company or limited liability partnership duly organized and validly existing in good standing under the laws of its jurisdiction of incorporation or formation, with full corporate, company or partnership power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) and is duly registered and qualified to conduct business and is in good standing in each jurisdiction or place where the nature of its properties or conduct of its business requires such registration or qualification, except where the failure so to register or to qualify would not have a material, adverse effect on the condition (financial or other), business, properties, net assets or results of operations of the Adviser.
(b) The Adviser is duly registered with the Commission as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules and Regulations from acting under the Fund Agreements to which it is a party for the Fund as contemplated by the Registration Statement and the Prospectus (or any amendment or supplement thereto).
(c) The Adviser has full power and authority to enter into this Agreement, the Fund Agreements to which it is a party the execution and delivery of, and the performance by the Adviser of its obligations under this Agreement, the Fund Agreements to which it is a party have been duly and validly authorized by the Adviser; and this Agreement and the Fund Agreements to which it is a party have been duly executed and delivered by the Adviser and constitute the valid and legally binding agreements of such Adviser, enforceable against the Adviser in accordance with their terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Adviser's obligations hereunder and thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles.
(d) The Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Registration Statement and the Prospectus (or any amendment or supplement thereto) and under this Agreement and the Fund Agreements to which it is a party.
(e) The Adviser is not in violation of its certificate or articles of incorporation, by-laws, certificate of formation, limited liability company agreement, limited liability partnership agreement or other organizational documents, as the case may be, or in violation of the applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith to which it is subject in default under any material agreement, indenture or instrument or in breach or violation of any judgment, decree, order, rule or regulation of any court or governmental or self-regulatory agency or body except where such violation or breach would not have a material, adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser or on the ability of the Adviser to perform its obligations under this Agreement the Fund Agreements to which it is a party.
(f) The description of the Adviser and its business, and the statements attributable to the Adviser, in the Registration Statement and the Prospectus (and any amendment or supplement thereto), in each case insofar as such information is set forth in the Registration Statement or the Prospectus) complied and comply in all material respects with the provisions of the Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading.
(g) There are no legal or governmental proceedings pending or, to the knowledge of the Adviser, threatened against the Adviser or to which any of its properties is subject, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) but are not described as required or that reasonably should be expected to result in any material, adverse change in the condition (financial or other), business, properties, net assets or results of operations of the Adviser or that reasonably should have a material, adverse effect on the ability of the Adviser to fulfill its obligations hereunder or under the Fund Agreements to which it is a party.
(h) Since the date as of which information is given in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), except as otherwise stated therein, (i) there has been no material, adverse change in the condition (financial or other), business, properties, net assets or results of operations or business prospects of the Adviser, whether or not arising from the ordinary course of business and (ii) there have been no transactions entered into by the Adviser which are material to the Adviser other than those in the ordinary course of its business as described in the Prospectus.
(i) The Adviser has such licenses, permits and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its property and to conduct its business in the manner described in the Prospectus; the Adviser has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the Adviser under any such permit.
(j) This Agreement, the Fund Agreements to which such Adviser is a party comply in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(k) Neither the execution, delivery or performance of this Agreement or the Fund Agreements by the Adviser which is a party thereto, nor the consummation by such Adviser of the transactions contemplated hereby or thereby (A) requires any consent, approval, authorization or other order of or registration or filing with the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official (except such as may have been obtained or made prior to the date hereof) or conflicts or will conflict with or constitutes or will constitute a breach of or a default under, the certificate or articles of incorporation, by-laws, certificate of formation, limited liability company agreement, limited liability partnership agreement or other organizational documents of the Adviser or (B) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any material agreement, indenture, lease or other instrument to which the Adviser is a party or by which it or any of its properties may be bound or materially violates or will materially violate any material statute, law, regulation or filing or judgment, injunction, order or
decree applicable to the Adviser or any of its properties or will result in the creation or imposition of any material lien, charge or encumbrance upon any property or assets of the Adviser pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of the property or assets of the Adviser is subject.
(l) Except as stated in this Agreement and in the Prospectus (and in any amendment or supplement thereto), the Adviser has not taken and nor will it take, directly or indirectly, any action designed to or which should reasonably be expected to cause or result in or which will constitute, stabilization or manipulation of the price of the Common Shares or the Securities in violation of federal securities laws and the Adviser is not aware of any such action taken or to be taken by any affiliates of the Adviser.
(m) In the event that the Fund or the Adviser makes available any promotional materials intended for use only by qualified broker-dealers and registered representatives thereof by means of an Internet web site or similar electronic means, in each case under its control or at its direction, the Adviser will install and maintain pre-qualification and password-protection or similar procedures which are reasonably designed to effectively prohibit access to such promotional materials by persons other than qualified broker-dealers and registered representatives thereof.
The Adviser, agrees with the several Underwriters as follows:
(a) Except as provided in this Agreement or pursuant to any dividend reinvestment plan of the Fund in effect on the date hereof, the Adviser will not sell, contract to sell or otherwise dispose of, any senior securities (as defined in the 1940 Act) of the Fund or any securities convertible into or exercisable or exchangeable for senior securities of the Fund or grant any option or warrants to purchase senior securities of the Fund, for a period of 180 days after the date of the Prospectus, without the prior written consent of Citigroup Global Markets Inc.
(b) Except as stated in this Agreement and in the Prospectus, the Adviser has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of Common Shares or the Securities.
3. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Fund agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Fund, at a purchase price of $25,000 per share, the amount of Series M Shares, Series T Shares and Series W Shares set forth opposite such Underwriter's name in Schedule I hereto (or such number of Securities increased as set forth in Section 10 hereof).
4. Delivery and Payment. (a) Delivery of and payment for the Securities shall be made at the office of Citigroup Global Markets Inc., 388 Greenwich Street, New York, New York 10013 or through the facilities of the Depository Trust Company or another mutually agreeable facility, at 9:00 A.M., New York City time, on January 23, 2004 (the "Closing
Date"). The place of closing for the Securities and the Closing Date may be varied by agreement between you and the Fund.
(b) Certificates for the Securities shall be registered in such names and in such denominations as you shall request prior to 1:00 P.M., New York City time, on the second business day preceding the Closing Date. Such certificates will be made available to you in New York City for inspection and packaging not later than 9:00 A.M., New York City time, on the business day next preceding the Closing Date. The Securities to be purchased hereunder shall be delivered to you on the Closing Date through the facilities of the Depository Trust Company or another mutually agreeable facility, against payment of the purchase price therefor in immediately available funds to the order of the Fund.
5. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Securities for sale to the public upon the terms set forth in the Prospectus.
6. Agreements of the Fund and the Adviser. The Fund and the Adviser, jointly and severally, agree with the several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective under the Act before the
offering of the Securities may commence, the Fund will use its
reasonable best efforts to cause the Registration Statement or such
post-effective amendment to become effective under the Act as soon as
possible. If the Registration Statement has become effective and the
Prospectus contained therein omits certain information at the time of
effectiveness pursuant to Rule 430A of the Act Rules and Regulations,
the Fund will file a Prospectus including such information pursuant to
Rule 497(h) of the Act Rules and Regulations, as promptly as
practicable, but no later than the second business day following the
earlier of the date of the determination of the offering price of the
Securities or the date the Prospectus is first used after the effective
date of the Registration Statement. If the Registration Statement has
become effective and the Prospectus contained therein does not so omit
such information, the Fund will file a Prospectus pursuant to Rule 497
(c) or (j) of the Act Rules and Regulations as promptly as practicable,
but no later than the fifth business day following the date of the
later of the effective date of the Registration Statement or the
commencement of the public offering of the Securities after the
effective date of the Registration Statement. The Fund will advise you
promptly and, if requested by you, will confirm such advice in writing
(i) when the Registration Statement or such post-effective amendment
has become effective or (ii) when the Prospectus has been timely filed
pursuant to Rule 497(c) or Rule 497(h) of the Act Rules and Regulations
or the certification permitted pursuant to Rule 497(j) of the Act Rules
and Regulations has been timely filed, whichever is applicable.
(b) The Fund will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request made by the Commission for amendment of or a supplement to the Registration Statement, any Preliminary Prospectus or the Prospectus (or any amendment or supplement to any of the foregoing) or for additional information, (ii) of the issuance by the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental,
regulatory, self-regulatory or administrative agency or any official of
any order suspending the effectiveness of the Registration Statement,
prohibiting or suspending the use of the Prospectus, any Preliminary
Prospectus or any sales material (as defined above), of any notice
pursuant to Section 8(e) of the 1940 Act, of the suspension of
qualification of the Securities for offering or sale in any
jurisdiction, or the initiation or contemplated initiation of any
proceeding for any such purposes, (iii) of receipt by the Fund, the
Adviser, any affiliate of the Fund or the Adviser or any representative
or attorney of the Fund or the Adviser of any other material
communication from the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court
or any other governmental, regulatory, self-regulatory or
administrative agency or any official relating to the Fund (if such
communication relating to the Fund is received by such person within
three years after the date of this Agreement), the Registration
Statement, the 1940 Act Notification, the Prospectus, any Preliminary
Prospectus, any sales material (as defined above) (or any amendment or
supplement to any of the foregoing), this Agreement or any of the Fund
Agreements and (iv) within the period of time referred to in paragraph
(f) below, of any material, adverse change in the condition (financial
or other), business, prospects, properties, net assets or results of
operations of the Fund or the Adviser or of the happening of any event
which makes any statement of a material fact made in the Registration
Statement, the Prospectus, any Preliminary Prospectus or any sales
material (as defined above) (or any amendment or supplement to any of
the foregoing) untrue or which requires the making of any additions to
or changes in the Registration Statement, the Prospectus, any
Preliminary Prospectus or any sales materials (as defined above) (or
any amendment or supplement to any of the foregoing) in order to state
a material fact required by the Act, the 1940 Act or the Rules and
Regulations to be stated therein or necessary in order to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading or of the
necessity to amend or supplement the Registration Statement, the
Prospectus, any Preliminary Prospectus or any sales material (as
defined above) (or any amendment or supplement to any of the foregoing)
to comply with the Act, the 1940 Act, the Rules and Regulations or any
other law or order of any court or regulatory body. If at any time the
Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court or any other
governmental, regulatory, self-regulatory or administrative agency or
any official shall issue any order suspending the effectiveness of the
Registration Statement, prohibiting or suspending the use of the
Prospectus, any Preliminary Prospectus or any sales material (as
defined above) (or any amendment or supplement to any of the foregoing)
or suspending the qualification of the Securities for offering or sale
in any jurisdiction, the Fund will use its reasonable best efforts to
obtain the withdrawal of such order at the earliest possible time.
(c) The Fund will furnish to you, without charge, three signed copies of the Registration Statement and the 1940 Act Notification as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits thereto and will also furnish to you, without charge, such number of conformed copies of the registration statement as originally filed and of each amendment thereto with or without exhibits, as you may reasonably request.
(d) The Fund will not (i) file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus, any Preliminary Prospectus or any sales material (as defined above) (or any amendment or supplement to any of the foregoing) of which you shall not previously have been advised or to which you shall reasonably object within a reasonable time after being so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a Prospectus is required to be delivered in connection with sales by any Underwriter or dealer, file any information, documents or reports pursuant to the Exchange Act, without delivering a copy of such information, documents or reports to you prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the Fund has delivered to you, without charge, in such quantities as you have reasonably requested, copies of each form of any Preliminary Prospectus. The Fund consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Preliminary Prospectus so furnished by the Fund.
(f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time, for such period as in the opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales of Securities by any Underwriter or dealer, the Fund will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may reasonably request. The Fund consents to the use of the Prospectus (and of any amendments or supplements thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the several Underwriters and by all dealers to whom Securities may be sold, both in connection with the offering or sale of the Securities and for such period of time thereafter as the Prospectus is required by law to be delivered in connection with sales of Securities by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Fund or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading or if it is necessary to supplement or amend the Prospectus to comply with the Act, the 1940 Act, the Rules and Regulations or any other federal law, rule or regulation or any securities or Blue Sky laws, rules or regulations, the Fund will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate amendment or supplement thereto and will expeditiously furnish to the Underwriters and dealers, without charge, such number of copies thereof as they shall reasonably request. In the event that the Prospectus is to be amended or supplemented, the Fund, if requested by you and to the extent consistent with applicable law, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement.
(g) The Fund will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Securities for offering and sale
by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided that in no event shall the Fund be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject.
(h) The Fund will make generally available to its security holders an earnings statement, which need not be audited, covering a twelve-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which earnings statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158 of the Act Rules and Regulations.
(i) The Fund will comply with the undertaking set forth in paragraph 6 of Item 33 of Part C of the Registration Statement.
(j) During the period of five years hereafter, the Fund will furnish to you (i) as soon as available, a copy of each report of the Fund mailed to shareholders or filed with the Commission and (ii) from time to time such other information concerning the Fund as you may reasonably request.
(k) The Fund agrees to pay the following costs and expenses and all other costs and expenses incident to the performance by the Fund of its obligations hereunder: (i) the preparation, printing or reproduction, filing (including, without limitation, the filing fees prescribed by the Act, the 1940 Act and the Rules and Regulations) and distribution of the Registration Statement (including exhibits thereto), the Prospectus, each Preliminary Prospectus and the 1940 Act Notification and all amendments or supplements to any of them, (ii) printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, the Prospectus, each Preliminary Prospectus, any sales material and all amendments or supplements to any of them as may be reasonably requested for use in connection with the offering and sale of the Securities, (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp taxes and transfer agent and registrar fees payable in connection with the original issuance and sale of such Securities, (iv) the registrations or qualifications of the Securities for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 6(g) hereof (including the reasonable fees, expenses and disbursements of counsel for the Underwriters relating to the preparation, printing or reproduction and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification), (v) the transportation and other expenses incurred by or on behalf of Fund representatives in connection with presentations to prospective purchasers of the Securities, (vi) the fees and expenses of the Fund's independent accountants, counsel for the Fund, the transfer agent and the auction agent, (vii) the expenses of delivery to the Underwriters and dealers (including postage, air freight and the cost of counting and packaging) of copies of the Prospectus, the Preliminary
Prospectus, any sales material and all amendments or supplements to the Prospectus as may be requested for use in connection with the offering and sale of the Securities, (viii) the printing (or reproduction) and delivery of this Agreement, any dealer agreements, the preliminary and supplemental Blue Sky Memoranda and all other company-authorized agreements or other documents printed (or reproduced) and delivered in connection with the offering of the Securities and (ix) the fees of any Rating Agencies. Notwithstanding the foregoing, in the event that the sale of the Securities is not consummated pursuant to Section 3 hereof, the Adviser will pay the costs and expenses of the Fund set forth above in clauses (i) through (x) of this Section 6(k), and reimbursements of Underwriter expenses in connection with the offering shall be made in accordance with Section 8 hereof.
(l) The Fund will direct the investment of the net proceeds of the offering of the Securities in such a manner as to comply with the investment objectives, policies and restrictions of the Fund as described in the Prospectus.
(m) The Fund will file the requisite copies of the Prospectus with the Commission in a timely fashion pursuant to Rule 497(c) or Rule 497(h) of the Act Rules and Regulations, whichever is applicable or, if applicable, will file in a timely fashion the certification permitted by Rule 497(j) of the Act Rules and Regulations and will advise you of the time and manner of such filing.
(n) Except as provided in this Agreement, neither the Fund nor the Adviser will sell, contract to sell or otherwise dispose of or hedge, any senior securities (as defined in the 1940 Act) of the Fund or any securities convertible into or exercisable or exchangeable for senior securities of the Fund or grant any options or warrants to purchase senior securities of the Fund, for a period of 180 days after the date of the Prospectus, without the prior written consent of Citigroup Global Markets Inc.
(o) Except as stated in this Agreement and in the Prospectus, neither the Fund nor the Adviser have taken, nor will any of them take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of any securities issued by the Fund to facilitate the sale or resale of the Securities.
(p) The Fund will use its reasonable best efforts to cause the Securities, prior to the Closing Date, to be assigned a rating of `Aaa' by Moody's Investors Service, Inc. ("Moody's") and `AAA' by Standard & Poor's Investor Services, a division of McGraw-Hill Companies, Inc. ("S&P," and together with Moody's, the "Rating Agencies").
7. Conditions to the Obligations of the Underwriters. The several obligations of the Underwriters to purchase any Securities hereunder are subject to the accuracy of and compliance with the representations, warranties and agreements of and by the Fund and the Adviser contained herein on and as of the date hereof, the date on which the Registration Statement becomes or became effective, the date of the Prospectus (and of any amendment or supplement thereto), the Closing Date; to the accuracy and completeness of all statements made
by the Fund, the Adviser or any of their officers in any certificate delivered to the Underwriters or their counsel pursuant to this Agreement and to the following conditions:
(a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Securities may commence, the Registration Statement or such post-effective amendment shall have become effective not later than 5:30 p.m., New York City time, on the date hereof or at such later date and time as shall be consented to in writing by you and all filings, if any, required by Rules 497 and 430A under the Act Rules and Regulations shall have been timely made; no order suspending the effectiveness of the Registration Statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Fund, the Adviser or any Underwriter, threatened by the Commission and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to your satisfaction.
(b) You shall have received on the Closing Date an opinion of Vedder, Price, Kaufman & Kammholz, P.C., special counsel for the Fund and the Adviser, dated the Closing Date and addressed to you, to the effect that:
(i) The Fund is (A) has been formed and is validly existing under the Fund's Declaration and the laws of the Commonwealth of Massachusetts as a voluntary association with transferable shares of beneficial interest, commonly referred to as a "Massachusetts business trust," (B) is in good standing with the Secretary of the Commonwealth of Massachusetts, and (C) has full power and authority as a business trust, to own, lease and operate its properties and to conduct its business, in each case as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them through the date of the opinion);
(ii) The Securities have been duly authorized by the Fund for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, except that, as set forth in the Registration Statement, shareholders of a Massachusetts business trust may under certain circumstances be held liable for its obligations, and are free of any statutory preemptive rights. Except as set forth in the Declaration and the Statement, as of the date hereof, there are no restrictions upon the transfer of any Securities pursuant to the Declaration or By-Laws of the Fund or, to the best knowledge of such counsel, any agreement or other outstanding instrument to which the Fund is a party; and the specimen share certificates comply as to form with all requirements of Massachusetts law;
(iii) The description of the authorized shares of beneficial interest of the Fund contained under the caption "Description of Common Shares" in the Prospectus (or any amendment or supplement thereto through the date of this opinion) conforms in all material respects as to legal matters to the terms thereof
contained in the Fund's Declaration and Statement. The statements in the first two paragraphs under the caption "Certain Provisions in the Declaration of Trust" in the Prospectus, to the extent that they constitute descriptions of Massachusetts law, are in summary form accurate in all material respects. The description of the Securities contained under the captions "Description of MuniPreferred Shares" and "The Auction" in the Prospectus (or any amendment or supplement thereto through the date of this opinion) conforms in all material respects as to legal matters to the terms thereof contained in the Fund's Declaration and Statement;
(iv) All of the outstanding common shares of the Fund have been duly authorized by the Fund and are validly issued, fully paid and nonassessable, except that, as set forth in the Registration Statement, shareholders of a Massachusetts business trust may under certain circumstances be held liable for its obligations, and are free of any statutory preemptive rights;
(v) The Registration Statement is effective under the 1933 Act and was filed under the 1940 Act; any required filing of the Prospectus pursuant to Rule 497 of the 1933 Act Rules and Regulations has been made within the time periods required by Rule 497; no stop-order suspending the effectiveness of the Registration Statement or order pursuant to Section 8(e) of the 1940 Act has been issued and to the best of such counsel's knowledge, no proceeding for any such purpose has been instituted or is pending or threatened in writing by the Commission;
(vi) The Fund's 1940 Act Notification, the Registration Statement and the Prospectus and each amendment or supplement to the Registration Statement and the Prospectus as of their respective issue dates (except the financial statements and other financial data contained therein, as to which we express no opinion) complies as to form in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations;
(vii) The statements made in the Prospectus under the captions "The Auction," "Description of MuniPreferred Shares" and "Additional Information Concerning Auctions for MuniPreferred Shares," insofar as they purport to summarize the provisions of the Statement or other documents or agreements specifically referred to therein, constitute accurate summaries of the terms of the Statement or such other documents, in all material respects;
(viii) The statements made in the Prospectus (or any amendment or supplement thereto through the date of this opinion) under the captions "Prospectus Summary -- Federal Income Taxes" and "Federal Income Tax Matters," insofar as they constitute matters of law or legal conclusions, have been reviewed by such counsel and constitute accurate statements of any such matters of law or legal conclusions, and fairly present the information called for with respect thereto by Form N-2, in all material respects;
(ix) To the best of such counsel's knowledge, there are no legal or governmental proceedings pending or threatened in writing against the Fund, or to which the Fund or any of its properties is subject, that are required to be described in the Registration Statement or the Prospectus, but are not described therein as required;
(x) This Agreement and the Fund Agreements have each been duly and validly authorized, executed and delivered by the Fund, each complies with all applicable provisions of the 1940 Act and the 1940 Act Rules and Regulations and the Advisers Act and the rules and regulations thereunder, and each of the Fund Agreements constitutes the valid and binding agreement of the Fund, enforceable against the Fund in accordance with its terms;
(xi) The Fund is registered under the 1940 Act as a closed-end diversified management investment company; the provisions of the Declaration, Statement and By-Laws of the Fund and the investment policies and restrictions described in the Prospectus do not violate the requirements of the 1940 Act in any material respect;
(xii) None of the issuance and sale of the Securities by the Fund pursuant to this Agreement, the execution and delivery of this Agreement or any of the Fund Agreements by the Fund, or the performance by the Fund of its agreements under this Agreement or any of the Fund Agreements (A) requires any consent, approval, authorization or other order of or registration or filing with, the Commission, the National Association of Securities Dealers, Inc., or any national securities exchange or governmental body or agency or, arbitrator or court of the United States of America, State of Illinois or the Commonwealth of Massachusetts (except (1) the absence of which, either individually or in the aggregate, would not have a material adverse effect on the Fund; (2) such as may have been obtained prior to the date hereof; and (3) such as may be required for compliance with the American Stock Exchange or state securities or Blue Sky laws of various jurisdictions in accordance with this Agreement) or violates or will violate or constitutes or will constitute a breach of any of the provisions of the Organizational Documents of the Fund or (B) violates or will violate or constitutes or will constitute a breach of, or a default under, any material agreement, indenture, lease or other instrument known to such counsel to which the Fund is party or by which it or any of its properties may be bound, or violates any existing material United States of America, State of Illinois or the Commonwealth of Massachusetts statute, law, regulation (assuming compliance with all applicable state securities and Blue Sky laws), or judgment, injunction, order or decree known to us and applicable to the Fund or any of its properties, or will result in the creation or imposition of any material lien, charge or encumbrance upon any property or assets of the Fund pursuant to the terms of any agreement or instrument known to such counsel to which the Fund is a party or by which any of its property or assets is bound. To the best of such counsel's knowledge, the Fund is not subject to any order of any court or of any arbitrator,
governmental authority or administrative agency of the United States of America, the State of Illinois or the Commonwealth of Massachusetts;
(xiii) No holder of any security of the Fund has any right pursuant to any agreement known to such counsel to which the Fund is a party to require registration of shares of beneficial interest, FundPreferred shares or any other security of the Fund because of the filing of the Registration Statement or consummation of the transactions contemplated by this Agreement; and
(xiv) To the best of such counsel's knowledge, there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus, or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the 1933 Act, the 1940 Act or the Rules and Regulations.
Such counsel shall also state that although counsel has not undertaken, except as otherwise indicated in their opinion, to determine independently and does not assume any responsibility for, the accuracy or completeness of the statements in the Registration Statement and the Prospectus (and any amendment or supplement thereto), such counsel has participated in the preparation of the Registration Statement and the Prospectus, including review and discussion of the contents thereof, and nothing has come to the attention of such counsel that has caused it to believe that the Registration Statement, at the time the Registration Statement became effective or the Prospectus, as of its date and as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading or that any amendment or supplement to the Prospectus, as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no view with respect to the financial statements and the notes thereto and the schedules and other financial and statistical data included in, or omitted from, the Registration Statement or the Prospectus (or any amendment or supplement thereto)).
In rendering such opinion, such counsel may limit such opinion to matters involving the application of the laws of The Commonwealth of Massachusetts and the United States. To the extent they deem proper and to the extent specified in such opinion, such counsel may rely, as to matters involving the application of laws of The Commonwealth of Massachusetts, upon the opinion of Bingham McCutchen LLP or other counsel of good standing whom they believe to be reliable and who are satisfactory to the Underwriters; provided that (X) such reliance is expressly authorized by the opinion so relied upon and a copy of each such opinion is delivered to the Underwriters and is, in form and substance, satisfactory to them and their counsel and (Y) Vedder, Price, Kaufman & Kammholz, P.C. states in their opinion that they believe that they and the Underwriters are justified in relying thereon. References to the Prospectus in this paragraph (b) shall also include any supplements thereto at the Closing Date.
(c) You shall have received on the Closing Date an opinion of Gifford R. Zimmerman, Managing Director, Assistant Secretary and General Counsel for the Adviser, dated the Closing Date and addressed to you, to the effect that:
(i) The Adviser is a corporation duly incorporated and validly existing in good standing under the laws of the State of Delaware with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto) and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or to qualify does not have a material, adverse effect on the condition (financial or other), business, properties, net assets or results of operations of the Adviser;
(ii) The Adviser is duly registered with the Commission under the Advisers Act as an investment adviser and is not prohibited by the Advisers Act, the 1940 Act or the Rules and Regulations under such acts from acting for the Fund under the Management Agreement as contemplated by the Prospectus (and any amendment or supplement thereto);
(iii) The Adviser has corporate power and authority to enter into this Agreement, the Management Agreement and this Agreement, the Management Agreement have been duly and validly authorized, executed and delivered by the Adviser and the Management Agreement is a valid, legal and binding agreement of the Adviser, enforceable against the Adviser in accordance with its terms, subject to the qualification that the enforceability of the Adviser's obligations thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles;
(iv) The Management Agreement complies in all material respects with all applicable provisions of the Advisers Act, the 1940 Act and the Advisers Act Rules and Regulations and the 1940 Act Rules and Regulations;
(v) Neither the execution and delivery by the Adviser of this Agreement or the Management Agreement nor the consummation by the Adviser of the transactions contemplated hereunder or thereunder constitutes or will constitute a breach of or a default under the Certificate of Incorporation or By-Laws of the Adviser or any material agreement, indenture, lease or other instrument to which the Adviser is a party or by which it or any of its properties is bound that is known to such counsel after reasonable inquiry, or will result in the creation or imposition of any material lien, charge or encumbrance upon any property or assets of the Adviser, nor will any such action result in any violation of any existing material law, regulation, ruling (assuming compliance with all applicable state securities and Blue Sky laws), judgment, injunction, order or
decree known to such counsel after reasonable inquiry, applicable to the Fund or any of its properties;
(vi) The description of the Adviser and its business in the Prospectus (and any amendment or supplement thereto) complies in all material respects with all requirements of the Act, the 1940 Act and the Rules and Regulations;
(vii) To the best knowledge of such counsel after reasonable inquiry, other than as described or contemplated in the Prospectus (and any amendment or supplement thereto), there are no actions, suits or other legal or governmental proceedings pending or threatened against the Adviser or to which the Adviser or any of its property is subject which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto);
(viii) The Adviser owns, possesses or has obtained and currently maintains all material governmental licenses, permits, consents, orders, approvals and other authorizations as are necessary for the Adviser to carry on its business as contemplated in the Prospectus (and any amendment or supplement thereto); and
(ix) No material consent, approval, authorization or order of or registration or filing with any court, regulatory body, administrative or other governmental body, agency or official is required on the part of the Adviser for the performance of this Agreement or the Management Agreement by the Adviser or for the consummation by the Adviser of the transactions contemplated hereby or thereby.
Such counsel shall also state that although counsel has not undertaken, except as otherwise indicated in its opinion, to determine independently and does not assume any responsibility for, the accuracy or completeness of the statements in the Registration Statement and the Prospectus (and any amendment or supplement thereto), such counsel has participated in the preparation of the Registration Statement and the Prospectus, including review and discussion of the contents thereof and nothing has come to its attention that has caused it to believe that the Registration Statement at the time it became effective or the Prospectus, as of its date and as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading or that any amendment or supplement to the Prospectus, as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and the notes thereto and the schedules and other financial and statistical data included in, or omitted from, the Registration Statement or the Prospectus (or any amendment or supplement thereto)).
In rendering such opinion, counsel may limit such opinion to matters involving the application of the laws of the State of Illinois, the Delaware General Corporation Law statute and the laws of the United States and may rely upon an opinion or opinions, each dated the Closing Date, of other counsel retained by the Adviser as to laws of any jurisdiction other than the United States, the State of Illinois and the Delaware General Corporation Law statute, provided that (X) each such local counsel is acceptable to the Underwriters, (Y) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to the Underwriters and is, in form and substance, satisfactory to them and their counsel and (Z) counsel shall state in his view that he believes that he and the Underwriters are justified in relying thereon.
(d) That you shall have received on the Closing Date, an opinion, dated the Closing Date, of Simpson Thacher & Bartlett LLP, counsel for the Underwriters, dated the Closing Date and addressed to you, with respect to the issuance and sale of the Securities, the Registration Statement, the Prospectus (together with any supplement thereto) and other related matters as the Underwriters may require and the Fund, the Adviser and their respective counsels shall have furnished to such counsel such documents as they may request for the purpose of enabling them to pass upon such matters.
(e) That you shall have received letters addressed to you and dated the date hereof and the Closing Date from Ernst & Young LLP, independent certified public accountants, substantially in the forms heretofore approved by you.
(f) (i) No order suspending the effectiveness of the Registration Statement or prohibiting or suspending the use of the Prospectus (or any amendment or supplement thereto) or any Preliminary Prospectus or any sales material shall have been issued and no proceedings for such purpose or for the purpose of commencing an enforcement action against the Fund, the Adviser or, with respect to the transactions contemplated by the Prospectus (or any amendment or supplement thereto) and this Agreement, any Underwriter, may be pending before or, to the knowledge of the Fund, the Adviser or any Underwriter or in the reasonable view of counsel to the Underwriters, shall be threatened or contemplated by the Commission at or prior to the Closing Date and that any request for additional information on the part of the Commission (to be included in the Registration Statement, the Prospectus or otherwise) be complied with to the satisfaction of the Underwriters, (ii) there shall not have been any change in the capital stock of the Fund nor any material increase in debt (other than in the ordinary course of business) of the Fund from that set forth in the Prospectus (and any amendment or supplement thereto) and the Fund shall not have sustained any material liabilities or obligations, direct or contingent, other than those reflected in the Prospectus (and any amendment or supplement thereto); (iii) since the date of the Prospectus there shall not have been any material, adverse change in the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund or the Adviser; (iv) the Fund and the Adviser must not have sustained any material loss or interference with its business from any court or from legislative or other governmental action, order or decree or from any other occurrence not described in the Registration Statement and the Prospectus (and any amendment or supplement thereto); and (v) all of the representations
and warranties of the Fund and the Adviser contained in this Agreement shall be true and correct on and as of the date hereof and as of the Closing Date as if made on and as of the Closing Date.
(g) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change or any development involving a prospective change in or affecting the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund or the Adviser not contemplated by the Prospectus (and any amendment or supplement thereto), which in your opinion would materially and adversely affect the market for the Securities or (ii) any event or development relating to or involving the Fund, the Adviser or any officer or trustee or director of the Fund or the Adviser which makes any statement of a material fact made in the Prospectus (or any amendment or supplement thereto) untrue or which, in the opinion of the Fund and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus (or any amendment or supplement thereto) in order to state a material fact required by the Act, the 1940 Act, the Rules and Regulations or any other law to be stated therein or necessary in order to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, if amending or supplementing the Prospectus (or any amendment or supplement thereto) to reflect such event or development would, in your opinion, materially, adversely affect the market for the Securities.
(h) That neither the Fund nor the Adviser shall have failed at or prior to the Closing Date to have performed or complied with any of the agreements herein contained and required to be performed or complied with by them at or prior to the Closing Date.
(i) That you shall have received on the Closing Date a certificate, dated such date, of the president, any managing director or any vice president and of the controller, treasurer or assistant treasurer of each of the Fund and the Adviser certifying that (i) the signers have carefully examined the Registration Statement, the Prospectus (and any amendments or supplements thereto) and this Agreement (with respect to the certificates of such officers of the Fund and the Adviser), (ii) the representations and warranties of the Fund (with respect to the certificates from such Fund officers) and the representations of the Adviser (with respect to the certificates from such officers of the Adviser) in this Agreement are true and correct on and as of the date of the certificate as if made on such date, (iii) since the date of the Prospectus (and any amendment or supplement thereto) there has not been any material, adverse change in the condition (financial or other), business, prospects (other than as a result of a change in the financial markets generally), properties, net assets or results of operations of the Fund (with respect to the certificates from such Fund officers) or the Adviser (with respect to the certificates from such officers of the Adviser), (iv) with respect to the certificates from such Fund officers and the certificates from such officers of the Adviser, to the knowledge of such officers after reasonable investigation, no order suspending the effectiveness of the Registration Statement or prohibiting the sale of any of the Securities or having a material, adverse effect on the Fund has been issued and no proceedings for any such purpose are pending before or threatened by the Commission or any court or other regulatory body, the NASD, any state securities commission, any national securities exchange, any arbitrator
or any other governmental, regulatory, self-regulatory or administrative agency or any official, (v) each of the Fund (with respect to certificates from such Fund officers) and the Adviser (with respect to certificates from such officers of the Adviser) has performed and complied in all material respects with all agreements that this Agreement requires it to perform by such Closing Date, (vi) neither the Fund (with respect to the certificate from such officers of the Fund) nor the Adviser (with respect to the certificate from such officers of the Adviser) has sustained any material loss or interference with its business from any court or from legislative or other governmental action, order or decree or from any other occurrence not described in the Registration Statement and the Prospectus and any amendment or supplement thereto and (vii) with respect to the certificate from such officers of the Fund, there has not been any change in the capital stock of the Fund nor any material increase in the debt of the Fund from that set forth in the Prospectus (and any amendment or supplement thereto) and the Fund has not sustained any material liabilities or obligations, direct or contingent, other than those reflected in the Prospectus (and any amendment or supplement thereto).
(j) The Fund shall have furnished to you as soon as practicable from the Closing Date a report showing compliance with the asset coverage requirements of the 1940 Act and a MuniPreferred Shares Basic Maintenance Certificate (as defined in the Statement), each dated the Closing Date and in form and substance satisfactory to you.
(k) The Fund shall have delivered and the Underwriters shall have received evidence satisfactory to the Underwriters that each series of Securities is rated `Aaa' by Moody's and `AAA' by S&P, as of the Closing Date, and there shall have not been given any notice of any intended or potential downgrading, or of any review for a potential downgrading, in the rating accorded to the shares of each series of Securities by any Rating Agency.
(l) That the Fund and the Adviser shall have furnished to you such further certificates, documents and opinions of counsel as you shall reasonably request (including certificates of officers of the Fund and the Adviser).
(m) That the Fund shall have duly filed the Statement with the Secretary of State of the Commonwealth of Massachusetts.
All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel acting in good faith.
Any certificate or document signed by any officer of the Fund or the Adviser and delivered to you or to Underwriters' counsel shall be deemed a representation and warranty by such party to each Underwriter as to the statements made therein.
8. Reimbursement of Underwriters' Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 7 hereof is not satisfied or because of any refusal, inability or failure on the part of the Fund or the Adviser to perform any agreement herein or comply with
any provision hereof other than by reason of a default by any of the Underwriters, the Fund will reimburse the Underwriters severally through Citigroup Global Markets Inc. on demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities.
9. Indemnification and Contribution. (a) The Fund and the Adviser, jointly and severally, agree to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several (including reasonable costs of investigation), to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus, any Preliminary Prospectus, any Preliminary Prospectus, any sales material (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, any Preliminary Prospectus or any sales material (or any amendment or supplement to any of the foregoing), in light of the circumstances under which they were made) not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Fund will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Fund by or on behalf of any Underwriter through the Representatives specifically for inclusion therein; provided, further, that the foregoing indemnity with respect to the Registration Statement, the Prospectus or any Preliminary Prospectus (or any amendment or supplement to any of the foregoing) shall not inure to the benefit of any Underwriter from whom the person asserting any loss, claim, damage or liability purchased Securities, if it is shown that a copy of the Prospectus, as then amended or supplemented, which would have cured any defect giving rise to such loss, claim, damage or liability was not sent or delivered to such person by or on behalf of such Underwriter, if required by law to be so delivered to, at or prior to the confirmation of the sale of such Securities to such person and such Prospectus, amendments and supplements have been provided by the Fund to the Underwriters in the requisite quantity and on a timely basis to permit proper delivery. This indemnity agreement will be in addition to any liability which the Fund or the Adviser may otherwise have.
(a) Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Fund and the Adviser, each of its directors, trustees, each of its officers who signs the Registration Statement, and each person who controls the Fund or the Adviser within the meaning of the Act or the Exchange Act, to the same extent as the indemnity from the Fund and the Adviser, to each Underwriter as set forth in Section 9(a) hereof, but only with respect to written information relating to such Underwriter furnished to the Fund by or on behalf of such Underwriter specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Fund and the Adviser acknowledge that the names of the underwriters and
numbers of Securities listed opposite such names in the first paragraph under the caption "Underwriting" in the Prospectus, constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in any Preliminary Prospectus or the Prospectus.
(b) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(c) In the event that the indemnity provided in paragraph (a) or (b) of this Section 9 is unavailable to or insufficient to hold harmless an indemnified party for any reason, then the Fund, the Adviser and the Underwriters shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Fund, the Adviser and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Fund and the Adviser on the one hand and by the Underwriters on the other from the offering of the Securities; provided, however, that in no case shall any Underwriter (except as may be provided in any agreement among underwriters relating to the
offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Fund, the Adviser and the Underwriters severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Fund and the Adviser on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Fund and the Adviser shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by the Fund and the Adviser, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Fund or the Adviser on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Fund, the Adviser and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (f), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Fund or the Adviser within the meaning of either the Act or the Exchange Act, each officer of the Fund and the Adviser who shall have signed the Registration Statement and each director of the Fund and the Adviser shall have the same rights to contribution as the Fund and the Adviser, subject in each case to the applicable terms and conditions of this paragraph (c). The Underwriters' obligations to contribute pursuant to this Section 9 are several in proportion to the respective aggregate number of Securities set forth opposite their names in Schedule I (or such numbers of Securities increased as set forth in Section 10 hereof) and not joint.
(d) Any losses, claims, damages or liabilities for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Fund and the Adviser set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Fund, the Adviser or their shareholders,
trustees, directors, managers, members or officers or any person controlling the
Fund or the Adviser (control to be determined within the meaning of the Act or
the Exchange Act), (ii) acceptance of any Securities and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter or to the Fund, the Adviser or their shareholders, trustees,
directors, managers, members or officers or any person controlling any
Underwriter, the Fund or the Adviser shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
9.
10. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the aggregate amount of
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate amount of Securities set forth opposite the names of all the remaining
Underwriters or in such other proportion as you may specify in accordance with
the Citigroup Global Markets Inc. Master Agreement Among Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Fund. In the event of a default by any Underwriter as set forth in this
Section 10 which does not result in a termination of this Agreement, the Closing
Date shall be postponed for such period, not exceeding five Business Days, as
the Underwriters shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall relieve
any defaulting Underwriter of its liability, if any, to the Fund and any
nondefaulting Underwriter for damages occasioned by its default hereunder. The
term "Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Fund, purchases Firm Securities which a defaulting
Underwriter agreed, but failed or refused, to purchase.
11. Termination. This Agreement shall be subject to termination in the absolute discretion of the Underwriters, without liability on the part of the Underwriters to the Fund or the Adviser, by notice given to the Fund or the Adviser prior to delivery of and payment for the Securities, if at any time prior to such time (i) trading in the Fund's Common Shares shall have been suspended by the Commission or the AMEX or trading in securities generally on the AMEX shall have been suspended or limited or minimum prices shall have been established on the AMEX, (ii) a commercial banking moratorium shall have been declared either by Federal or New York State authorities or (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of Citigroup Global Markets Inc., impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Prospectus (exclusive of any supplement thereto). Notice of such termination may be given to the Fund or the Adviser by telegram, facsimile or telephone and shall be subsequently confirmed by letter.
12. Representations and Indemnities to Survive. The provisions of Sections 8 and 9 hereof shall survive the termination or cancellation of this Agreement.
13. Miscellaneous. Except as otherwise provided in Sections 6, 10 and 11 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (a) if to the Fund or the Adviser, c/o Nuveen Investments at 333 West Wacker Drive,
Chicago, Illinois 60606, Attention: Alan G. Berkshire, (b) if to the Underwriters, at the office of Citigroup Global Markets Inc. at 388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the several Underwriters, the Fund, the Adviser, their trustees, directors and officers and the other controlling persons referred to in Section 9 hereof and their respective successors and assigns to the extent provided herein and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" or the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any Securities in his status as such purchaser.
A copy of the Declaration of Trust of the Fund is on file with the Secretary of State of The Commonwealth of Massachusetts. This Agreement has been executed on behalf of the Fund by the vice-president of the Fund in such capacity and not individually and the obligations of the Fund under this Agreement are not binding upon such officer, any of the trustees or the shareholders individually but are binding only upon the assets and property of the Fund.
14. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, trustees, directors, employees, agents and controlling persons referred to in Section 9 hereof, and no other person will have any right or obligation hereunder.
15. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York.
16. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.
17. Headings. The section headings used herein are for convenience only and shall not affect the construction hereof.
18. Definitions. The terms which follow, when used in this Agreement, shall have the meanings indicated.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"1940 Act Rules and Regulations" shall mean the rules and regulations of the Commission under the 1940 Act.
"1940 Act Notification" shall mean a notification of registration of the Fund as an investment company under the 1940 Act on Form N-8A, as the 1940 Act Notification may be amended from time to time.
"Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.
"Act Rules and Regulations" shall mean the rules and regulations of the Commission under the Act.
"Advisers Act" shall mean the Investment Advisers Act of 1940, as amended
"Advisers Act Rules and Regulations" shall mean the rules and regulations adopted by the Commission under the Advisers Act
"Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration Statement, any post-effective amendment or amendments thereto and any Rule 462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.
"Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus (including the statement of additional information incorporated by reference therein) referred to in paragraph 1(a) above and any preliminary prospectus (including the statement of additional information incorporated by reference therein) included in the Registration Statement at the Effective Date that omits Rule 430A Information.
"Prospectus" shall mean the prospectus (including the statement of additional information incorporated by reference therein) relating to the Securities that is first filed pursuant to Rule 497 after the Execution Time or, if no filing pursuant to Rule 497 is required, shall mean the form of final prospectus (including the statement of additional information incorporated by reference therein) relating to the Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date, shall also mean such registration statement as so amended or such
Rule 462(b) Registration Statement, as the case may be. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A.
"Rule 430A" and "Rule 462" refer to such rules under the Act.
"Rule 430A Information" shall mean information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration statement and any amendments thereto filed pursuant to Rule 462(b) relating to the offering covered by the registration statement referred to in Section 1(a) hereof.
"Rule 497" refers to Rule 497(c) or 497(h) under the Act, as applicable.
"Rules and Regulations" shall mean, collectively, the Act Rules and Regulations and the 1940 Act Rules and Regulations.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Fund, the Adviser and the several Underwriters.
Very truly yours,
NUVEEN MUNICIPAL HIGH INCOME
OPPORTUNITY FUND
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Citigroup Global Markets Inc.
For itself and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
SCHEDULE I
NUMBER OF FIRM SECURITIES TO BE
UNDERWRITERS PURCHASED
------------ ---------
Citigroup Global Markets Inc..................................... [___________]
Nuveen Investments, LLC.......................................... [___________]
A.G. Edwards & Sons.............................................. [___________]
Wachovia Securities.............................................. [___________]
Total.......................................... [___________]
|
EXHIBIT h.2
FORM OF
MASTER SELECTED DEALER AGREEMENT
July 1, 1999
Ladies and Gentlemen:
In connection with registered public offerings of securities for which we are acting as manager or co-manager of an underwriting syndicate or unregistered offerings of securities for which we are acting as manager or co-manager of the initial purchasers, you may be offered the right as a selected dealer to purchase as principal a portion of such securities. This will confirm our mutual agreement as to the general terms and conditions applicable to your participation in any such selected dealer group.
1. APPLICABILITY OF THIS AGREEMENT. The terms and conditions of this Agreement shall be applicable to any offering of securities ("Securities"), whether pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"), or exempt from registration thereunder, in respect of which Salomon Smith Barney Inc. (acting for its own account or for the account of any underwriting or similar group or syndicate) is responsible for managing or otherwise implementing the sale of the Securities to selected dealers ("Selected Dealers") and has expressly informed you that such terms and conditions shall be applicable. Any such offering of Securities to you as a Selected Dealer is hereinafter called an "Offering". In the case of any Offering where we are acting for the account of any underwriting or similar group or syndicate ("Underwriters"), the terms and conditions of this Agreement shall be for the benefit of, and binding upon, such Underwriters, including, in the case of any Offering where we are acting with others as representatives of Underwriters, such other representatives.
2. CONDITIONS OF OFFERING; ACCEPTANCE AND PURCHASES. Any Offering will be
subject to delivery of the Securities and their acceptance by us and any other
Underwriters, may be subject to the approval of all legal matters by counsel and
the satisfaction of other conditions, and may be made on the basis of
reservation of Securities or an allotment against subscription. We will advise
you by telecopy, telex or other form of written communication ("Written
Communication", which term, in the case of any Offering described in Section
3(a) or 3(b) hereof, may include a prospectus or offering circular) of the
particular method and supplementary terms and conditions (including, without
limitation, the information as to prices and the offering date referred to in
Section 3(c) hereof) of any Offering in which you are invited to participate. To
the extent such supplementary terms and conditions are inconsistent with any
provision herein, such terms and conditions shall supersede any such provision.
Unless otherwise indicated in any such Written Communication, acceptances and
other communications by you with respect to an Offering should be sent to the
appropriate Syndicate
Department of Salomon Smith Barney Inc. We may close the subscription books at any time in our sole discretion without notice, and we reserve the right to reject any acceptance in whole or in part.
Unless notified otherwise by us, Securities purchased by you shall be paid for on such date as we shall determine, on one day's prior notice to you, by wire transfer payable in immediately available funds to the order of Salomon Smith Barney Inc., in an amount equal to the Public Offering Price (as hereinafter defined) or, if we shall so advise you, at such Public Offering Price less the Concession (as hereinafter defined). If Securities are purchased and paid for at such Public Offering Price, such Concession will be paid after the termination of the provisions of Section 3(c) hereof with respect to such Securities. Unless notified otherwise by us, payment for and delivery of Securities purchased by you shall be made through the facilities of The Depository Trust Company, if you are a member, unless you have otherwise notified us prior to the date specified in a Written Communication to you from us or, if you are not a member, settlement may be made through a correspondent who is a member pursuant to instructions which you will send to us prior to such specified date.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) REGISTERED OFFERINGS. In the case of any Offering of Securities which are registered under the Securities Act ("Registered Offering"), we will make available to you as soon as practicable after sufficient copies are made available to us by the issuer of the Securities such number of copies of each preliminary prospectus and of the final prospectus relating thereto as you may reasonably request for the purposes contemplated by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the applicable rules and regulations of the Securities and Exchange Commission thereunder.
You represent and warrant that you are familiar with Rule 15c2-8 under the Exchange Act relating to the distribution of preliminary and final prospectuses and agree that you will comply therewith. You agree to make a record of your distribution of each preliminary prospectus and when furnished with copies of any revised preliminary prospectus, you will promptly forward copies thereof to each person to whom you have theretofore distributed a preliminary prospectus.
You agree that in purchasing Securities in a Registered Offering you will rely upon no statement whatsoever, written or oral, other than the statements in the final prospectus delivered to you by us. You will not be authorized by the issuer or other seller of Securities offered pursuant to a prospectus or by any Underwriters to give any information or to make any representation not contained in the prospectus in connection with the sale of such Securities.
(b) OFFERINGS PURSUANT TO OFFERING CIRCULAR. In the case of any Offering of Securities, other than a Registered Offering, which is made pursuant to an offering circular or other document comparable to a prospectus in a Registered Offering, we will make available to you as soon as practicable after sufficient copies are made available to us by the issuer of the Securities such number of copies of each preliminary offering circular and of the final offering circular relating thereto as you may reasonably request. You agree that you will comply with applicable Federal, state and other laws, and the applicable rules and regulations of any regulatory body promulgated thereunder,
governing the use and distribution of offering circulars by brokers or dealers.
You agree that in purchasing Securities pursuant to an offering circular you will rely upon no statements whatsoever, written or oral, other than the statements in the final offering circular delivered to you by us. You will not be authorized by the issuer or other seller of Securities offered pursuant to an offering circular or by any Underwriters to give any information or to make any representation not contained in the offering circular in connection with the sale of such Securities.
(c) OFFER AND SALE TO THE PUBLIC. The Offering of Securities is made
subject to the conditions referred to the prospectus or offering circular
relating to the Offering and to the terms and conditions set forth in this
Agreement. With respect to any Offering of Securities, we will inform you by a
Written Communication of the public offering price, the selling concession, the
reallowance (if any) to dealers and the time when you may commence selling
Securities to the public. After such public offering has commenced, we may
change the public offering price, the selling concession and the reallowance to
dealers. The offering price, selling concession and reallowance (if any) to
dealers at any time in effect with respect to an Offering are hereinafter
referred to, respectively, as the "Public Offering Price", the "Concession" and
the "Reallowance". With respect to each Offering of Securities, until the
provisions of this Section 3(c) shall be terminated pursuant to Section 4
hereof, you agree to offer Securities to the public only at the Public Offering
Price, except that if a Reallowance is in effect, a Reallowance from the Public
Offering Price not in excess of such Reallowance may be allowed as consideration
for services rendered in distribution to dealers who are actually engaged in the
investment banking or securities business who are either members in good
standing of the NASD who agree to abide by the applicable rules of the NASD (see
Section 3(e) below) or foreign banks, dealers or institutions not eligible for
membership in the NASD who represent to you that they will promptly reoffer such
Securities at the Public Offering Price and will abide by the conditions with
respect to foreign banks, dealers and institutions set forth in Section 3(e)
hereof.
(d) OVER-ALLOTMENT; STABILIZATION; UNSOLD ALLOTMENTS. We may, with respect to any Offering, be authorized to over-allot in arranging sales to Selected Dealers, to purchase and sell Securities for long or short account and to stabilize or maintain the market price of the Securities. You agree that upon our request at any time and from time to time prior to the termination of the provisions of Section 3(c) hereof with respect to any Offering, you will report to us the amount of Securities purchased by you pursuant to such Offering which then remain unsold by you and will, upon our request at any such time, sell to us for our account or the account of one or more Underwriters such amount of such unsold Securities as we may designate at the Public Offering Price less an amount to be determined by us not in excess of the Concession. If, prior to the later of (a) the termination of the provisions of Section 3(c) hereof with respect to any Offering, or (b) the covering by us of any short position created by us in connection with such Offering for our account or the account of one or more Underwriters, we purchase or contract to purchase for our account or the account of one or more Underwriters in the open market or otherwise any Securities purchased by you under this Agreement as part of such Offering, you agree to pay us on demand for the account of the Underwriters an amount equal to the Concession with respect to such Securities (unless you shall have purchased such Securities pursuant to Section 2 hereof at the Public Offering Price and you have not received or been credited with any Concession, in which case we shall not be obligated to pay such Concession to you pursuant to Section 2) plus transfer taxes
and broker's commissions or dealer's mark-up, if any, paid in connection with such purchase or contract to purchase.
(e) NASD. You represent and warrant that you are actually engaged in the investment banking or securities business and either are a member in good standing of the NASD or, if you are not such a member, you are a foreign bank, dealer or institution not eligible for membership in the NASD which agrees to make no sales within the United State, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply with the NASD's interpretation with respect to free-riding and withholding. You further represent, by your participation in an Offering, that you have provided to us all documents and other information required to be filed with respect to you, any related person or any person associated with you or any such related person pursuant to the supplementary requirements of the NASD's interpretation with respect to review of corporate financing as such requirements relate to such Offering.
You agree that, in connection with any purchase or sale of the Securities wherein a selling concession, discount or other allowance is received or granted, you will (a) if you are a member of the NASD, comply with all applicable interpretive material ("IM") and Conduct Rules of the NASD, including, without limitation, IM 2110-1 (relating to Free-Riding and Withholding) and Conduct Rule 2740 (relating to Selling Concessions, Discounts and Other Allowances) or (b) if you are a foreign bank or dealer or institution not eligible for such membership, comply with IM 2110-1 and with Conduct Rules 2730 (relating to Securities Taken in Trade), 2740 (relating to Selling Concessions) and 2750 (relating to Transactions With Related Persons) as though you were such a member and Conduct Rule 2420 (relating to Dealing with Non-Members) as it applies to a non-member broker or dealer in a foreign country.
You further agree that, in connection with any purchase of securities from us that is not otherwise covered by the terms of this Agreement (whether we are acting as manager, as member of an underwriting syndicate or a selling group or otherwise), if a selling concession, discount or other allowance is granted to you, clauses (a) and (b) of the preceding paragraph will be applicable.
(f) RELATIONSHIP AMONG UNDERWRITERS AND SELECTED DEALERS. We may buy Securities from or sell Securities to any Underwriter or Selected Dealer and, with our consent, the Underwriters (if any) and the Selected Dealers may purchase Securities from and sell Securities to each other at the Public Offering Price less all or any part of the Concession. We shall have full authority to take such action as we deem advisable in all matters pertaining to any Offering under this Agreement. You are not authorized to act as agent for us, any Underwriter or the issuer or other seller of any Securities in offering Securities to the public or otherwise. Neither we nor any Underwriter shall be under any obligation to you except for obligations assumed hereby or in any Written Communication from us in connection with any Offering. Nothing contained herein or in any Written Communication from us shall constitute the Selected Dealers an association or partners with us or any Underwriter or with one another. If the Selected Dealers, among themselves or with the Underwriters, should be deemed to constitute a partnership for Federal income tax purposes, then you elect to be excluded from the application of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986 and agree not to take any position inconsistent with that election. You authorize us, in our discretion, to execute and file on your behalf such evidence of that election as may
be required by the Internal Revenue Service. In connection with any Offering you shall be liable for your proportionate amount of any tax, claim, demand or liability that may be asserted against you alone or against one or more Selected Dealers participating in such Offering, or against us or the Underwriters, based upon the claim that the Selected Dealers, or any of them constitute an association, an unincorporated business or other entity, including, in each case, your proportionate amount of any expense incurred in defending against any such tax, claim, demand or liability.
(g) BLUE SKY LAWS. Upon application to us, we shall inform you as to any advice we have received from counsel concerning the jurisdictions in which Securities have been qualified for sale or are exempt under the securities or blue sky laws of such jurisdictions, but we do not assume any obligation or responsibility as to your right to sell Securities in any such jurisdiction.
(h) COMPLIANCE WITH LAW. You agree that in selling Securities pursuant to any Offering (which agreement shall also be for the benefit of the issuer or other seller of such Securities), you will comply with all applicable laws, rules and regulations, including the applicable provisions of the Securities Act and the Exchange Act, the applicable rules and regulations of the Securities and Exchange Commission thereunder, the applicable rules and regulations of the NASD, the applicable rules and regulations of any securities exchange or other regulatory authority having jurisdiction over the Offering and the applicable laws, rules and regulations specified in Section 3(b) hereof. Without limiting the foregoing, (a) you agree that, at all times since you were invited to participate in an Offering of Securities, you have complied with the provisions of Regulation M applicable to such Offering, in each case after giving effect to any applicable exemptions and (b) you represent that your incurrence of obligations hereunder in connection with any Offering of Securities will not result in the violation by you of Rule 15c3-1 under the Exchange Act, if such requirements are applicable to you.
4. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This Agreement shall
continue in full force and effect until terminated by a written instrument
executed by each of the parties hereto. This Agreement may be supplemented or
amended by us by written notice thereof to you, and any such supplement or
amendment to this Agreement shall be effective with respect to any Offering to
which this Agreement applies after the date of such supplement or amendment.
Each reference to "this Agreement" herein shall, as appropriate, be to this
Agreement as so amended and supplemented. The terms and conditions set forth in
Section 3(c) hereof with regard to any Offering will terminate at the close of
business on the 30th day after the commencement of the public offering of the
Securities to which such Offering relates, but in our discretion may be extended
by us for a further period not exceeding 30 days and in our discretion, whether
or not extended, may be terminated at any earlier time.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and other persons specified in Section 1 hereof, and the respective successors and assigns of each of them.
6. GOVERNING LAW. This Agreement and the terms and conditions set forth herein with respect to any Offering together with such supplementary terms and conditions with respect to such Offering as may be contained in any Written Communication from us to you in connection therewith shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed within
the State of New York.
Please confirm by signing and returning to us the enclosed copy of this Agreement that your subscription to or your acceptance of any reservation of any Securities pursuant to an Offering shall constitute (i) acceptance of and agreement to the terms and conditions of this Agreement (as supplemented and amended pursuant to Section 4 hereof; together with and subject to any supplementary terms and conditions contained in any Written Communication from us in connection with such Offering, all of which shall constitute a binding agreement between you and us, individually or as representative of any Underwriters, (ii) confirmation that your representations and warranties set forth in Section 3 hereof are true and correct at that time, (iii) confirmation that your agreements set forth in Sections 2 and 3 hereof have been and will be fully performed by you to the extent and at the times required thereby and (iv) in the case of any Offering described in Section 3(a) or 3(b) hereof, acknowledgment that you have requested and received from us sufficient copies of the final prospectus or offering circular, as the case may be, with respect to such Offering in order to comply with your undertakings in Section 3(a) or 3(b) hereof.
Very truly yours,
SALOMON SMITH BARNEY INC.
By:_______________________
Name:
Title:
CONFIRMED:.........................................1999
.......................................................
(Name of Dealer)
by:....................................................
Name:
Title:
Address: _________________________________________
Telephone:
EXHIBIT h.3
FORM OF:
NUVEEN EXCHANGE-TRADED FUNDS
MASTER SELECTED DEALER AGREEMENT
[DATED]
Dear Ladies and Gentlemen:
In connection with public offerings of securities ("Securities") of registered investment companies sponsored by Nuveen Investments ("Nuveen") which are underwritten by a group of underwriters ("Underwriters") which are represented by Nuveen alone or in conjunction with other firms (the "Representatives"), you (a "Dealer") may be offered from time to time the opportunity to purchase a portion of such securities, as a principal, at a discount from the public offering price representing a selling concession or reallowance granted as consideration for services rendered in the distribution of such securities, subject to the terms and conditions of this Agreement.
1. General. (a) This Agreement sets forth the general terms, conditions and representations applicable to any such purchase. These general terms, conditions and representations may be modified, amended or supplemented in connection with an offering of Securities by telegram, telex, facsimile transmission or other written form (electronic or otherwise) of communication of Nuveen or other Representative of the Underwriters of such offering (any communication in any such form being herein referred to as a "written communication") to you in connection with such offering. This Agreement shall become effective with respect to your participation in an offering of Securities upon your acceptance of any reservation of any such Securities, as a Dealer. Such acceptance shall constitute your acceptance of this Agreement as modified, amended or supplemented by any such written communication.
(b) As used herein, the term "Agreement" shall mean this Agreement and, after receipt by you of written notice thereof, any amendment or supplement hereto, plus any additional or supplementary terms, conditions and representations contained in the prospectus relating to the offering of Securities or any other written communication to you from Nuveen or any other Representative of the Underwriters of any offering of securities. This Agreement shall constitute a binding agreement between you and Nuveen, individually, and, in respect of a public offering of Securities, Nuveen and the other Representatives of the Underwriters of such offering on whose behalf Nuveen is acting.
(c) This Agreement supersedes any prior understanding you have with Nuveen with respect to the subject matter hereof.
2. Sales to Selected Dealers. For any specific offering, we will advise you by telegram of the method and terms of offering, the time of the release of the Securities for sale to the public, the initial offering price, the selling concession, the portion of the selling concession allowable to certain dealers (the "reallowance"), the time at which subscription books will be opened, the amount, if any, of Securities reserved for purchase by Dealers and the period of reservation. Subscription books may be closed by us at any time in our discretion without notice, and the right is reserved to reject any subscription in whole or in part. Notification of allotments against the rejections of subscriptions will be made as promptly as practicable. In purchasing Securities, you must rely only on the prospectus, and on no other statements whatsoever, written or oral.
3. Offering Provisions. Upon receipt of the telegram or letter referred to in Section 2 hereof, promptly on the date set forth in such telegram for release of the Securities for sale to the public, you will reoffer the Securities purchased by you hereunder, subject to receipt and acceptance of the Securities by the Underwriters, and upon the other terms, conditions and representations set forth herein and in the prospectus relating to such Securities. Securities purchased hereunder are to be offered to the public at the initial public offering price set forth in the prospectus, except that if a reallowance is in effect, a reallowance from the public offering price not in excess of such reallowance may be allowed by you but only to dealers who are actually engaged in the investment banking or securities business, who execute the written agreement prescribed by Rule 2740(c) of the Rules of Conduct of the National Association of Securities Dealers, Inc. ("NASD") and who are members in good standing of the NASD or are foreign dealers, not eligible for membership in the NASD, who, in each case, represent to you that they will promptly reoffer such Securities to the public at the initial public offering price set forth in the prospectus and will abide by the conditions with respect to foreign brokers and dealers set forth in the first paragraph of Section 6 hereof.
If prior to the completion of a distribution of the Securities in an offering, directly or indirectly in connection with their activities under this agreement, Nuveen or an Underwriter of the offering purchases on the open market any Securities purchased by you under this Agreement as part of the offering, you agree to pay Nuveen or the lead Representative of the Underwriters of the offering on demand an amount equal to the concession with respect to the Securities, plus, as applicable, transfer taxes, broker's commission, or dealer's markups, if any, paid in connection with such transactions. Alternatively, Nuveen or the Representatives of the Underwriters of the offering may withhold payment for a period of time of, or determine not to pay, all or any part of the concession with respect to the Securities so received. You will advise Nuveen or any other Representative from time to time at our request, of the number of Securities purchased by you hereunder remaining unsold and you agree to sell to us, at our request, for the account of one or more of the Underwriters, such number of such unsold Securities as we may designate, at the initial offering price less an amount to be determined by us, not in excess of the full concession.
4. Delivery and Payment. Payment for and delivery of Securities purchased by you hereunder will be made through the facilities of the Depository Trust Company, if you are a member, or, if you are not a member, settlement may be made through a correspondent who is a member pursuant to instructions which you will send to us prior to such specified date. At the discretion of Nuveen or a Representative of the Underwriters of the offering, we may require you to pay the full public offering price for any offering of Securities. If you are called upon to pay the full public offering price for the Securities purchased by you the concession will be paid to
you, less any amounts charged to your account pursuant to Section 3 above, after termination of this Agreement.
5. Termination. This Agreement shall continue in full force and effect until terminated by either party by five days' written notice to the other; provided, that if this Agreement has become effective with respect to any offering of Securities, this Agreement may not be terminated by you with respect to such offering. It shall remain in full force and effect as to such offering. Notwithstanding any distribution and settlement of accounts, you shall be liable for the proper proportion of any transfer tax or other liability which may be asserted against the Representatives or any of the Underwriters or Dealers based upon the claim that the Dealers, or any of them, constitute a partnership, an association, an unincorporated business or other separate entity.
6. Position of Selected Dealers and Underwriters. You represent that you are actually engaged in the investment banking or securities business and are a member in good standing of the NASD or that you are a foreign dealer, not eligible for membership in the NASD, which agrees not to offer or sell any Securities in, or to persons who are nationals or residents of, the United States of America. In making sales of Securities, if you are such a member, you agree to comply with all applicable rules of the NASD, including, without limitation, IM 2110-1 (the NASD's Interpretation with Respect to Free-Riding and Withholding) and Rules 2740 and 2750 of the NASD's Rules of Conduct, or, if you are a foreign dealer, you agree to comply with such Interpretation and Rules 2730, 2740 and 2750 of such Rules of Conduct as though you were such a member, and with Rule 2420 as that Rule applies to a non-member broker or dealer in a foreign country. You also confirm that you have complied and will comply with the prospectus delivery requirements of Rule 15c2-8 under the Securities Exchange Act of 1934, as amended including Rule 15c2-8(b) which requires all participating dealers to distribute a copy of the preliminary prospectus relating to the offering of Securities to each person to whom they expect to confirm a sale of the Securities not less than 48 hours prior to the time they expect to mail such confirmation. You are not authorized to give any information or make any representations with respect to an offering of Securities other than those contained in the prospectus for the offering, or to act as agent for the issuer, any Underwriter, Representative or Nuveen.
Neither Nuveen, individually or as Representative of the Underwriters,
nor any of the Representatives or Underwriters shall be under any liability to
you, except for obligations expressly assumed in this Agreement and any
liabilities under the Securities Act of 1933, as amended. No obligations on the
part of Nuveen will be implied or inferred herefrom. All communications to
Nuveen relating to the subject matter of this Agreement should be addressed to
Nuveen Investments, 333 W. Wacker Drive, Chicago, Illinois 60606 (Attention:
Debbie Taylor), and any notices to you shall be deemed to have been duly given
if mailed or telegraphed to you at such address as you shall indicate on the
last page of this Agreement.
7. Blue Sky Matters. Neither Nuveen, individually or as a Representative of the Underwriters, nor any of the Representatives or Underwriters will have any responsibility with respect to the right of any Dealer to sell Securities in any jurisdiction, notwithstanding any information we may furnish in that connection.
8. Indemnification. You agree to indemnify and hold harmless Nuveen and
each Representative and Underwriter of an offering of Securities and each
person, if any, who controls Nuveen or any such Representative or Underwriter
within the meaning of Section 15 of the Securities Act of 1933, as amended or
Section 20 of the Securities Exchange Act of 1934, as amended, from and against
any and all losses, claims, damages, liabilities and expenses, joint or several
(including reasonable costs of investigation) (any of the foregoing being
hereinafter referred to individually as a "Loss" and collectively, as "Losses")
suffered or incurred by any such indemnified person arising out of or in
connection with such offering for or on account of or arising from or in
connection with (i) any violation by you of any law, rule or regulation
(including any rule of any self-regulatory organization) or (ii) any breach of
any representation, warranty, covenant or agreement contained in this Agreement.
The foregoing indemnity agreement shall be in addition to any liability which
you may otherwise have.
9. Procedures Relating to Indemnification. (a) An indemnified person under Section 8 of this Agreement (the "Indemnified Party") shall give written notice to you of any Loss in respect of which you have a duty to indemnify such Indemnified Party under Section 8 of this Agreement (a "Claim"), specifying in reasonable detail the nature of the Loss for which indemnification is sought, except that any delay or failure so to notify you shall only relieve you of your obligations hereunder to the extent, if at all, that you are actually prejudiced by reason of such delay or failure.
(b) If a Claim results from any action, suit or proceeding brought or asserted against an Indemnified Party, you shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses. The Indemnified Party shall have the right to employ separate counsel in such action, suit or proceeding and participate in such defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) you have agreed in writing to pay such fees and expenses, (ii) you have failed within a reasonable time to assume the defense and employ counsel or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Indemnified Party and you and such Indemnified Party shall have been advised by its counsel that representation of such Indemnified Party and you by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between you and the Indemnified Party (in which case you shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Indemnified Party). It is understood, however, that you shall, in connection with any one action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by the Representatives of the offering and that all such fees and expenses shall be reimbursed promptly as they are incurred. You shall not be liable for any settlement of any such action, suit or proceeding effected without your written consent, but if settled with such written consent or if there be a final judgment for the plaintiff in any such action, suit or proceeding, you agree to indemnify and hold harmless any Indemnified Party from and against any loss, liability, damage or expense by reason by such settlement or judgment.
(c) With respect to any Claim not within Paragraph (b) of Section 9 hereof, you shall have 20 days from receipt of notice from the Indemnified Party of such Claim within which to respond thereto. If you do not respond within such twenty-day period, you shall be deemed to have accepted responsibility to make payment and shall have no further right to contest the validity of such Claim. If you notify the Indemnified Party within such twenty-day period that you reject such Claim in whole or in part, the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party under applicable law.
10. Survival. The representations, warranties, covenants and agreements of the undersigned contained in this Agreement, including, without limitation, the indemnity agreements contained in Sections 8 and 9 hereof, shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Representative or Underwriter or any person controlling any Representative or Underwriter, or their directors or officers, (ii) acceptance of any Shares and payment therefor and (iii) any termination of this Agreement.
11. This Agreement shall be governed by the laws of the State of New York or the laws of such other state as indicated in a written communication to you by Nuveen with respect to any particular securities offering.
Please confirm your agreement to the foregoing by signing in the space provided below and returning to us the enclosed counterpart of this Agreement.
NUVEEN INVESTMENTS
By:___________________
Managing Director
Confirmed as of _____________.
EXHIBIT h.4
FORM OF
MASTER AGREEMENT AMONG UNDERWRITERS
REGISTERED SEC OFFERINGS
(INCLUDING MULTIPLE SYNDICATE OFFERINGS),
STANDBY UNDERWRITINGS AND EXEMPT OFFERINGS
(OTHER THAN OFFERINGS OF MUNICIPAL SECURITIES)
July 1, 1999
Ladies and Gentlemen:
From time to time SALOMON SMITH BARNEY INC. ("SALOMON SMITH BARNEY") may invite you (and others) to participate on the terms set forth herein as an underwriter or an initial purchaser, or in a similar capacity, in connection with certain offerings of securities that are managed solely by us or with one or more other co-managers. If we invite you to participate in a specific offering and sale (an "OFFERING") to which this Master Agreement Among Underwriters (the "SALOMON SMITH BARNEY MASTER AAU") shall apply, we will send the information set forth below in Section 1.1 to you by one or more wires, telexes, facsimile or electronic data transmissions or other written communications (each a "WIRE" and collectively, an "AAU"). Each Wire will indicate that it is a Wire pursuant to the SALOMON SMITH BARNEY MASTER AAU. The Wire inviting you to participate in an Offering is referred to herein as the "INVITATION WIRE". You and we hereby agree that by the terms hereof the provisions of this SALOMON SMITH BARNEY MASTER AAU automatically shall be incorporated by reference in each AAU, EXCEPT THAT ANY SUCH AAU MAY ALSO EXCLUDE OR REVISE ANY PROVISION OF THIS SALOMON SMITH BARNEY MASTER AAU OR MAY CONTAIN SUCH ADDITIONAL PROVISIONS AS MAY BE SPECIFIED IN SUCH AAU.
I. GENERAL
1.1. TERMS OF AAU; CERTAIN DEFINITIONS; CONSTRUCTION. Each AAU shall relate to an Offering and shall identify (i) the securities to be offered in the Offering (the "SECURITIES"), their principal terms, the issuer or issuers (each an "ISSUER") and any guarantor (each a "GUARANTOR") thereof and, if different from the Issuer, the seller or sellers (each a "SELLER") of the Securities, (ii) the underwriting agreement, purchase agreement, standby underwriting agreement, distribution agreement or similar agreement (as identified in such AAU and as amended or supplemented, including a terms agreement or pricing agreement pursuant to any of the foregoing, collectively, the "UNDERWRITING AGREEMENT") providing for the purchase, on a several and not joint basis, of the Securities by the several underwriters, initial purchasers or others acting in a similar capacity on whose behalf the Manager (as defined below) executes the Underwriting Agreement (including the Manager and the Co-Managers (as defined below), the "UNDERWRITERS"), (iii) if applicable, that the Underwriting Agreement includes
an option (an "OVER-ALLOTMENT OPTION") to purchase Additional Securities (as defined below) to cover over-allotments, if any, (iv) if applicable, that the Offering is part of an offering that includes concurrent offerings by two or more syndicates (an "INTERNATIONAL OFFERING"), each of which will offer and sell Securities subject to such restrictions as shall be specified in any Intersyndicate Agreement (as defined below) referred to in such AAU, (v) the price at which the Securities are to be purchased by the several Underwriters from any Issuer or Seller thereof (the "PURCHASE PRICE"), (vi) the offering terms, including, if applicable, the price or prices at which the Securities initially will be offered by the Underwriters (the "OFFERING PRICE"), any selling concession to dealers (the "SELLING CONCESSION"), reallowance (the "REALLOWANCE"), management fee, global coordinators' fee, praecipium or other similar fees, discounts or commissions (collectively, the "FEES AND COMMISSIONS") with respect to the Securities, (vii) the proposed pricing date ("PRICING DATE") and settlement date (the "SETTLEMENT DATE"), (viii) any contractual restrictions on the offer and sale of the Securities pursuant to the Underwriting Agreement, Intersyndicate Agreement or otherwise, (ix) any co-managers for such Offering (the "CO-MANAGERS"), (x) your proposed participation in the Offering, (xi) if applicable, the trustee, fiscal agent or similar agent (the "TRUSTEE") for the indenture, trust agreement, fiscal agency agreement or similar agreement (the "INDENTURE") under which such Securities will be issued and (xii) any other principal terms of the Offering.
The term "MANAGER" means SALOMON SMITH BARNEY. The term "UNDERWRITERS" includes the Manager and the Co-Managers. The term "FIRM SECURITIES" means the number or amount of Securities that the several Underwriters are initially committed to purchase under the Underwriting Agreement (which may be expressed as a percentage of an aggregate number or amount of Securities to be purchased by the Underwriters as in the case of a standby Underwriting Agreement). The term "ADDITIONAL SECURITIES" means the Securities, if any, that the several Underwriters have an option to purchase under the Underwriting Agreement to cover over-allotments, if any. The number, amount or percentage of Firm Securities set forth opposite each Underwriter's name in the Underwriting Agreement plus any additional Firm Securities that such Underwriter has become obligated to purchase under the Underwriting Agreement or Article XI hereof is hereinafter referred to as the "ORIGINAL PURCHASE OBLIGATION" of such Underwriter and the ratio which such Original Purchase Obligation bears to the total of all Firm Securities set forth in the Underwriting Agreement (or, in the case of a standby Underwriting Agreement, to 100%) is hereinafter referred to as the "UNDERWRITING PERCENTAGE" of such Underwriter.
References herein to statutory sections, rules, regulations, forms and interpretive materials shall be deemed to include any successor provisions.
1.2. ACCEPTANCE OF AAU. You shall have accepted an AAU for an Offering if we receive your acceptance, prior to the time specified in the Invitation Wire for such Offering, by wire, telex, facsimile or electronic data transmission or other written communication (any such manner of communication being deemed "IN WRITING") (or orally, if promptly confirmed In Writing) in the manner specified in the Invitation Wire, of our invitation to participate in the Offering. If we receive your timely acceptance of the
invitation to participate, such AAU shall constitute a valid and binding contract between us. Your acceptance of the Invitation Wire shall also constitute acceptance by you of the terms of subsequent Wires to you relating to the Offering unless we receive In Writing, within the time and in the manner specified in such subsequent Wire, a notice from you to the effect that you do not accept the terms of such subsequent Wire, in which case you shall be deemed to have elected not to participate in the Offering.
1.3. UNDERWRITERS' QUESTIONNAIRE. Your acceptance of the Invitation Wire shall confirm that you have no exceptions to the Underwriters' Questionnaire attached as Exhibit A hereto (or to any other questions addressed to you in any Wires relating to the Offering previously sent to you), other than exceptions noted by you In Writing in connection with the Offering and received from you by us before the time specified in the Invitation Wire or any subsequent Wire.
II. OFFERING MATERIALS
2.1. REGISTERED OFFERINGS. In the case of an Offering that will be registered in whole or in part (a "REGISTERED OFFERING") under the United States Securities Act of 1933, as amended (the "1933 ACT"), you understand that the Issuer has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement including a prospectus relating to the Securities. The term "REGISTRATION STATEMENT" means such registration statement as amended or deemed to be amended to the effective date of the Underwriting Agreement and, in the event that the Issuer files an abbreviated registration statement to register additional Securities pursuant to Rule 462(b) under the 1933 Act, such abbreviated registration statement. The term "PROSPECTUS" means the prospectus, together with the final prospectus supplement, if any, relating to the Offering first used to confirm sales of Securities and, in the case of a Registered Offering that is an International Offering, the term "PROSPECTUS" shall mean, collectively, each prospectus or offering circular, together with each final prospectus supplement or final offering circular supplement, if any, relating to the Offering, in the respective forms first used or made available for use to confirm sales of Securities. The term "PRELIMINARY PROSPECTUS" means any preliminary prospectus relating to the Offering or any preliminary prospectus supplement together with a prospectus relating to the Offering and, in the case of a Registered Offering that is an International Offering, the term "PRELIMINARY PROSPECTUS" shall mean, collectively, each preliminary prospectus or preliminary offering circular relating to the Offering or each preliminary prospectus supplement or preliminary offering circular supplement, together with a prospectus or offering circular, respectively, relating to the Offering. As used herein the terms "REGISTRATION STATEMENT", "PROSPECTUS" and "PRELIMINARY PROSPECTUS" shall include in each case the material, if any, incorporated by reference therein. The Manager will furnish to you, or make arrangements for you to obtain, copies of each Prospectus and Preliminary Prospectus (but excluding for this purpose, unless otherwise required pursuant to regulations under the 1933 Act, documents incorporated therein by reference) as soon as practicable after sufficient quantities thereof have been made available by the Issuer.
2.2. UNREGISTERED OFFERINGS. In the case of an Offering other than a Registered Offering, you understand that no registration statement has been filed with the Commission. The term "OFFERING CIRCULAR" means an offering circular or memorandum, if any, or any other written materials authorized by the Issuer to be used in connection with an Offering that is not a Registered Offering. The term "PRELIMINARY OFFERING CIRCULAR" means any preliminary offering circular or memorandum, if any, or any other written preliminary materials authorized by the Issuer to be used in connection with such an Offering. As used herein, the terms "OFFERING CIRCULAR" and "PRELIMINARY OFFERING CIRCULAR" shall include the material, if any, incorporated by reference therein. We will either, as soon as practicable after the later of the date of the Invitation Wire or the date made available to us by the Issuer, furnish to you (or make available for your review in our office) a copy of any Preliminary Offering Circular or any proof or draft of the Offering Circular. In any event, in any Offering involving an Offering Circular, the Manager will furnish to you, or make arrangements for you to obtain, as soon as practicable after sufficient quantities thereof are made available by the Issuer, copies of the final Offering Circular, as amended or supplemented, if applicable (but excluding for this purpose documents incorporated therein by reference).
III. MANAGER'S AUTHORITY
3.1. AUTHORITY OF MANAGER TO DETERMINE FORM OF DOCUMENTS,
TERMS OF OFFERING, ETC. You authorize the Manager to act as lead manager of the
Offering of the Securities by the Underwriters (the "UNDERWRITERS' SECURITIES")
or by the Issuer or Seller pursuant to delayed delivery contracts (the "CONTRACT
SECURITIES"), if any, contemplated by the Underwriting Agreement. You authorize
the Manager, on your behalf, (a) to determine the form of the Underwriting
Agreement, (b) to execute and deliver the Underwriting Agreement to the Issuer,
Guarantor or Seller, (c) to determine the form of any agreement or agreements
between or among the syndicates participating in the International Offering of
which the Offering is a part (each an "INTERSYNDICATE AGREEMENT"), and (d) to
execute and deliver any such Intersyndicate Agreement. You authorize the Manager
(i) to exercise any Over-allotment Option for the purchase any of or all the
Additional Securities for the accounts of the several Underwriters pursuant to
the Underwriting Agreement, (ii) to agree, on your behalf and on behalf of the
Co-Managers, to any addition to, change in or waiver of any provision of, or the
termination of, the Underwriting Agreement or any Intersyndicate Agreement
(other than an increase in the Purchase Price or in your Original Purchase
Obligation to purchase Securities, in either case from that contemplated by the
applicable AAU), (iii) to add or remove prospective Underwriters to or from the
syndicate, (iv) to exercise, in the Manager's discretion, all the authority
vested in the Manager in the Underwriting Agreement and (v) except as described
below in this Section 3.1, to take any other action as may seem advisable to the
Manager in respect of the Offering (including, without limitation, actions and
communications with the Commission, the National Association of Securities
Dealers, Inc. (the "NASD"), state blue sky or securities commissions, stock
exchanges and other regulatory bodies or organizations). If, in accordance with
the terms of the applicable AAU, the Offering of the Securities is at varying
prices based on prevailing market prices or prices related to prevailing market
prices or at negotiated prices, you authorize the Manager to determine, on your behalf in the Manager's discretion, any Offering Price and the Fees and Commissions applicable to the Offering from time to time. You authorize the Manager on your behalf to arrange for any currency transactions (including forward and hedging currency transactions) as the Manager deems necessary to facilitate settlement of the purchase of the Securities, but you do not authorize the Manager on your behalf to engage in any other forward or hedging transactions in connection with the Offering unless such transactions are specified in an applicable AAU or are otherwise consented to by you. You further authorize the Manager, subject to the provisions of Section 1.2 hereof, (i) to vary the offering terms of the Securities in effect at any time, including, if applicable, the Offering Price and Fees and Commissions set forth in the applicable AAU, (ii) to determine, on your behalf, the Purchase Price and (iii) to increase or decrease the number, amount or percentage of Securities being offered. Notwithstanding the foregoing provisions of this Section 3.1, the Manager shall notify the Underwriters, prior to the signing of the Underwriting Agreement, of any provision in the Underwriting Agreement that could result in an increase in the amount or percentage of Firm Securities set forth opposite each Underwriter's name in the Underwriting Agreement by more than 25% (or such other percentage as shall have been specified in the applicable Invitation Wire or otherwise consented to by you) as a result of the failure or refusal of another Underwriter or Underwriters to perform its or their obligations thereunder.
3.2. OFFERING DATE. The Offering is to be made as soon after the Underwriting Agreement is entered into by the Issuer, Guarantor or Seller and the Manager as in the Manager's judgment is advisable, on the terms and conditions set forth in the Prospectus or the Offering Circular, as the case may be, and the applicable AAU. You agree not to sell any Securities prior to the time the Manager releases such Securities for sale to purchasers. The date on which such Securities are released for sale is referred to herein as the "OFFERING DATE".
3.3. ADVERTISING; SUPPLEMENTAL OFFERING MATERIAL. Any public advertisement of the Offering shall be made by the Manager on behalf of the Underwriters on such date as the Manager shall determine. You agree not to advertise the Offering prior to the date of the Manager's advertisement thereof without the Manager's consent. If the offering is made in whole or in part in reliance on Rule 144A (or upon another exemption from registration), you agree not to engage in any general solicitation and to abide by any other restrictions in the AAU or the Underwriting Agreement in connection therewith relating to any advertising or publicity. Any advertisement you may make of the Offering after such date will be your own responsibility and at your own expense and risk. In addition to your agreement to comply with restrictions on the Offering pursuant to Sections 10.10 and 10.11 hereof, you also agree that you will not, in connection with the offer and sale of the Securities in the Offering, without the consent of the Manager, give to any prospective purchaser of the Securities or other person not in your employ any written information concerning the Offering, the Issuer, the Guarantor or the Seller, other than information contained in any Preliminary Prospectus, Prospectus, Preliminary Offering Circular or Offering Circular or in any computational materials ("COMPUTATIONAL MATERIALS") or other offering materials
prepared by or with the consent of the Manager for use by the Underwriters in connection with the Offering and, in the case of a Registered Offering, filed with the Commission or the NASD, as applicable (the "SUPPLEMENTAL OFFERING MATERIALS"). You further agree to cease distribution of any COMPUTATIONAL MATERIALS on the Offering Date.
3.4. INSTITUTIONAL AND RETAIL SALES. You authorize the Manager to sell to institutions or retail purchasers such Securities purchased by you pursuant to the Underwriting Agreement as the Manager shall determine. The Selling Concession on any such sales shall be credited to the accounts of the Underwriters as the Manager shall determine.
3.5. SALES TO DEALERS. You authorize the Manager to sell to Dealers (as defined below) such Securities purchased by you pursuant to the Underwriting Agreement as the Manager shall determine. A "DEALER" shall be a person who is (a) a broker or dealer (as defined in the By-Laws of the NASD) actually engaged in the investment banking or securities business and (i) a member in good standing of the NASD or (ii) a foreign bank, broker, dealer or other institution not eligible for membership in the NASD that, in the case of either clause (a)(i) or (a)(ii), makes the representations and agreements applicable to such institutions contained in Section 10.6 hereof or (b) in the case of Offerings of Securities that are exempt securities under Section 3(a)(12) of the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and such other Securities as from time to time may be sold by a "bank" (as defined in Section 3(a)(6) of the 1934 Act (a "BANK")), a Bank that is not a member of the NASD and that makes the representations and agreements applicable to such institutions contained in Section 10.6 hereof. If the price for any such sales by the Manager to Dealers exceeds an amount equal to the Offering Price less the Selling Concession set forth in the applicable AAU, the amount of such excess, if any, shall be credited to the accounts of the Underwriters as the Manager shall determine.
3.6. DIRECT SALES. The Manager will advise you promptly, on the date of the Offering, as to the Securities purchased by you pursuant to the Underwriting Agreement that you shall retain for direct sale. At any time prior to the termination of the applicable AAU, any such Securities that are held by the Manager for sale but not sold, may, on your request and at the Manager's discretion, be released to you for direct sale, and Securities so released to you shall no longer be deemed held for sale by the Manager. You may allow, and Dealers may reallow, a discount on sales to Dealers in an amount not in excess of the Reallowance set forth in the applicable AAU. You may not purchase Securities from, or sell Securities to, any other Underwriter or Dealer at any discount or concession other than the Reallowance, except with the consent of the Manager.
3.7. RELEASE OF UNSOLD SECURITIES. From time to time prior to the termination of the applicable AAU, on the request of the Manager, you shall advise the Manager of the amount of Securities remaining unsold which were retained by or released to you for direct sale and of the amount of Securities and Other Securities (as defined below) purchased for your account remaining unsold which were delivered to
you pursuant to Article V hereof or pursuant to any Intersyndicate Agreement, and, on the request of the Manager, you shall release to the Manager any such Securities and Other Securities remaining unsold (i) for sale by the Manager to institutions, Dealers or retail purchasers, (ii) for sale by the Issuer or Seller pursuant to delayed delivery contracts or (iii) if, in the Manager's opinion, such Securities or Other Securities are needed to make delivery against sales made pursuant to Article V hereof or any Intersyndicate Agreement.
3.8. INTERNATIONAL OFFERINGS. In the case of an International
Offering, you authorize the Manager (i) to make representations on your behalf
as set forth in any Intersyndicate Agreement or Underwriting Agreement and (ii)
to purchase or sell for your account pursuant to the Intersyndicate Agreement
(a) Securities, (b) any other securities of the same class and series, or any
securities into which the Securities may be converted or for which the
Securities may be exchanged or exercised and (c) any other securities designated
in the applicable AAU or applicable Intersyndicate Agreement (the securities
referred to in clauses (b) and (c) above being referred to collectively as the
"OTHER SECURITIES").
IV. DELAYED DELIVERY CONTRACTS
4.1. ARRANGEMENTS FOR SALES. You agree that arrangements for sales of Contract Securities will be made only through the Manager acting either directly or through Dealers (including Underwriters acting as Dealers), and you authorize the Manager to act on your behalf in making such arrangements. The aggregate amount of Securities to be purchased by the several Underwriters shall be reduced by the respective amounts of Contract Securities attributed to such Underwriters as hereinafter provided. Subject to the provisions of Section 4.2, the aggregate amount of Contract Securities shall be attributed to the Underwriters as nearly as practicable in their respective Underwriting Percentages, except that, as determined by the Manager in its discretion, (i) Contract Securities directed and allocated by a purchaser to specific Underwriters shall be attributed to such Underwriters and (ii) Contract Securities for which arrangements have been made for sale through Dealers shall be attributed to each Underwriter approximately in the proportion that Securities of such Underwriter held by the Manager for sales to Dealers bear to all Securities so held. The fee with respect to Contract Securities payable to the Manager for the accounts of the Underwriters pursuant to the Underwriting Agreement shall be credited to the accounts of the respective Underwriters in proportion to the Contract Securities attributed to such Underwriters pursuant to the provisions of this Section 4.1, less, in the case of each Underwriter, the concession to Dealers on Contract Securities sold through Dealers and attributed to such Underwriter.
4.2. EXCESS SALES. If the amount of Contract Securities attributable to an Underwriter pursuant to Section 4.1 would exceed such Underwriter's Original Purchase Obligation reduced by the amount of Underwriters' Securities sold by or on behalf of such Underwriter, such excess shall not be attributed to such Underwriter, and such Underwriter shall be regarded as having acted only as a Dealer with respect to, and shall receive only the concession to Dealers on, such excess.
V. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION
5.1. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION. In order to facilitate the distribution and sale of the Securities, you authorize the Manager to buy and sell Securities and any Other Securities, in addition to Securities sold pursuant to Article III hereof, in the open market or otherwise (including, without limitation, pursuant to any Intersyndicate Agreement), for long or short account, on such terms as it shall deem advisable, and to over-allot in arranging sales. Such purchases and sales and over-allotments shall be made for the accounts of the several Underwriters as nearly as practicable in their respective Underwriting Percentages or, in the case of an International Offering, such purchases and sales shall be for such accounts as set forth in the applicable Intersyndicate Agreement. Any securities which may have been purchased by the Manager for stabilizing purposes in connection with the Offering prior to the execution of the applicable AAU shall be treated as having been purchased pursuant to this Section 5.1 for the accounts of the several Underwriters or, in the case of an International Offering, for such accounts as are set forth in the applicable Intersyndicate Agreement. Your net commitment pursuant to the foregoing authorization shall not exceed at the close of business on any day an amount equal to 20% of your Underwriting Percentage of the aggregate initial Offering Price of the Firm Securities, it being understood that, in calculating such net commitment, the initial Offering Price shall be used with respect to the Securities so purchased or sold and, in the case of all Other Securities, shall be the purchase price thereof. Your net commitment for short account (i.e., "naked short") shall be calculated by assuming that all Securities that may be purchased upon exercise of any over-allotment option then exercisable are acquired (whether or not actually acquired) and, in the case of an International Offering, after giving effect to the purchase of any Securities or Other Securities that the Manager has agreed to purchase for your account pursuant to any applicable Intersyndicate Agreement. On demand you shall take up and pay for any Securities or Other Securities so purchased for your account and any Securities released to you pursuant to Section 3.7 hereof and you shall deliver to the Manager against payment any Securities or Other Securities so sold or over-allotted for your account or released to you. The Manager agrees to notify you if it engages in any stabilization transaction requiring reports to be filed pursuant to Rule 17a-2 under the 1934 Act and to notify you of the date of termination of stabilization. You agree not to stabilize or engage in any syndicate covering transaction (as defined in Rule 100 of Regulation M under the 1934 Act ("Regulation M")) in connection with the Offering without the prior consent of the Manager. You further agree to provide to Salomon Smith Barney any reports required of you pursuant to Rule 17a-2 not later than the date specified therein and you authorize Salomon Smith Barney to file on your behalf with the Commission any reports required by such Rule.
If the limitations of Rule 101 of Regulation M ("Rule 101") do not apply to you with respect to the Securities, Other Securities or other reference securities (as defined in Rule 100 of Regulation M) because they satisfy the exception for actively-traded
securities in subsection (c)(1) of Rule 101 or the exception for Rule 144A securities in subsection (b)(10) of Rule 101, you agree that promptly upon notice from the Manager (or, if later, at the time stated in the notice) you will comply with Rule 101 as though such exception were not available but the other provisions of Rule 101 (as interpreted by the Commission and after giving effect to any applicable exemptions) did apply. If the securities in question are NASDAQ securities (as defined in Rule 100 of Regulation M) you may engage in passive market making in accordance with Rule 103 of Regulation M (except that the daily net purchase volume limitation will not apply and the maximum displayed bid size shall be 5,000 shares excluding transactions effected in the SOES system) unless the notice from the Manager also states that passive market making is not permitted.
5.2. PENALTY WITH RESPECT TO SECURITIES REPURCHASED BY THE MANAGER. If pursuant to the provisions of Section 5.1 and prior to the termination of the Manager's authority to cover any short position incurred under the applicable AAU or such other date as the Manager shall specify in a Wire, either (A) the Manager purchases or contracts to purchase for the account of any Underwriter in the open market or otherwise any Securities which were retained by, or released to, you for direct sale or any Securities sold pursuant to Section 3.4 for which you received a portion of the Selling Concession set forth in the applicable AAU, or any Securities which may have been issued on transfer or in exchange for such Securities, and which Securities were therefore not effectively placed for investment or (B) if the Manager has advised you by Wire that trading in the Securities will be reported to the Manager pursuant to the "Initial Public Offering Tracking System" of The Depository Trust Company ("DTC") and the Manager determines, based on notices from DTC, that your customers sold an amount of Securities during any day that exceeds the amount previously notified to you by Wire, then you authorize the Manager either to charge your account with an amount equal to such portion of the Selling Concession set forth in the applicable AAU received by you with respect to such Securities or, in the case of clause (B), such Securities as exceed the amount specified in such Wire or to require you to repurchase such Securities or, in the case of clause (B), such Securities as exceed the amount specified in such Wire, at a price equal to the total cost of such purchase, including transfer taxes, accrued interest, dividends and commissions, if any.
5.3. COMPLIANCE WITH REGULATION M. You represent that, at all times since you were invited to participate in the Offering, you have complied with the provisions of Regulation M applicable to such Offering, in each case as interpreted by the Commission and after giving effect to any applicable exemptions. If you have been notified in a Wire that the Underwriters may conduct passive market making in compliance with Rule 103 of Regulation M in connection with the Offering, you represent that, at all times since your receipt of such Wire, you have complied with the provisions of such Rule applicable to such Offering, as interpreted by the Commission and after giving effect to any applicable exemptions.
5.4. STANDBY UNDERWRITINGS. You authorize the Manager in its discretion, at any time on, or from time to time prior to, the expiration of the conversion right of convertible securities identified in the applicable AAU in the case of securities
called for redemption, or the expiration of rights to acquire securities in the case of rights offerings, for which, in either case, standby underwriting arrangements have been made: (i) to purchase convertible securities or rights to acquire Securities for your account, in the open market or otherwise, on such terms as the Manager determines and to convert convertible securities or exercise rights so purchased; and (ii) to offer and sell the underlying common stock or depositary shares for your account, in the open market or otherwise, for long or short account (for purposes of such commitment, such common stock or depositary shares being considered the equivalent of convertible securities or rights), on such terms consistent with the terms of the Offering set forth in the Prospectus or Offering Circular as the Manager determines. On demand you shall take up and pay for any securities so purchased for your account or you shall deliver to the Manager against payment any securities so sold, as the case may be. During such period you may offer and sell the underlying common stock or depositary shares, but only at prices set by the Manager from time to time, and any such sales shall be subject to the Manager's right to sell to you the underlying common stock or depositary shares as above provided and to the Manager's right to reserve your Securities purchased, received or to be received upon conversion. You agree not to bid for, purchase, attempt to induce others to purchase, or sell, directly or indirectly, any convertible securities or rights or underlying common stock or depositary shares, provided, however, that no Underwriter shall be prohibited from (a) selling underlying common stock owned beneficially by such Underwriter on the day the convertible securities were first called for redemption, (b) converting convertible securities owned beneficially by such Underwriter on such date or selling underlying common stock issued upon conversion of convertible securities so owned, (c) exercising rights owned beneficially by such Underwriter on the record date for a rights offering or selling the underlying common stock or depositary shares issued upon exercise of rights so owned or (d) purchasing or selling convertible securities or rights or underlying common stock or depositary shares as a broker pursuant to unsolicited orders.
VI. PAYMENT AND SETTLEMENT
6.1. PAYMENT AND SETTLEMENT. You shall deliver to the Manager on the date and at the place and time specified in the applicable AAU (or on such later date and at such place and time as may be specified by the Manager in a subsequent Wire) the funds specified in the applicable AAU, payable to the order of Salomon Smith Barney Inc., for (i) an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the Prospectus or Offering Circular, less the applicable Selling Concession in respect of the Firm Securities to be purchased by you, (ii) an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the Prospectus or Offering Circular, less the applicable Selling Concession in respect of such of the Firm Securities to be purchased by you as shall have been retained by or released to you for direct sale as contemplated by Section 3.6 hereof or (iii) the amount set forth or indicated in the applicable AAU, as the Manager shall advise. You shall make similar payment as the Manager may direct for Additional Securities, if any, to be purchased by
you on the date specified by the Manager for such payment. The Manager will make payment to the Issuer or Seller against delivery to the Manager for your account of the Securities to be purchased by you, and the Manager will deliver to you the Securities paid for by you which shall have been retained by or released to you for direct sale. If the Manager determines that transactions in the Securities are to be settled through the facilities of DTC or other clearinghouse facility, payment for and delivery of Securities purchased by you shall be made through such facilities, if you are a member, or, if you are not a member, settlement shall be made through your ordinary correspondent who is a member.
VII. EXPENSES
7.1. MANAGEMENT FEE. You authorize the Manager to charge your account as compensation for the Manager's and Co-Managers' services in connection with the Offering, including the purchase from the Issuer or Seller of the Securities, as the case may be, and the management of the Offering, the amount, if any, set forth as the management fee, global coordinators fee, praecipium or other similar fee in the applicable AAU. Such amount shall be divided among the Manager and any Co-Managers named in the applicable AAU as they may determine.
7.2. GENERAL EXPENSES. You authorize the Manager to charge your account with your Underwriting Percentage of all expenses of a general nature incurred by the Manager and Co-Managers under the applicable AAU in connection with the Offering, including the negotiation and preparation thereof, or in connection with the purchase, carrying, marketing and sale of any securities under the applicable AAU and any Intersyndicate Agreement, including, without limitation, legal fees and expenses, transfer taxes, costs associated with approval of the Offering by the NASD and the costs of currency transactions (including forward and hedging currency transactions) entered into to facilitate settlement of the purchase of Securities permitted under Section 3.1 hereof.
VIII. MANAGEMENT OF SECURITIES AND FUNDS
8.1. ADVANCES; LOANS; PLEDGES. You authorize the Manager to advance the Manager's own funds for your account, charging current interest rates, or to arrange loans for your account for the purpose of carrying out the provisions of the applicable AAU and any Intersyndicate Agreement and in connection therewith, to hold or pledge as security therefor all or any securities which the Manager may be holding for your account under the applicable AAU and any Intersyndicate Agreement, to execute and deliver any notes or other instruments evidencing such advances or loans and to give all instructions to the lenders with respect to any such loans and the proceeds thereof. The obligations of the Underwriters under loans arranged on their behalf shall be several in proportion to their respective Original Purchase Obligations and not joint. Any lender is authorized to accept the Manager's instructions as to the disposition of the proceeds of any such loans. In the event of any such advance or loan, repayment
thereof shall, in the discretion of the Manager, be effected prior to making any remittance or delivery pursuant to Section 8.2, 8.3 or 9.2 hereof.
8.2. RETURN OF AMOUNT PAID FOR SECURITIES. Out of payment received by the Manager for Securities sold for your account which have been paid for by you, the Manager will remit to you promptly an amount equal to the price paid by you for such Securities.
8.3. DELIVERY AND REDELIVERY OF SECURITIES FOR CARRYING PURPOSES. The Manager may deliver to you from time to time prior to the termination of the applicable AAU pursuant to Section 9.1 hereof against payment, for carrying purposes only, any Securities or Other Securities purchased by you under the applicable AAU or any Intersyndicate Agreement which the Manager is holding for sale for your account but which are not sold and paid for. You shall redeliver to the Manager against payment any Securities or Other Securities delivered to you for carrying purposes at such times as the Manager may demand.
IX. TERMINATION; INDEMNIFICATION
9.1. TERMINATION. Each AAU shall terminate at the close of business on the later of the date on which the Underwriters pay the Issuer or Seller for the Securities and 45 full days after the applicable Offering Date, unless sooner terminated by the Manager. The Manager may in its discretion by notice to you prior to the termination of such AAU alter any of the terms or conditions of the Offering to the extent permitted by Articles III or IV hereof, or terminate or suspend the effectiveness of Article V hereof, or any part thereof. No termination or suspension pursuant to this paragraph shall affect the Manager's authority under Section 3.1 hereof to take actions in respect of the Offering or under Article V hereof to cover any short position incurred under such AAU or in connection with covering any such short position to require you to repurchase Securities as specified in Section 5.2 hereof.
9.2. DELIVERY OR SALE OF SECURITIES; SETTLEMENT OF ACCOUNTS. Upon termination of each AAU or prior thereto at the Manager's discretion, the Manager shall deliver to you any Securities paid for by you pursuant to Section 6.1 hereof and held by the Manager for sale pursuant to Section 3.4 or 3.5 hereof but not sold and paid for and any Securities or Other Securities that are held by the Manager for your account pursuant to the provisions of Article V hereof or any Intersyndicate Agreement. Notwithstanding the foregoing, at the termination of such AAU, if the aggregate initial Offering Price of any such Securities and the aggregate purchase price of any Other Securities so held and not sold and paid for does not exceed an amount equal to 20% of the aggregate initial Offering Price of the Securities, the Manager may, in its discretion, sell such Securities and Other Securities for the accounts of the several Underwriters, at such prices, on such terms, at such times and in such manner as it may determine. Within the period specified by applicable NASD Rules or, if no period is so specified, as soon as practicable after termination of such AAU, your account shall be settled and paid. The Manager may reserve from distribution such amount as the Manager deems
advisable to cover possible additional expenses. The determination by the Manager of the amount so to be paid to or by you shall be final and conclusive. Any of your funds in the Manager's hands may be held with the Manager's general funds without accountability for interest.
Notwithstanding any provision of this Master AAU other than
Section 10.12, upon termination of each AAU or prior thereto at the Manager's
discretion, the Manager (i) may allocate to the accounts of the Underwriters the
expenses described in Section 7.2 hereof and any losses incurred upon the sale
of Securities or Other Securities pursuant to the applicable AAU or any
Intersyndicate Agreement (including any losses incurred upon the sale of
securities referred to in Section 5.4(ii) hereof), (ii) may deliver to the
Underwriters any unsold Securities or Other Securities purchased pursuant to
Section 5.1 hereof or any Intersyndicate Agreement and (iii) may deliver to the
Underwriters any unsold Securities purchased pursuant to the applicable
Underwriting Agreement, in each case in the Manager's discretion. The Manager
shall have full discretion to allocate expenses and Securities to the accounts
of any Underwriter as the Manager decides, except that (a) no Underwriter (other
than the Manager or a Co-Manager) shall bear more than its share of such
expenses, losses or Securities (such share shall not exceed such Underwriter's
Underwriting Percentage and shall be determined pro rata among all such
Underwriters based on their Underwriting Percentages), (b) no such Underwriter
shall receive Securities that, together with any Securities purchased by such
Underwriter pursuant to Section 6.1 (but excluding any Securities that such
Underwriter is required to repurchase pursuant to Section 5.2) exceed such
Underwriter's Original Purchase Obligation and (c) no Co-Manager shall bear more
than its share, as among the Manager and the other Co-Managers, of such
expenses, losses or Securities (such share to be determined pro rata among the
Manager and all Co-Managers based on (1) their relative Underwriting Percentages
as a percentage of the total combined Underwriting Percentages of the Manager
and all Co-Managers, or (2) if the Manager so determines, their relative
Offering Economics (as hereinafter defined) as a percentage of the combined
Offering Economics of the Manager and all Co-Managers together. The Manager's or
a Co-Manager's "OFFERING ECONOMICS" equals the sum of its Management Fee Share,
its Underwriting Fee Share and its Selling Concession Share (each as hereinafter
defined). The Manager's or a Co-Manager's "MANAGEMENT FEE SHARE" is the dollar
amount of its share, as agreed among the Manager and any Co-Managers, of the
amount payable by all Underwriters to some or all of the Manager and any
Co-Manager as a global coordinators' fee, praecipium, management fee or other
fee. The Manager's or a Co-Manager's "UNDERWRITING FEE SHARE" is the dollar
amount of its Underwriting Percentage of the aggregate initial Offering Price of
the Firm Securities less the Purchase Price thereof, less the Selling Concession
thereon. The Manager's or a Co-Manager's "SELLING CONCESSION SHARE" is the
dollar amount of any Selling Concession credited to it on sales from the
institutional pot or on sales made for the account of any other Underwriter. If
any Securities or Other Securities returned to you pursuant to clause (ii) or
(iii) above were not paid for by you pursuant to Section 6.1 hereof, you shall
pay to the Manager an amount per security equal to the amount set forth in
Section 6.1(i), in the case of Securities returned to you pursuant to clause
(iii) above, or the purchase price of such securities, in the case of Securities
or Other Securities returned to you
pursuant to clause (ii) above.
9.3. POST-SETTLEMENT EXPENSES. Notwithstanding any settlement
on the termination of the applicable AAU, you agree to pay any transfer taxes
which may be assessed and paid after such settlement on account of any sales or
transfers under such AAU or any Intersyndicate Agreement for your account and
your Underwriting Percentage of (i) all expenses incurred by the Manager in
investigating, preparing to defend or defending against any action, claim or
proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) relating to (a) the Registration Statement, any
Preliminary Prospectus or Prospectus (or any amendment or supplement thereto),
any Preliminary Offering Circular or Offering Circular (or any amendment or
supplement thereto) or Supplemental Offering Materials, (b) the violation of any
applicable restrictions on the offer, sale, resale or purchase of Securities or
Other Securities imposed by United States Federal or state laws or foreign laws
and the rules and regulations of any regulatory body promulgated thereunder or
pursuant to the terms of such AAU, the Underwriting Agreement or any
Intersyndicate Agreement or (c) any claim that the Underwriters constitute a
partnership, an association or an unincorporated business or other separate
entity and (ii) any liability, including attorneys' fees, incurred by the
Manager in respect of any such action, claim or proceeding, whether such
liability shall be the result of a judgment or arbitrator's determination or as
a result of any settlement agreed to by the Manager, other than any such expense
or liability as to which the Manager actually receives indemnity pursuant to
Section 9.4, contribution pursuant to Section 9.5, indemnity or contribution
pursuant to the Underwriting Agreement or damages from an Underwriter for breach
of its representations, warranties, agreements, or covenants contained in the
applicable AAU. None of the foregoing provisions of this Section 9.3 shall
relieve any defaulting or breaching Underwriter from liability for its defaults
or breach.
9.4. INDEMNIFICATION. You agree to indemnify and hold harmless
each other Underwriter and each person, if any, who controls any such
Underwriter within the meaning of either Section 15 of the 1933 Act or Section
20 of the 1934 Act, to the extent and upon the terms which you agree to
indemnify and hold harmless any of the Issuer, the Guarantor, the Seller, any
person controlling the Issuer, the Guarantor, the Seller, its directors and, in
the case of a Registered Offering, its officers who signed the Registration
Statement and, in the case of an Offering other than a Registered Offering, its
officers, in each case as set forth in the Underwriting Agreement. You further
agree to indemnify and hold harmless any investment banking firm identified in a
Wire as the qualified independent underwriter as defined in Rule 2720 of the
NASD's Conduct Rules ("QIU") for an Offering and each person, if any, who
controls such QIU within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act, from and against any and all losses, claims, damages
and liabilities related to, arising out of or in connection with such investment
banking firm's activities as QIU for the Offering. You agree with the other
Underwriters to reimburse such QIU for all expenses, including fees and expenses
of counsel as they are incurred, in connection with investigating, preparing
for, or defending any action, claim or proceeding related to, arising out of, or
in connection with such QIU's activities as a QIU for the Offering. Each
Underwriter shall be responsible for its Underwriting Percentage of any amount
due to such QIU on
account of the foregoing indemnity. You agree that such QIU shall have no additional liability to any Underwriter or otherwise as a result of its serving as QIU in connection with the Offering. You further agree that to the extent the indemnification provided to a QIU under this Section 9.4 is unavailable to such QIU or insufficient in respect of any losses, claims, damages or liabilities (and expenses relating thereto), whether as a matter of law or public policy or as a result of the default of any Underwriter in performing its obligations under this Section 9.4, you and each other Underwriter shall contribute to the amount paid or payable by such QIU as a result of such losses, claims, damages or liabilities (and expenses relating thereto) in proportion to your Underwriting Percentage.
9.5. CONTRIBUTION. Notwithstanding any settlement on the termination of the applicable AAU, you agree to pay upon request of the Manager, as contribution, your Underwriting Percentage of any losses, claims, damages or liabilities, joint or several, paid or incurred by any Underwriter to any person other than an Underwriter, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus or Prospectus (or any amendment or supplement thereto), any Preliminary Offering Circular or Offering Circular (or any amendment or supplement thereto) or Supplemental Offering Materials or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (other than an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriter on whose behalf the request for contribution is being made expressly for use therein) and your Underwriting Percentage of any legal or other expenses reasonably incurred by the Underwriter (with the approval of the Manager) on whose behalf the request for contribution is being made in connection with investigating or defending any such loss, claim, damage or liability or any action in respect thereof; provided that no request shall be made on behalf of any Underwriter guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) from any Underwriter who was not guilty of such fraudulent misrepresentation. None of the foregoing provisions of this Section 9.5 shall relieve any defaulting or breaching Underwriter from liability for its defaults or breach.
9.6. SEPARATE COUNSEL. If any claim is asserted or action or proceeding commenced pursuant to which the indemnity provided in Section 9.4 may apply, the Manager may take such action in connection therewith as it deems necessary or desirable, including retention of counsel for the Underwriters, and in its discretion separate counsel for any particular Underwriter or group of Underwriters, and the fees and disbursements of any counsel so retained shall be allocated among the several Underwriters as determined by the Manager. Any Underwriter may elect to retain at its own expense its own counsel and, on advice of such counsel but only with the consent of the Manager, may settle or consent to the settlement of any such claim, action or proceeding. The Manager may settle or consent to the settlement of any such claim, action or proceeding. Whenever the Manager receives notice of the assertion of any claim, action or proceeding to which the provisions of Section 9.4 would apply, it will give prompt notice thereof to each Underwriter, and whenever you receive notice of the
assertion of any claim or commencement of any action or proceeding to which the provisions of Section 9.4 would apply, you will give prompt notice thereof to the Manager. The Manager also will furnish each Underwriter with periodic reports, at such times as it deems appropriate, as to the status of such claim, action or proceeding, and the action taken by it in connection therewith.
9.7. SURVIVAL OF AGREEMENTS. Regardless of any termination of
an AAU, your agreements contained in Article V and Sections 3.1, 9.3, 9.4, 9.5,
9.6 and 11.2 shall remain operative and in full force and effect regardless of
(i) any termination of the Underwriting Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Issuer, the Guarantor, the Seller, its directors or
officers or any person controlling the Issuer, the Guarantor or the Seller and
(iii) acceptance of any payment for any Securities.
X. REPRESENTATIONS AND COVENANTS OF UNDERWRITERS
10.1. KNOWLEDGE OF OFFERING. You understand that it is your responsibility to examine the Registration Statement, the Prospectus or the Offering Circular, as the case may be, relating to the Offering, any amendment or supplement thereto, any Preliminary Prospectus or Preliminary Offering Circular and the material, if any, incorporated by reference therein and any Supplemental Offering Materials and you will familiarize yourself with the terms of the Securities, any applicable Indenture and the other terms of the Offering thereof which are to be reflected in the Prospectus or the Offering Circular, as the case may be, and the applicable AAU and Underwriting Agreement. The Manager is authorized, with the advice of counsel for the Underwriters, to approve on your behalf any amendments or supplements to the Registration Statement and the Prospectus or the Offering Circular, as the case may be.
10.2. DISTRIBUTION OF MATERIALS. You will keep an accurate record of the names and addresses of all persons to whom you give copies of the Registration Statement, the Prospectus, any Preliminary Prospectus (or any amendment or supplement thereto) or any Offering Circular or any Preliminary Offering Circular and, when furnished with any subsequent amendment to the Registration Statement, any subsequent Prospectus, any subsequent Offering Circular or any memorandum outlining changes in the Registration Statement or any Prospectus or Offering Circular, you will, upon request of the Manager, promptly forward copies thereof to such persons.
10.3. ACCURACY OF UNDERWRITERS' INFORMATION. You confirm that the information that you have given or are deemed to have given in response to the Underwriters' Questionnaire attached as Exhibit A hereto (and to any other questions addressed to you in the Invitation Wire or other Wires), which information has been furnished to the Issuer for use in the Registration Statement and the Prospectus or the Offering Circular, as the case may be, or has otherwise been relied upon in connection with the Offering, is complete and accurate. You shall notify the Manager immediately of any development before the termination of the applicable AAU which makes untrue or incomplete any information that you have given or are deemed to have given in
response to the Underwriters' Questionnaire (or such other questions).
10.4. NAME; ADDRESS. Unless you have promptly notified the Manager in writing otherwise, your name as it should appear in the Prospectus or the Offering Circular and any advertisement, if different, and your address are as set forth on the signature pages hereof.
10.5. CAPITAL REQUIREMENTS. You represent that your commitment to purchase the Securities will not result in a violation of the financial responsibility requirements of Rule 15c3-1 under the 1934 Act or of any similar provision of any applicable rules of any securities exchange to which you are subject or, if you are a financial institution subject to regulation by the Board of Governors of the United States Federal Reserve System, the United States Comptroller of the Currency or the United States Federal Deposit Insurance Corporation, will not place you in violation of any applicable capital requirements or restrictions of such regulator or any other regulator to which you are subject.
10.6. COMPLIANCE WITH NASD REQUIREMENTS. You represent that
you are a member in good standing of the NASD, a Bank that is not a member of
the NASD or a foreign bank or dealer not eligible for membership in the NASD. In
making sales of Securities, if you are such a member, you agree to comply with
all applicable interpretive material ("IM") and rules of the NASD, including,
without limitation, IM-2110-1 (the NASD's interpretation with respect to
free-riding and withholding) and Rule 2740 of the NASD's Conduct Rules, or, if
you are such a foreign bank or dealer, you agree to comply, as applicable, with
IM-2110-1 and Rules 2730, 2740 and 2750 of the NASD's Conduct Rules as though
you were such a member and Rule 2420 of the NASD's Conduct Rules as it applies
to a nonmember broker or dealer in a foreign country. If you are a Bank, you
agree, to the extent required by applicable law or the Conduct Rules of the
NASD, that you will not, in connection with the public offering of any
Securities that do not constitute "exempted securities" within the meaning of
Section 3(a)(12) of the 1934 Act or such other Securities as from time to time
may be sold by a Bank, purchase any Securities at a discount from the Offering
Price from any Underwriter or dealer or otherwise accept any Fees and
Commissions from any Underwriter or Dealer, and you agree to comply, as
applicable, with Rule 2420 of the NASD's Conduct Rules as though you were a
member.
10.7. FURTHER STATE NOTICE. The Manager will file a Further State Notice with the Department of State of New York, if required.
10.8. COMPLIANCE WITH RULE 15C2-8. In the case of a Registered Offering and any other Offering to which the provisions of Rule 15c2-8 under the 1934 Act are made applicable pursuant to the AAU or otherwise, you agree to comply with such Rule in connection with the Offering. In the case of an Offering other than a Registered Offering, you agree to comply with applicable Federal and state laws and the applicable rules and regulations of any regulatory body promulgated thereunder governing the use and distribution of offering circulars by underwriters.
10.9. DISCRETIONARY ACCOUNTS. In the case of a Registered Offering of Securities issued by an Issuer that was not, immediately prior to the filing of the Registration Statement, subject to the requirements of Section 13(d) or 15(d) of the 1934 Act, you agree that you will not make sales to any account over which you exercise discretionary authority in connection with such sale except as otherwise permitted by the applicable AAU for such Offering.
10.10. OFFERING RESTRICTIONS. If you are a foreign bank or dealer and you are not registered as a broker-dealer under Section 15 of the 1934 Act, you agree that while you are acting as an Underwriter in respect of the Securities and in any event during the term of the applicable AAU, you will not directly or indirectly effect in, or with persons who are nationals or residents of, the United States, its territories or possessions any transactions (except for the purchases provided for in the Underwriting Agreement and transactions contemplated by Articles III and V hereof) in Securities or any Other Securities.
It is understood that, except as specified in the applicable AAU, no action has been taken by the Manager, the Issuer, the Guarantor or the Seller to permit you to offer Securities in any jurisdiction other than the United States, in the case of a Registered Offering, where action would be required for such purpose.
10.11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. You agree to make to each other Underwriter participating in an Offering the same representations, warranties and agreements, if any, made by the Underwriters to the Issuer, the Guarantor or the Seller in the applicable Underwriting Agreement or any Intersyndicate Agreement and you authorize the Manager to make such representations, warranties and agreements to the Issuer, the Guarantor or the Seller on your behalf.
10.12. LIMITATION ON THE AUTHORITY OF THE MANAGER TO PURCHASE AND SELL SECURITIES FOR THE ACCOUNT OF CERTAIN UNDERWRITERS. Notwithstanding any provision of this AAU authorizing the Manager to purchase or sell any Securities or Other Securities (including arranging for the sale of Contract Securities) or over-allot in arranging sales of Securities for the accounts of the several Underwriters, the Manager may not, in connection with the Offering of any Securities, make any such purchases, sales and/or over-allotments for the account of any Underwriter that, not later than its acceptance of the Invitation Wire relating to such Offering, has advised the Manager that, due to its status as, or relationship to, a bank or bank holding company such purchases, sales and/or over-allotments are prohibited by applicable law. If any Underwriter so advises the Manager, the Manager may allocate any such purchases, sales and over-allotments (and the related expenses) which otherwise would have been allocated to your account based on your respective Underwriting Percentage to your account based on the ratio of your Original Purchase Obligation to the Original Purchase Obligations of all Underwriters other than the advising Underwriter or Underwriters or in such other manner as the Manager shall determine.
XI. DEFAULTING UNDERWRITERS
11.1. EFFECT OF TERMINATION. If the Underwriting Agreement is terminated as permitted by the terms thereof, your obligations hereunder with respect to the Offering of the Securities shall immediately terminate except (i) as set forth in Section 9.7, (ii) that you shall remain liable for your Underwriting Percentage (or such other percentage as may be specified pursuant to Section 9.2) of all expenses and for any purchases or sales which may have been made for your account pursuant to the provisions of Article V hereof or any Intersyndicate Agreement and (iii) that such termination shall not affect any obligations of any defaulting or breaching Underwriter.
11.2. SHARING OF LIABILITY. If any Underwriter shall default
in its obligations (i) pursuant to Section 5.1, 5.2 or 5.4, (ii) to pay amounts
charged to its account pursuant to Section 7.1, 7.2 or 8.1 or (iii) pursuant to
Section 9.2, 9.3, 9.4, 9.5, 9.6 or 11.1, you will assume your proportionate
share (determined on the basis of the respective Underwriting Percentages of the
non-defaulting Underwriters) of such obligations, but no such assumption shall
relieve any defaulting Underwriter from liability to the non-defaulting
Underwriters, the Issuer, the Guarantor or the Seller for its default.
11.3. ARRANGEMENTS FOR PURCHASES. The Manager is authorized to arrange for the purchase by others (including the Manager or any other Underwriter) of any Securities not purchased by any defaulting Underwriter in accordance with the terms of the applicable Underwriting Agreement or, if the applicable Underwriting Agreement does not provide arrangements for defaulting Underwriters, in the discretion of the Manager. If such arrangements are made, the respective amounts of Securities to be purchased by the remaining Underwriters and such other person or persons, if any, shall be taken as the basis for all rights and obligations hereunder, but this shall not relieve any defaulting Underwriter from liability for its default.
XII. MISCELLANEOUS
12.1. OBLIGATIONS SEVERAL. Nothing contained in this Salomon Smith Barney Master AAU or any AAU constitutes you partners with the Manager or with the other Underwriters and the obligations of you and each of the other Underwriters are several and not joint. Each Underwriter elects to be excluded from the application of Subchapter K, Chapter 1, Subtitle A, of the United States Internal Revenue Code of 1986, as amended. Each Underwriter authorizes the Manager, on behalf of such Underwriter, to execute such evidence of such election as may be required by the United States Internal Revenue Service.
12.2. LIABILITY OF MANAGER. The Manager shall be under no liability to you for any act or omission except for obligations expressly assumed by the Manager in the applicable AAU.
12.3. TERMINATION OF MASTER AGREEMENT AMONG UNDERWRITERS. This
SALOMON SMITH BARNEY Master AAU may be terminated by either party hereto upon five business days' written notice to the other party; provided that with respect to any Offering for which an AAU was sent prior to such notice, this Salomon Smith Barney Master AAU as it applies to such Offering shall remain in full force and effect and shall terminate with respect to such Offering in accordance with Section 9.1 hereof.
12.4. GOVERNING LAW. THIS SALOMON SMITH BARNEY MASTER AAU AND EACH AAU SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
12.5. AMENDMENTS. This Salomon Smith Barney Master AAU may be amended from time to time by consent of the parties hereto. Your consent shall be deemed to have been given to an amendment to this Salomon Smith Barney Master AAU, and such amendment shall be effective, five business days following written notice to you of such amendment if you do not notify Salomon Smith Barney in writing prior to the close of business on such fifth business day that you do not consent to such amendment. Upon effectiveness, the provisions of this Salomon Smith Barney Master AAU as so amended shall apply to each AAU thereafter entered into except as otherwise specifically provided in any such AAU.
12.6. NOTICES. Any notice to any Underwriter shall be deemed to have been duly given if mailed, sent by wire, telex, facsimile or electronic transmission or other written communication or delivered in person to such Underwriter at the address which shall have been provided to Salomon Smith Barney as provided in Section 10.4 hereof. Any such notice shall take effect upon receipt thereof.
Please confirm your acceptance of this Salomon Smith Barney Master AAU by signing and returning to us the enclosed duplicate copy hereof.
Very truly yours,
SALOMON SMITH BARNEY INC.
Title:
CONFIRMED:...............................1999
.............................................
(Name of Underwriter)
By:................................................
Name:
Title:
(If person signing is not an officer or a partner, please attach instrument of authorization)
EXHIBIT A
JUNE 1, 1999
SALOMON SMITH BARNEY INC.
UNDERWRITERS' QUESTIONNAIRE
In connection with each Offering covered by the Salomon Smith Barney Inc. Master Agreement Among Underwriters dated June 1, 1999, we confirm that except as set forth in a timely reply by us to the Invitation Wire:
(1) Neither we nor any of our directors, officers or partners have a material relationship (as "material" is defined in Regulation C under the 1933 Act) with the Issuer, the Guarantor or any Seller.
(2) (If the offer and sale of the Securities are to be registered under the 1933 Act pursuant to a Registration Statement on Form S-1 of Form F-1:) Neither we nor any "group" (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of which we are a member is the beneficial owner (determined in accordance with Rule 13d-3 under the Exchange Act) of more than 5% of any class of voting securities of the Issuer or the Guarantor, nor do we have any knowledge that more than 5% of any class of voting securities of the Issuer or the Guarantor is held or to be held subject to any voting trust or other similar agreement.
(3) Other than as may be stated in the Salomon Smith Barney Master Agreement Among Underwriters dated June 1, 1999, the applicable AAU, the Intersyndicate Agreement or dealer agreement, if any, the Prospectus, the Registration Statement or the Offering Circular, we do not know and have no reason to believe that there is an intention to over-allot or that the price of any security may be stabilized to facilitate the offering of the Securities.
(4) Except as described in the Prospectus or Offering Circular, as the case may, be and the Invitation Wire, we do not know of any discounts or commissions to be allowed or paid to dealers, including all cash, securities, contracts or other consideration to be received by any dealer in connection with the sale of the securities.
(5) We have not prepared any report or memorandum for external
use in connection with the Offering. (If there are any exceptions, (i)
furnish four (4) copies of each report and memorandum to Salomon Smith
Barney Inc., 388 Greenwich Street, New York, N.Y. 10013, Attention:
Investment Banking Department/Transaction Structuring Group, (ii)
identify each class of person who received such material and the number
of copies distributed to each such class, and (iii) indicate when such
distribution commenced and ceased.)
(6) (If the offer and sale of the Securities are to be registered under the 1933 Act pursuant to a Registration Statement on Form S-1 or Form F-1:) We have not within the past twelve months prepared or had prepared for us any engineering, management or similar report or memorandum relating to broad aspects of the business, operations or products of the Issuer or the Guarantor. (The immediately preceding sentence does not apply to reports solely comprised of recommendations to buy, sell or hold the Issuer's or the Guarantor's securities, unless such recommendations have changed within the past six months or to information already contained in documents filed with the Commission. If there are any exceptions, (i) furnish four (4) copies of each report and memorandum to Salomon Smith Barney Inc. 388 Greenwich Street, New York, N.Y. 10013, Attention: Investment Banking Department/Transaction Structuring Group, (ii) identify each class of persons who received such material and the number of copies distributed to each such class, and (iii) indicate when such distribution commenced and ceased.)
(7) We are not an "affiliate" of the Issuer or the Guarantor for purposes of Rule 2720 of the National Association of Securities Dealers, Inc.'s ("NASD") Conduct Rules. We understand that under Rule 2720 (except as provided in Rule 2720(b)(1)(C) thereof) two entities are "affiliates" of each other if one entity controls, is controlled by, or is under common control with, the second entity and that "control" is presumed to exist if one entity (or, in the case of an NASD member, the entity and all "persons associated with" it (as defined in the NASD By-Laws)) beneficially owns 10% or more of the second entity's outstanding voting securities or, if the second entity is a partnership, if the first entity has a partnership interest in 10% or more of the second entity's distributable profits or losses.
(8) (If the Securities are not investment grade debt securities or preferred stock, or equity securities for which there exists a "bona fide independent market" (as defined in Rule 2720(b)(3) of the NASD's Conduct Rules) or otherwise exempted under Rule 2720(b)(7)(D) of the NASD's Conduct Rules:) We do not have a "conflict of interest" with the Issuer or the Guarantor under Rule 2720 of the NASD's Conduct Rules. In that regard, we specifically confirm that we, our "parent" (as defined in Rule 2720), affiliates and "persons associated with" us (as defined in the NASD By-Laws), in the aggregate do not (i) beneficially own 10% or more of the Issuer's or the Guarantor's "common equity", "preferred equity", or "subordinated debt" (as each such term is defined in Rule 2720), or (ii) in the case of an Issuer or Guarantor which is a partnership,
beneficially own a general, limited or special partnership interest in 10% or more of the Issuer's or Guarantor's distributable profits or losses.
(9) (If filing with the NASD is required:) Neither we nor any of our directors, officers, partners or "persons associated with" us (as defined in the NASD By-Laws) nor, to our knowledge, any "related person" (defined by the NASD to include counsel, financial consultants and advisors, finders, members of the selling or distribution group, any NASD member participating in the offering and any other persons associated with or related to and members of the immediate family of any of the foregoing) or any other broker-dealer, (a) within the last 12 months have purchased in private transactions, or intend before, at or within six months after the commencement of the public offering of the Securities to purchase in private transactions, any securities of the Issuer, the Guarantor or any Issuer Related Party (as hereinafter defined), (b) within the last 12 months had any dealings with the Issuer, the Guarantor, any Seller or any subsidiary or controlling person thereof (other than relating to the proposed Underwriting Agreement) as to which documents or information are required to be filed with the NASD pursuant to its Corporate Financing Rule, or (c) during the 12 months immediately preceding the filing of the Registration Statement (or, if there is none, the Offering Circular), have entered into any arrangement which provided or provides for the receipt of any item of value (including, but not limited to, cash payments and expense reimbursements) and/or the transfer of any warrants, options or other securities from the Issuer, the Guarantor or any Issuer Related Party to us or any related person.
(10) (If filing with the NASD is required:) There is no association or affiliation between us and (i) any officer or director of the Issuer, the Guarantor or any Issuer Related Party, or (ii) any securityholder of five percent or more (or, in the case of an initial public offering of equity securities, any securityholder) of any class of securities of the Issuer, the Guarantor or an Issuer Related Party; it being understood that for purposes of paragraph (9) above and this paragraph (10), the term "Issuer Related Party" includes any Seller, any affiliate of the Issuer the Guarantor or a Seller and the officers or general partners, directors, employees and securityholders thereof. (If there are any exceptions, state the identity of the person with whom the association or affiliation exists and, if relevant, the number of equity securities or the face value of debt securities owned by such person, the date such securities were acquired and the price paid for such securities).
(11) (If the Securities are not issued by a real estate investment trust:) No portion of the net offering proceeds from the sale of the Securities will be paid to us or any of our affiliates or "persons associated with" us (as defined in the NASD By-Laws) or members of the immediate family of any such person.
(12) (If the Securities are debt securities and their offer and sale is to be registered under the 1933 Act:) We are not an affiliate (as defined in Rule 0-2 under the Trust Indenture Act of 1939) of the Trustee for the Securities or of its
parent, if any. Neither the Trustee nor its parent, if any, nor any of their directors or executive officers is a "director, officer, partner, employee, appointee or representative" of ours (as those terms are defined in the Trust Indenture Act of 1939 or in the relevant instructions to Form T-1). We and our directors, partners, and executive officers, taken as a group, did not on the date specified in the Invitation Wire, and do not, own beneficially 1% or more of the shares of any class of voting securities of the Trustee or of its parent, if any. If we are a corporation, we do not have outstanding and have not assumed or guaranteed any securities issued otherwise than in our present corporate name.
(13) (If the Issuer is a public utility:) We are not a "holding company" or a "subsidiary company" or an "affiliate" of a "holding company" or of a "public-utility company", each as defined in the Public Utility Holding Company Act of 1935.
(14) If we are, or we are affiliated with, a U.S. or non-U.S. bank, we hereby represent that our participation in the offering of the Securities on the terms contemplated in the applicable AAU and the proposed Underwriting Agreement does not contravene any U.S. or state banking law restricting the exercise of securities powers in the United States.
Capitalized terms used but not defined herein shall have the respective meanings given to them in the applicable AAU.
Exhibit k.3
NUVEEN AUCTION AGENCY AGREEMENT
Basic Terms for Acting as Auction Agent
November 1, 1993
These basic terms ("Basic Terms") set forth the general terms and conditions pursuant to which a bank or trust company identified in a Request and Acceptance Letter will act as auction agent (an "Auction Agent") for Municipal Auction Rate Cumulative Preferred Stock or Shares issued by an investment company registered under the Investment Company Act of 1940, as amended, as further identified by such Request and Acceptance Letter (a "Fund"), for which Nuveen Advisory Corp. is the investment adviser.
The Fund proposes to issue shares of MuniPreferred(R) pursuant to its Articles of Incorporation or Declaration of Trust, as amended or supplemented by the Statement. The Fund desires that the Auction Agent perform certain duties in connection with the MuniPreferred upon the terms and subject to the conditions of the Agreement.
1. Definitions and Rules of Construction.
1.1 Terms Defined By Reference to Statement.
Capitalized terms not defined herein shall have the respective meanings specified in the Statement.
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures, the following terms shall have the following meanings, unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean the member of, or participant in, the Securities Depository that will act on behalf of a Bidder.
(b) "Agreement" shall mean the Basic Terms, together with the Request and Acceptance Letter relating to one or more series of MuniPreferred.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Procedures" shall mean the auction procedures constituting Part II of the form of Statement as of the filing thereof.
(e) "Authorized Officer" of the Auction Agent shall mean each Senior Vice President, Vice President, Assistant Vice President, Assistant Treasurer and Assistant Secretary of the Auction Agent assigned to its Corporate Trust and Agency Group and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a communication to the Fund.
(f) "Broker-Dealer Agreement" shall mean each agreement among the Fund, the Auction Agent and a Broker-Dealer substantially in the form attached hereto as Exhibit A.
(g) "Fund Officer" shall mean the Chairman of the Board of Directors or Board of Trustees, as the case may be, each Vice Chairman of the Board of Directors or Board of Trustees (whether or not designated by a number or word or words added before or after the title "Vice Chairman"), the President, each Vice President (whether or not designated by a number or word or words added before or after the title "Vice President"), the Secretary, the Treasurer, each Assistant Vice President, each Assistant Secretary and each Assistant Treasurer of the Fund and every other officer or employee of the Fund designated as a "Fund Officer" for purposes hereof in a notice to the Auction Agent.
(h) "MuniPreferred" shall mean the preferred stock or shares, par value $.01 per share, of the Fund designated as its "Municipal Auction Rate Cumulative Preferred Stock" or "Municipal Auction Rate Cumulative Preferred Shares" and bearing such further designation as to series as the Board of Directors or Board of Trustees, as the case may be, of the Fund or any committee thereof shall specify; as set forth in the Request and Acceptance Letter.
(i) "Request and Acceptance Letter" shall mean the letter from the Fund to the Auction Agent pursuant to which the Fund appoints the Auction Agent and the Auction Agent accepts its appointment as auction agent for the MuniPreferred.
(j) "Settlement Procedures" shall mean the Settlement Procedures attached hereto as Exhibit B.
(k) "Statement" shall mean the Statement Establishing and Fixing the Rights and Preferences of, and authorizing the issuance of, one or more series of Municipal Auction Rate Cumulative Preferred Stock or Municipal Auction Rate Cumulative Preferred Shares, as filed by the Fund with the office of the Secretary of State or other officer of the state where the Fund was incorporated or organized, a copy of which is attached to the Request and Acceptance Letter, as the same may be amended, supplemented or modified from time to time.
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of the Agreement:
(a) Words importing the singular number shall include the plural number and vice versa.
(b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of the Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto" and other words of similar import refer to the Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York City time.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures.
(a) The Statement for each series of MuniPreferred will provide that the Applicable Rate for such series for each Subsequent Rate Period thereof shall, except under certain conditions, be the rate per annum that a bank or trust company appointed by the Fund advises results from implementation of the Auction Procedures for such series. The Board of Directors or Board of Trustees, as the case may be, of the Fund has adopted a resolution appointing the Auction Agent as auction agent for purposes of the Auction Procedures for each series of MuniPreferred. The Auction Agent accepts such appointment and agrees to follow the procedures set forth in this Section 2 and the Auction Procedures for the purpose of determining the Applicable Rate for each series of MuniPreferred for each Subsequent Rate Period thereof for which the Applicable Rate is to be determined by an Auction. Each periodic implementation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part hereof to the same extent as if such provisions were fully set forth herein.
2.2 Preparation for Each Auction; Maintenance of Registry of Beneficial Owners.
(a) Not later than seven days prior to the first Auction Date for the first series of MuniPreferred subject to an Auction, the Fund shall provide the Auction Agent with a list of
the Broker-Dealers. Not later than seven days prior to any Auction Date for any series of MuniPreferred for which any change in such list of Broker-Dealers is to be effective, the Fund will notify the Auction Agent in writing of such change and, if any such change involves the addition of a Broker-Dealer to such list, shall cause to be delivered to the Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by such Broker-Dealer; provided, however, that if the Fund proposes to designate any Special Rate Period of any series of MuniPreferred pursuant to Section 4 of Part I of the Statement, not later than 11:00 A.M. on the Business Day next preceding the Auction next preceding the first day of such Rate Period or by such later time or date, or both, as may be agreed to by the Auction Agent, the Fund shall provide the Auction Agent with a list of the Broker-Dealers for such series and a manually signed copy of each Broker-Dealer Agreement or a new Schedule A to a Broker-Dealer Agreement (which Schedule A shall replace and supersede any previous Schedule A to such Broker-Dealer Agreement) with each Broker-Dealer for such series. The Auction Agent and the Fund shall have entered into a Broker-Dealer Agreement with each Broker-Dealer prior to the participation of any such Broker-Dealer in any Auction.
(b) In the event that any Auction Date for any series of MuniPreferred shall be changed after the Auction Agent shall have given the notice referred to in clause (vi) of paragraph (a) of the Settlement Procedures, or after the notice referred to in Section 2.5(a) hereof, if applicable, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to the Broker-Dealers for such series not later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date.
(c) (i) The Auction Agent shall maintain a registry of the beneficial owners of the shares of MuniPreferred of each series who shall constitute Existing Holders of shares of MuniPreferred of such series for purposes of Auctions and shall indicate thereon the identity of the respective Broker-Dealer of each Existing Holder, if any, on whose behalf such Broker-Dealer submitted the most recent Order in any Auction which resulted in such Existing Holder continuing to hold or purchasing shares of MuniPreferred of such series. The Auction Agent shall keep such registry current and accurate. The Fund shall provide or cause to be provided to the Auction Agent at or prior to the Date of Original Issue of the shares of MuniPreferred of each series a list of the initial Existing Holders of the shares of each such series of MuniPreferred, the number of shares purchased by each such Existing Holder and the respective Broker-Dealer of each such Existing Holder or the affiliate thereof through which each such Existing Holder purchased such shares. The Auction Agent shall advise the Fund in writing whenever the number of Existing Holders is 500 or more. The Auction Agent may rely upon, as conclusive evidence of the identities of the Existing Holders of shares of MuniPreferred of any series (A) such list, (B) the results of Auctions, (C) notices from any Broker-Dealer as described in the first sentence of Section 2.2(c)(iii) hereof and (D) the results of any procedures approved by the Fund that have been devised for the purpose of determining the identities of Existing Holders in situations where shares of MuniPreferred may have been transferred without compliance with any restriction on the transfer thereof set forth in the Auction Procedures.
(ii) In the event of any partial redemption of any series of MuniPreferred, the Auction Agent shall, at least two Business Days prior to the next Auction for such series, request each Broker-Dealer to provide the Auction Agent with a list of Persons who such Broker-Dealer believes should remain Existing Holders after such redemption based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction and with respect to each such Person, the number of shares of MuniPreferred of such series such Broker-Dealer believes are owned by such Person after such redemption. In the absence of receiving any such information from any Broker-Dealer, the Auction Agent may continue to treat the Persons listed in its registry of Existing Holders as the beneficial owner of the number of shares of MuniPreferred of such series shown in such registry.
(iii) The Auction Agent shall be required to register
a transfer of shares of MuniPreferred of any series from an Existing Holder of
such shares of MuniPreferred only if such transfer is to another Existing
Holder, or other Person if permitted by the Fund, and only if such transfer is
made (A) pursuant to an Auction, (B) the Auction Agent has been notified in
writing (I) in a notice substantially in the form of Exhibit C to the
Broker-Dealer Agreements by a Broker-Dealer of such transfer or (II) in a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreements by the
Broker-Dealer of any Existing Holder, or other Person if permitted by the Fund,
that purchased or sold such shares of MuniPreferred in an Auction of the failure
of such shares of MuniPreferred to be transferred as a result of such Auction or
(C) pursuant to procedures approved by the Fund that have been devised for the
purpose of determining the identities of Existing Holders in situations where
shares of MuniPreferred may have been transferred without compliance with any
restriction on the transfer thereof set forth in the Auction Procedures. The
Auction Agent is not required to accept any such notice for an Auction unless it
is received by the Auction Agent by 3:00 P.M. on the Business Day preceding such
Auction.
(d) The Auction Agent may request the Broker-Dealers, as set forth in the Broker-Dealer Agreements, to provide the Auction Agent with a list of Persons who such Broker-Dealer believes should be Existing Holders based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction and with respect to each such Person, the number of shares of such series of MuniPreferred such Broker-Dealer believes to be owned by such Person. The Auction Agent shall keep confidential such registry of Existing Holders and shall not disclose the identities of the Existing Holders of such shares of MuniPreferred to any Person other than the Fund and the Broker-Dealer that provided such information.
2.3 Information Concerning Rates.
(a) The Rate Multiple on the date of the Agreement is set forth in the Request and Acceptance Letter. If there is any change in the credit rating of MuniPreferred by either of the rating agencies (or substitute or successor rating agencies) referred to in the definition of "Rate Multiple" resulting in any change in the Rate Multiple for MuniPreferred after the date of the
Request and Acceptance Letter, the Fund shall notify the Auction Agent in writing of such change in the Rate Multiple prior to 12:00 Noon on the Business Day prior to the next Auction Date for any series of MuniPreferred succeeding such change. If the Fund designates all or a portion of any dividend on shares of any series of MuniPreferred to consist of net capital gains or other income taxable for Federal income tax purposes, it will indicate, in its notice in the form of Exhibit I hereto to the Auction Agent pursuant to Section 2.6 hereof, the Rate Multiple for such series to be in effect for the Auction Date on which the dividend rate for such dividend is to be fixed. In determining the Maximum Rate for any series of MuniPreferred on any Auction Date as set forth in Section 2.3(b)(i) hereof, the Auction Agent shall be entitled to rely on the last Rate Multiple for MuniPreferred of which it has most recently received notice from the Fund (or, in the absence of such notice, the percentage set forth in the Request and Acceptance Letter), except that if the Fund shall have notified the Auction Agent of a Rate Multiple to be in effect for an Auction Date in accordance with the preceding sentence, the Rate Multiple in effect for the next succeeding Auction Date of any series of MuniPreferred shall be, unless the Fund notifies the Auction Agent of a change in the Rate Multiple for such succeeding Auction Date pursuant to this Section 2.3(a), the Rate Multiple that was in effect on the first preceding Auction Date for MuniPreferred with respect to which the dividend, the rate for which was fixed on such Auction Date, did not include any net capital gains or other income taxable for Federal income tax purposes.
(b) (i) On each Auction Date for any series of MuniPreferred, the Auction Agent shall determine the Maximum Rate for such series. The Maximum Rate for any series of MuniPreferred on any Auction Date shall be:
(A) in the case of any Auction Date which is not the Auction Date immediately prior to the first day of any proposed Special Rate Period designated by the Fund pursuant to Section 4 of Part I of the Statement, the product of (1) the Reference Rate on such Auction Date for the next Rate Period of such series and (2) the Rate Multiple on such Auction Date, unless such series has or had a Special Rate Period (other than a Special Rate Period of 28 Rate Period Days or fewer) and an Auction at which Sufficient Clearing Bids existed has not yet occurred for a Minimum Rate Period of such series after such Special Rate Period, in which case the higher of:
(1) the dividend rate on shares of such series for the then-ending Rate Period; and
(2) the product of (x) the higher of (I) the Reference Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of such series, if such then ending Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of such series, if such then ending Rate Period was more than 364 Rate Period Days, and (II) the Reference Rate on such Auction Date for a Rate Period equal in length to such Special Rate Period of such series, if such
Special Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to such Special Rate Period, if such Special Rate Period was more than 364 Rate Period Days and (y) the Rate Multiple on such Auction Date; or
(B) in the case of any Auction Date which is the Auction Date immediately prior to the first day of any proposed Special Rate Period designated by the Fund pursuant to Section 4 of Part I of the Statement, the product of (1) the highest of (x) the Reference Rate on such Auction Date for a Rate-Period equal in length to the then-ending Rate Period of such series, if such then-ending Rate Period was 364 Rate Period Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate Period equal in length to the then-ending Rate Period of such Rate Period, if such then-ending Rate Period was more than 364 Rate Period Days, (y) the Reference Rate on such Auction Date for the Special Rate Period for which the Auction is being held if such Special Rate Period is 364 Rate Period Days or fewer or the Treasury Note Rate on such Auction Date for the Special Rate Period for which the Auction is being held if such Special Rate Period is more than 364 Rate Period Days, and (z) the Reference Rate on such Auction Date for Minimum Rate Periods and (2) the Rate Multiple on such Auction Date.
Not later than 9:30 A.M. on each Auction Date the Auction Agent shall notify the Fund and the Broker-Dealers of the Maximum Rate so determined and the "AA" Composite Commercial Paper Rate(s), the Taxable Equivalent of the Short-Term Municipal Bond Rate(s), Treasury Note Rate(s) and Treasury Bill Rate(s), as the case may be, used to make such determination.
(ii) From and after a Failure to Deposit by the Fund during any Rate Period of any series of MuniPreferred, until such failure is cured and a Late Charge (as defined in paragraph (a) of Section 2.7), is paid, in accordance with subparagraph (e)(i) of Section 2 of Part I of the Statement, on the first day of each Rate Period of such series the Auction Agent shall determine the Treasury Note Rate for such Rate Period of more than 364 Rate Period Days and the Reference Rate for Rate Periods of 364 Rate Period Days or fewer. Not later than 9:30 A.M. on each such first day, the Auction Agent shall notify the Fund of the applicable Reference Rate and Treasury Note Rate.
(iii) If any "AA" Composite Commercial Paper Rate, Taxable Equivalent of the Short-Term Municipal Bond Rate, Treasury Note Rate or Treasury Bill Rate, as the case may be, is not quoted on an interest or bond equivalent, as the case may be, basis, the Auction Agent shall convert the quoted rate to the interest or bond equivalent thereof as set forth in the definition of such rate in the Statement if the rate obtained by the Auction Agent is quoted on a discount basis, or if such rate is quoted on a basis other than an interest or bond equivalent or discount basis the Auction Agent shall convert the quoted rate to an interest or bond equivalent rate after consultation with the Fund as to the method of such conversion.
(iv) If any "AA" Composite Commercial Paper Rate is to be based on rates supplied by Commercial Paper Dealers and one or more of the Commercial Paper Dealers shall not provide a quotation for the determination of such "AA" Composite Commercial Paper Rate, the Auction Agent shall immediately notify the Fund so that the Fund can determine whether to select a Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers to provide the quotation or quotations not being supplied by any Commercial Paper Dealer or Commercial Paper Dealers. The Fund shall promptly advise the Auction Agent of any such selection.
(v) If any Treasury Note Rate or Treasury Bill Rate is to be based on rates supplied by U.S. Government Securities Dealers and one or more of the U.S. Government Securities Dealers shall not provide a quotation for the determination of such Treasury Rate, the Auction Agent shall immediately notify the Fund so that the Fund can determine whether to select a Substitute U.S. Government Securities Dealer or Substitute U.S. Government Securities Dealers to provide the quotation or quotations not being supplied by any U.S. Government Securities Dealer or U.S. Government Securities Dealers. The Fund shall promptly advise the Auction Agent of any such selection.
(c) The maximum marginal tax rate referred to in the definition of "Rate Multiple" in the Statement is referred to in this Agreement as the "Highest Marginal Rate." The Highest Marginal Rate on the date of the Agreement is set forth in the Request and Acceptance Letter. If there is any change in the Highest Marginal Rate, the Fund shall notify the Auction Agent in writing of such change prior to 12:00 Noon on the Business Day prior to the next Auction Date for MuniPreferred succeeding such change. In determining the Maximum Rate for any series of MuniPreferred on any Auction Date, the Auction Agent shall be entitled to rely on the Highest Marginal Rate of which it has most recently received notice from the Fund (or, in the absence of such notice, the percentage set forth in the Request and Acceptance Letter).
2.4 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be changed by the Auction Agent with the consent of the Fund, which consent shall not be unreasonably withheld. The Auction Agent shall give written notice of any such change to each Broker-Dealer. Such notice shall be given prior to the close of business on the Business Day next preceding the first Auction Date on which any such change shall be effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent advises the
Fund and Broker-Dealers of the
applicable Maximum Rate and the
Reference Rate(s) and Treasury Note
Rate(s), as the case may be, used in
determining such Maximum Rate as set
forth in Section 2.3(b)(i) hereof.
|
Time Event
---- -----
9:30 A.M. - 1:30 P.M. Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Section 2(a) of
the Auction Procedures. Submission Deadline is
1:30 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant to
Section 3(a) of the Auction Procedures.
By approximately 3:00 P.M. Auction Agent advises Fund of results of Auction as
provided in Section 3(b) of the Auction Procedures.
Submitted Bids and Submitted Sell Orders are
accepted and rejected and shares of MuniPreferred
allocated as provided in Section 4 of the Auction
Procedures. Auction Agent gives notice of Auction
results as set forth in paragraph(a) of the Settlement
Procedures.
|
The Auction Agent shall follow the notification procedures set forth in paragraph (a) of the Settlement Procedures.
2.5 Designation of Special Rate Period.
(a) The Statement will provide that, subject to the Fund's option to designate a Special Rate Period as referred to in paragraph (b) of this Section 2.5, (i) each Rate Period of any series of MuniPreferred will be a Minimum Rate Period (a duration of seven days, subject to certain exceptions) and (ii) each Rate Period following a Rate Period of any series of MuniPreferred that is other than a Minimum Rate Period will be a Minimum Rate Period. Not less than 10 nor more than 20 days prior to the last day of any such Rate Period that is not a Minimum Rate Period, (i) the Fund shall deliver to the Auction Agent a notice of the Auction Date of the next succeeding Auction for such series in the form of Exhibit C hereto and (ii) the Auction Agent shall deliver such notice by first-class mail, postage prepaid, to each Existing Holder of shares of such series at the address set forth for such Existing Holder in the records of the Auction Agent and to the Broker-Dealers for such series as promptly as practicable after its receipt of such notice from the Fund.
(b) Pursuant to the Statement, the Fund may, at its option, designate a Special Rate Period for any series of MuniPreferred in the manner described in Section 4 of Part I of the Statement.
(i) If the Board of Directors or Board of Trustees, as the case may be, proposes to designate any succeeding Subsequent Rate Period of any series of
MuniPreferred as a Special Rate Period, (A) the Fund shall deliver to the Auction Agent a notice of such proposed Special Rate Period in the form of Exhibit D hereto not less than 20 (or such lesser number of days as may be agreed to from time to time by the Auction Agent) nor more than 30 days prior to the first day of such proposed Special Rate Period and (B) the Auction Agent on behalf of the Fund shall deliver such notice by first-class mail, postage prepaid, to each Existing Holder of shares of such series of MuniPreferred at the address set forth for such Existing Holder in the records of the Auction Agent and to the Broker-Dealers for such series as promptly as practicable after its receipt of such notice from the Fund.
(ii) If the Board of Directors or Board of Trustees, as the case may be, determines to designate such succeeding Subsequent Rate Period as a Special Rate Period, (A) the Fund shall deliver to the Auction Agent a notice of such determination in the form of Exhibit E hereto not later than 11:00 A.M. on the second Business Day next preceding the first day of such proposed Special Rate Period (or such later time or date, or both, as may be agreed to by the Auction Agent) and (B) the Auction Agent shall deliver such notice to the Broker-Dealers for such series not later than 3:00 P.M. on such second Business Day (or, if the Auction Agent has agreed to a later time or date, as promptly as practicable thereafter).
(iii) If the Fund shall deliver to the Auction Agent a notice not later than 11:00 A.M. on the second Business Day next preceding the first day of such proposed Special Rate Period (or such later time or date, or both, as may be agreed to by the Auction Agent) stating that the Fund has determined not to exercise its option to designate such succeeding Subsequent Rate Period as a Special Rate Period, in the form of Exhibit F hereto, or shall fail to timely deliver either such notice or a notice in the form of Exhibit E hereto, the Auction Agent shall deliver a notice in the form of Exhibit F hereto to the Broker-Dealers for such series not later than 3:00 P.M. on such second Business Day (or, if the Auction Agent has agreed to a later time or date, as promptly as practicable thereafter).
Such change in the length of any Rate Period shall not occur if (1) an Auction for shares of such series shall not be held on such Auction Date for any reason or (2) an Auction for shares of such series shall be held on such Auction Date but Sufficient Clearing Bids for shares of such series shall not exist in such Auction.
2.6 Allocation of Taxable Income.
The Fund shall, in the case of a Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and may, in the case of any other Special Rate Period, designate all or a portion of any dividend on shares of any series of MuniPreferred to consist of net capital gains or other income taxable for Federal income tax purposes by delivering to the Auction Agent a notice in the form of Exhibit I hereto of such designation not later than the Dividend Payment
Date for such series next preceding the Auction Date on which the dividend rate for such dividend is to be fixed. The Auction Agent will deliver such notice to the Broker-Dealers for such series on the Business Day following its receipt of such notice from the Fund. Within two Business Days after any Auction Date involving the allocation of income taxable for Federal income tax purposes, the Auction Agent shall notify each Broker-Dealer for the related series as to the dollar amount per share of such taxable income and income exempt from Federal income taxation included in the related dividend.
2.7 Failure to Deposit.
(a) If:
(i) any Failure to Deposit shall have occurred with
respect to shares of MuniPreferred during any Rate Period thereof
(other than any Special Rate Period of more than 364 Rate Period Days
or any Rate Period succeeding any Special Rate Period of more than 364
Rate Period Days during which a Failure to Deposit occurred that has
not been cured), but, prior to 12:00 Noon, New York City time, on the
third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall have been cured in
accordance with Section 2.7(c) hereof and the Fund shall have paid to
the Auction Agent a late charge (a "Late Charge") equal to the sum of
(1) if such Failure to Deposit consisted of the failure timely to pay
to the Auction Agent the full amount of dividends with respect to any
Dividend Period on such shares, an amount computed by multiplying (x)
200% of the Reference Rate for the Rate Period during which such
Failure to Deposit occurs on the Dividend Payment Date for such
Dividend Period by (y) a fraction, the numerator of which shall be the
number of days for which such Failure to Deposit has not been cured in
accordance with Section 2.7(c) hereof (including the day such Failure
to Deposit occurs and excluding the day such Failure to Deposit is
cured) and the denominator of which shall be 360, and applying the rate
obtained against the aggregate liquidation preference of the
outstanding shares of MuniPreferred and (2) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the
Redemption Price of the shares of MuniPreferred, if any, for which
Notice of Redemption has been given by the Fund, an amount computed by
multiplying (x) 200% of the Reference Rate for the Rate Period during
which such Failure to Deposit occurs on the redemption date by (y) a
fraction, the numerator of which shall be the number of days for which
such Failure to Deposit is not cured in accordance with Section 2.7(c)
hereof (including the day such Failure to Deposit occurs and excluding
the day such Failure to Deposit is cured) and the denominator of which
shall be 360, and applying the rate obtained against the aggregate
liquidation preference of the outstanding shares of MuniPreferred to
the redeemed,
then the Auction Agent shall deliver a notice in the form of Exhibit G hereto by first-class mail, postage prepaid, to the Broker-Dealers for such series not later than one Business Day after its receipt of the payment from the Fund curing such Failure to Deposit and such Late Charge.
(b) If:
(i) any Failure to Deposit shall have occurred with respect to shares of MuniPreferred during any Rate Period thereof (other than any Special Rate Period of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate Period of more than 364 Rate Period Days during which a Failure to Deposit occurred but has not been cured), and, prior to 12:00 Noon, New York City time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall not have been cured in accordance with Section 2.7(c) hereof or the Fund shall not have paid the applicable Late Charge to the Auction Agent; or
(ii) any Failure to Deposit shall have occurred with
respect to shares of MuniPreferred during a Special Rate Period thereof
of more than 364 Rate Period Days, or during any Rate Period thereof
succeeding any Special Rate Period of more than 364 Rate Period Days
during which a Failure to Deposit occurred that has not been cured,
and, prior to 12:00 noon, New York City time, on the fourth Business
Day preceding the Auction Date for the Rate Period subsequent to such
Rate Period, such Failure to Deposit shall not have been cured in
accordance with Section 2.7(c) hereof or the Fund shall not have paid
the applicable Late Charge to the Auction Agent in accordance with
Section 2(e)(i)(D) of the Statement (such Late Charge, for purposes of
this clause (b)(iii) of this Section 2.7, to be calculated by using, as
the Reference Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days and (y) commencing on the
date on which the Rate Period during which Failure to Deposit occurs
commenced);
then the Auction Agent shall deliver a notice in the form of Exhibit H hereto to the Broker-Dealers for such series not later than one Business Day after the receipt of the payment from the Fund curing such Failure to Deposit and such Late Charge.
(c) A Failure to Deposit with respect to shares of MuniPreferred shall have been cured (if such Failure to Deposit is not solely due to the willful failure to the Fund to make the required payment to the Auction Agent) with respect to any Rate Period if, within the respective time periods described immediately above, the Fund shall have paid to the Auction Agent (i) all accumulated and unpaid dividends on the shares of MuniPreferred and (ii) without duplication, the Redemption Price for the shares of MuniPreferred, if any, for which Notice of Redemption has been mailed; provided, however, that the foregoing clause (ii) shall not apply to the Fund's failure to pay the Redemption Price in respect of shares of MuniPreferred when the related Redemption Notice provides that redemption of such shares is subject to one or more conditions precedent and each such condition precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption.
2.8 Broker-Dealers.
(a) Not later than 12:00 Noon on each Auction Date for any series of MuniPreferred, the Fund shall pay to the Auction Agent an amount in cash equal to the aggregate fees payable to the Broker-Dealers for such series pursuant to Section 2.8 of the Broker-Dealer Agreements for such series. The Auction Agent shall apply such moneys as set forth in Section 2.8 of each such Broker-Dealer Agreement.
(b) The Fund shall obtain the consent of the Auction Agent prior to selecting any Person to act as a Broker-Dealer, which consent shall not be unreasonably withheld.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as set forth therein if so directed by the Fund, provided that at least one Broker-Dealer Agreement would be in effect for each series of MuniPreferred after such termination.
(d) Subject to the Auction Agent's having consented to the selection of the relevant Broker-Dealer pursuant to Section 2.8(b) hereof, the Auction Agent shall from time to time enter into such Broker-Dealer Agreements with one or more Broker-Dealers as the Fund shall request, and shall enter into such schedules to any such Broker-Dealer Agreements as the Fund shall request, which schedules, among other things, shall set forth the series of MuniPreferred to which such Broker-Dealer Agreement relates.
2.9 Ownership of Shares of MuniPreferred.
The Fund shall notify the Auction Agent if the Fund or any
affiliate of the Fund acquires any shares of MuniPreferred of any series.
Neither the Fund nor any affiliate of the Fund shall submit any Order in any
Auction for MuniPreferred, except as set forth in the next sentence. Any
Broker-Dealer that is an affiliate of the Fund may submit Orders in Auctions,
but only if such Orders are not for its own account. For purposes of this
Section 2.9, a Broker-Dealer shall not be deemed to be an affiliate of the Fund
solely because one or more of the directors or executive officers of such
Broker-Dealer or of any Person controlled by, in control of or under common
control with such Broker-Dealer is also a director of the Fund. The Auction
Agent shall have no duty or liability with respect to enforcement of this
Section 2.9.
2.10 Access to and Maintenance of Auction Records.
The Auction Agent shall, upon the receipt of prior written notice from the Fund, afford to the Fund access at reasonable times during normal business hours to all books, records, documents and other information concerning the conduct and results of Auctions. The Auction Agent shall maintain records relating to any Auction for a period of six years after such Auction, and such records shall, in reasonable detail, accurately and fairly reflect the actions taken by the Auction Agent hereunder.
3. The Auction Agent as Dividend and Redemption Price Disbursing Agent.
The Auction Agent, as dividend and redemption price disbursing
agent, shall pay to the Holders of shares of MuniPreferred of any series (i) on
each Dividend Payment Date for such series, dividends on the shares of
MuniPreferred of such series, (ii) on any date fixed for redemption of shares of
MuniPreferred of any series, the Redemption Price of any shares of such series
called for redemption and (iii) any Late Charge related to any payment of
dividends or Redemption Price, in each case after receipt of the necessary funds
from the Fund with which to pay such dividends, Redemption Price or Late Charge.
The amount of dividends for any Rate Period for any series of MuniPreferred to
be paid by the Auction Agent to the Holders of such shares of such series will
be determined by the Fund as set forth in Section 2 of Part I of the Statement
with respect to such series. The Redemption Price of any shares to be paid by
the Auction Agent to the Holders will be determined by the Fund as set forth in
Section 11 of Part I of the Statement with respect to such series. The Fund
shall notify the Auction Agent in writing of a decision to redeem shares of any
series of MuniPreferred at least five days prior to the date a notice of
redemption is required to be mailed to the Holders of the shares to be redeemed
by paragraph (c) of Section 11 of Part I of the Statement. Such notice by the
Fund to the Auction Agent shall contain the information required by paragraph
(c) of Section 11 of Part I of the Statement to be stated in the notice of
redemption required to be mailed by the Fund to such Holders.
4. The Auction Agent as Transfer Agent and Registrar.
4.1 Issue of Stock or Shares Certificates.
Upon the Date of Original Issue of each series of MuniPreferred, one or more certificates representing all of the shares of such series issued on such date shall be issued by the Fund and, at the request of the Fund, registered in the name of Cede & Co. and countersigned by the Auction Agent.
4.2 Registration of Transfer of Shares.
Shares of each series of MuniPreferred shall be registered solely in the name of the Securities Depository or its nominee.
4.3 Removal of Legend on Restricted Shares.
All requests for removal of legends on shares of MuniPreferred of any series indicating restrictions on transfer shall be accompanied by an opinion of counsel stating that such legends may be removed and such shares freely transferred, such opinion to be delivered under
cover of a letter from a Fund Officer authorizing the Auction Agent to remove the legend on the basis of said opinion.
4.4 Lost Stock or Share Certificates.
The Auction Agent shall issue and register replacement certificates for certificates represented to have been lost, stolen or destroyed upon the fulfillment of such requirements as shall be deemed appropriate by the Fund and the Auction Agent, subject at all times to provisions of law, the By-Laws of the Fund governing such matters and resolutions adopted by the Fund with respect to lost securities. The Auction Agent may issue new certificates in exchange for and upon the cancellation of mutilated certificates. Any request by the Fund to the Auction Agent to issue a replacement or new certificate pursuant to this Section 4.4 shall be deemed to be a representation and warranty by the Fund to the Auction Agent that such issuance will comply with such provisions of law and the By-Laws and resolutions of the Fund.
4.5 Disposition of Cancelled Certificates; Record Retention.
The Auction Agent shall retain all stock or share certificates which have been cancelled in transfer or exchange and all accompanying documentation in accordance with applicable rules and regulations of the Securities and Exchange Commission for two calendar years. Upon the expiration of this two-year period, the Auction Agent shall deliver to the Fund the cancelled certificates and accompanying documentation. The Fund shall also undertake to furnish to the Securities and Exchange Commission and to the Board of Governors of the Federal Reserve System, upon demand, at either the principal office or at any regional office, complete, correct and current hard copies of any and all such records. Thereafter such records shall not be destroyed by the Fund without the concurrence of the Auction Agent.
4.6 Stock or Record Books.
For so long as the Auction Agent is acting as the transfer agent for any series of MuniPreferred pursuant to the Agreement, it shall maintain a stock or record book containing a list of the Holders of the shares of MuniPreferred of each such series. In case of any request or demand for the inspection of the stock or record books of the Fund or any other books in the possession of the Auction Agent, the Auction Agent will notify the Fund and secure instructions as to permitting or refusing such inspection. The Auction Agent reserves the right, however, to exhibit the stock or record books or other books to any Person in case it is advised by its counsel that its failure to do so would be unlawful.
4.7 Return of Funds.
Any funds deposited with the Auction Agent hereunder by the Fund for any reason, including but not limited to redemption of shares of MuniPreferred of any series, that remain
unpaid after ninety days shall be repaid to the Fund upon the written request of the Fund, together with interest, if any, earned thereon.
5. Representations and Warranties of the Fund.
The Fund represents and warrants to the Auction Agent that:
(a) the Fund is a duly incorporated and existing corporation or a duly organized and existing business trust in good standing under the laws of the State of its incorporation or organization and has full corporate power or all requisite power to execute and deliver the Agreement and to authorize, create and issue the shares of MuniPreferred of each series and the shares of MuniPreferred of each series when issued, will be duly authorized, validly issued, fully paid and nonassessable;
(b) the Agreement has been duly and validly authorized, executed and delivered by the Fund and constitutes the legal, valid and binding obligation of the Fund;
(c) the form of the certificate evidencing the shares of MuniPreferred of each series complies or will comply with all applicable laws of the State of its incorporation or organization;
(d) when issued, the shares of MuniPreferred of each series will have been duly registered under the Securities Act of 1933, as amended, and no further action by or before any governmental body or authority of the United States or of any state thereof is required in connection with the execution and delivery of the Agreement or will have been required in connection with the issuance of the shares of MuniPreferred of each series;
(e) the execution and delivery of the Agreement and the issuance and delivery of the shares of MuniPreferred of each series do not and will not conflict with, violate or result in a breach of, the terms, conditions or provisions of, or constitute a default under, the Articles of Incorporation or Declaration of Trust (as amended by one or more Statements) or the By-Laws of the Fund, any law or regulation, any order or decree of any court or public authority having jurisdiction, or any mortgage, indenture, contract, agreement or undertaking to which the Fund is a party or by which it is bound the effect of which conflict, violation, default or breach would be material to the Fund or the Fund and its subsidiaries taken as a whole; and
(f) no taxes are payable upon or in respect of the execution of the Agreement or the issuance of the shares of MuniPreferred of any series.
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Fund hereunder and owes no fiduciary duties to any Person, other than the Fund, by reason of the Agreement.
(b) The Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in the Agreement, and no implied covenants or obligations shall be read into the Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction Agent shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Agreement. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been negligent in ascertaining the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or refraining from acting upon any communication authorized hereby and upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document believed in good faith by it to be genuine. The Auction Agent shall not be liable for acting upon any telephone communication authorized hereby which the Auction Agent believes in good faith to have been given by the Fund or by a Broker-Dealer. The Auction Agent may record telephone communications with the Fund or with the Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its choice and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or adequacy of the Agreement, the Broker-Dealer Agreements or the shares of MuniPreferred of any series except that the Auction Agent hereby represents that the Agreement has been duly authorized, executed
and delivered by the Auction Agent and constitutes a legal and binding obligation of the Auction Agent.
6.4 Compensation, Expenses and Indemnification.
(a) The Fund shall pay the Auction Agent from time to time reasonable compensation for all services rendered by it under the Agreement and the Broker-Dealer Agreements.
(b) The Fund shall reimburse the Auction Agent upon its request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Auction Agent in accordance with any provision of the Agreement and the Broker-Dealer Agreements (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any expense or disbursement attributable to its negligence or bad faith.
(c) The Fund shall indemnify the Auction Agent for and hold it harmless against any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with its agency under the Agreement and the Broker-Dealer Agreements, including the costs and expenses of defending itself against any such claim or liability in connection with its exercise or performance of any of its duties hereunder and thereunder.
7. Miscellaneous.
7.1 Term of Agreement.
(a) The term of the Agreement is unlimited unless it shall be terminated as provided in this Section 7.1. The Fund may terminate the Agreement at any time by so notifying the Auction Agent, provided that the Fund has entered into an agreement in substantially the form of the Agreement with a successor Auction Agent. The Auction Agent may terminate the Agreement upon written notice to the Fund on the date specified in such notice, which date shall be no earlier than 45 days after the date of delivery of such notice.
(b) Except as otherwise provided in this paragraph (b), the respective rights and duties of the Fund and the Auction Agent under the Agreement with respect to any series of MuniPreferred shall cease upon termination of the Agreement with respect to such series. The Fund's representations, warranties, covenants and obligations to the Auction Agent under Sections 5 and 6.4 hereof shall survive the termination of the Agreement with respect to any series of MuniPreferred. Upon termination of the Agreement with respect to any series of MuniPreferred, the Auction Agent shall, at the Fund's request, promptly deliver to the Fund copies of all books and records maintained by it with respect to MuniPreferred in connection with its duties hereunder.
7.2 Communications.
Except for (i) communications authorized to be by telephone pursuant to the Agreement or the Auction Procedures and (ii) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given to such party, addressed to it, at its address or telecopy number set forth below:
If to the Fund, [Name of Fund]
333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
Telecopier No.: (312) 917-7942
Telephone No.: (312) 917-7700
If to the Auction Agent, to the
address or telecopy number set forth
in the Request and Acceptance
Letter,
|
or such other address or telecopy number as such party may hereafter specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of the Fund by a Fund Officer and on behalf of the Auction Agent by telephone (confirmed by telecopy or in writing) by an Authorized Officer.
7.3 Entire Agreement.
The Agreement contains the entire agreement between the parties relating to, and superseding any prior agreement between the parties relating to, the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, between the parties relating to the subject matter hereof except for agreements relating to the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other than the Fund, the Auction Agent and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) The Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged.
(b) Failure of either party hereto to exercise any right or remedy hereunder in the event of a breach hereof by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.
7.6 Successors and Assigns.
The Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and assigns of each of the Fund and the Auction Agent.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof.
7.8 Governing Law.
The Agreement shall be governed by and construed in accordance with the laws of the State of New York.
If the Fund is a Massachusetts business trust, the following provision is deemed to be included in the Basic Terms:
7.9 Declaration of Trust.
The Fund's Declaration is on file with the Secretary of State of the Commonwealth of Massachusetts. This Agreement has been executed on behalf of the Fund by the Vice President and Treasurer of the Fund acting in such capacity and not individually, and the obligations of the Fund set forth in this Agreement are not binding upon any of the Fund's trustees, officers or shareholders individually, but are binding only upon the assets and property of the Fund.
EXHIBIT A
FORM OF
BROKER-DEALER AGREEMENT
[INTENTIONALLY OMITTED]
EXHIBIT B
SETTLEMENT PROCEDURES
[INTENTIONALLY OMITTED]
EXHIBIT C
[NAME OF FUND]
NOTICE OF AUCTION DATE FOR
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that the Auction Date of the next Auction for Series ___ of the Fund's MuniPreferred is scheduled to be _______________, ____ and the next Dividend Payment Date for Series ___ of the Fund's MuniPreferred will be __________________, ____.
[A Failure to Deposit in respect of the Series ___ MuniPreferred currently exists. If, prior to 12:00 noon, New York City time, on the fourth Business Day preceding the next scheduled Auction Date of the Series ____ MuniPreferred, such Failure to Deposit is not cured or the applicable Late Charge is not paid, the next Auction will not be held. Notice of the next Auction for the Series ___ MuniPreferred will be delivered when such Failure to Deposit is cured and the applicable Late Charge is paid.(1)]
[NAME OF FUND]
EXHIBIT D
[NAME OF FUND]
NOTICE OF PROPOSED CHANGE OF
LENGTH OF RATE PERIOD OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
[Name of Fund] (the "Fund") may exercise its option to designate the Rate Period of its Series ____ MuniPreferred commencing [the first day of the Special Rate Period] as a Special Rate Period.
By 11:00 A.M. on the second Business Day preceding the first day of such proposed Special Rate Period, the Fund will notify ___________________ of either (a) its determination to exercise such option, designating the length of such Special Rate Period for such series or (b) its determination not to exercise such option.
[NAME OF FUND]
Dated: ___________________, ____
EXHIBIT E
[NAME OF FUND]
NOTICE OF CHANGE OF LENGTH OF RATE PERIOD
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has determined to designate the Rate Period of its Series ____ MuniPreferred commencing on [the first day of the Special Rate Period] as a Special Rate Period.
The Special Rate Period will be __________ [Rate Period Days].
The Auction Date for the Special Rate Period is [the Business Day next preceding the first day of such Special Rate Period].
As a result of the Special Rate Period designation, the amount of dividends payable on Series ____ MuniPreferred during the Special Rate Period will be based on a 360-day year.
The Special Rate Period shall not commence if (a) an Auction for shares of MuniPreferred shall not be held on such Auction Date for any reason or (b) an Auction for shares of MuniPreferred shall be held on such Auction Date but Sufficient Clearing Bids for such shares shall not exist in such Auction.
The scheduled Dividend Payment Dates for such series of MuniPreferred during such Special Rate Period will be _________________________.
[Special Redemption Provisions, if any]
Attached hereto is a MuniPreferred Basic Maintenance Report showing that, as of the third Business Day next preceding such proposed Special Rate Period, Moody's Eligible Assets (if Moody's is rating such shares of MuniPreferred) and S&P Eligible Assets (if S&P is rating such shares of MuniPreferred) each have an aggregate Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount as of such Business Day (assuming for purposes of the foregoing calculation that (i) the Maximum Rate is the Maximum Rate on such Business Day as if such Business Day were the Auction Date for the proposed Special Rate Period, and (ii) the Moody's Discount Factors applicable to Moody's Eligible Assets are determined by reference to
the first Moody's Exposure Period longer than the Moody's Exposure Period then applicable to the Fund.)
[NAME OF FUND]
Dated: _____________, _____
EXHIBIT F
[NAME OF FUND]
NOTICE OF DETERMINATION NOT TO CHANGE
LENGTH OF RATE PERIOD OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has determined not to exercise its option to designate a Special Rate Period of its Series ___ MuniPreferred and the next succeeding Rate Period of such series will be a Minimum Rate Period of ____ Rate Period Days.
[NAME OF FUND]
Dated: _______________, _____
EXHIBIT G
[NAME OF FUND]
NOTICE OF CURE OF
FAILURE TO DEPOSIT ON
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has cured its Failure to Deposit and paid the applicable Late Charge with respect to its Series ___ MuniPreferred. The dividend rate on the shares of Series ___ MuniPreferred for the current Dividend Period is _____________% per annum, the Dividend Payment Date for the current Dividend Period is scheduled to be _______________, ___ and the next Auction Date is scheduled to be _______________, ___.
[NAME OF FUND]
Dated: ________________, ___
EXHIBIT H
[NAME OF FUND]
NOTICE OF CURE OF
FAILURE TO DEPOSIT ON
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has cured its Failure to Deposit and paid the applicable Late Charge with respect to its Series ____ MuniPreferred. The next Auction Date for the Series ____ MuniPreferred is scheduled to be on _________________, ___.
[NAME OF FUND]
Dated: _________________, ____
EXHIBIT I
[NAME OF FUND]
NOTICE OF
[CAPITAL GAINS] [AND] [TAXABLE ORDINARY INCOME](1)
DIVIDEND FOR
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that the amount of the dividend payable on
________________, 19____ for Series ____ of the Fund's MuniPreferred will be
determined by the Auction to be held on _______________, 19___. Up to [$ A ](2)
[$ B ](3) per share of the dividend payable on such date as determined by such
Auction will consist of [capital gains](2) [ordinary income taxable for Federal
income tax purposes](3). If the dividend amount payable on such date as
determined by such Auction is less than [$ A ](2) [$ B ](3) per share, the
entire amount of the dividend will consist of [capital gains](2) [ordinary
income taxable for Federal income tax purposes](3). [To the extent such dividend
amount exceeds [$ A ] per share, any excess up to [$ B ] per share will consist
of ordinary income taxable for Federal income tax purposes.](4) Accordingly, the
aforementioned composition of the dividend payable on _______________, ___
should be considered in determining Orders to be submitted with respect to the
Auction to be held on ________________, __. The Rate Multiple in effect for
such Auction will be ____%.
[NAME OF FUND]
(1) Include language with respect to capital gains, taxable ordinary income or both, depending on the character of the designation to be made with respect to the dividend(s).
(2) Include bracketed material if a portion of the dividend will be designated capital gains.
(3) Include bracketed material if a portion of the dividend will be designated ordinary income taxable for Federal income tax purposes and no portion of the dividend will be designated capital gains.
(4) Include bracketed material if a portion of the dividend will be designated capital gains and a portion will be designated ordinary income taxable for Federal income tax purposes.
(Footnotes continued)
A = the maximum amount of capital gains allocated to such series of
MuniPreferred to be included in such dividend, divided by the number of
shares of MuniPreferred.
B = the maximum amount of ordinary income taxable for Federal income tax
purposes allocated to such series of MuniPreferred to be included in
such dividend, divided by the number of shares in such series.
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Exhibit k.4
NUVEEN BROKER-DEALER AGREEMENT
Basic Terms for Acting as a Broker-Dealer
December 14, 1993
These basic terms ("Basic Terms") set forth the general terms and conditions pursuant to which a broker-dealer identified in an Acceptance Letter (together with its successors and assigns, a "BD") will act as a broker-dealer for Municipal Auction Rate Cumulative Preferred Stock or Shares issued by investment companies, now or hereafter organized, registered under the Investment Company Act of 1940, as amended, as further identified by the Request Letters (the "Funds"), for which Nuveen Advisory Corp. (the "Adviser") is the investment adviser.
Each Fund has issued or may issue shares of MuniPreferred(R), pursuant to its Articles of Incorporation or Declaration of Trust, as amended or supplemented by the Statement of such Fund. A bank or trust company specified in the Request Letter will act as the auction agent (the "Auction Agent") of such Fund pursuant to authority granted it in the Auction Agency Agreement.
The Statement of each Fund will provide that, for each Subsequent Rate Period of any series of MuniPreferred of such Fund then outstanding, the Applicable Rate for such series for such Subsequent Rate Period shall, except under certain conditions, be the rate per annum that the Auction Agent of such Fund advises results from implementation of the Auction Procedures for such series. The Board of Directors or Board of Trustees, as the case may be, of each Fund will adopt a resolution appointing the Auction Agent as auction agent for purposes of the Auction Procedures for each series of MuniPreferred of such Fund.
The Auction Procedures of each Fund will require the participation of one or more Broker-Dealers for each series of MuniPreferred of such Fund. BD will act as a Broker-Dealer for each series of MuniPreferred of each Fund identified in a Request Letter.
1. Definitions and Rules of Construction.
1.1. Terms Defined by Reference to Statement.
Capitalized terms not defined herein shall have the respective meanings specified in the Statement of the relevant Fund.
1.2. Terms Defined Herein.
As used herein and in the Settlement Procedures, the following terms shall have the following meanings, unless the context otherwise requires:
(a) "Acceptance Letter" shall mean the letter from Adviser to BD pursuant to which the Adviser appoints BD as a Broker Dealer for each series of MuniPreferred issued by any Fund that has executed a Request Letter.
(b) "Agreement", with respect to any Fund, shall mean the Basic Terms, together with the Acceptance Letter and the Request Letter relating to one or more series of MuniPreferred of such Fund and any other substantially similar agreement among such Fund, the Adviser, any Auction Agent for such Fund and/or BD.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Agency Agreement", with respect to any Fund, shall mean the Auction Agency Agreement between such Fund and the Auction Agent relating to one or more series of MuniPreferred of such Fund.
(e) "Auction Procedures", with respect to any Fund, shall mean the auction procedures constituting Part II of the form of Statement of such Fund as of the filing thereof.
(f) "Authorized Officer" of an Auction Agent shall mean each Senior Vice President, Vice President, Assistant Vice President, Assistant Treasurer and Assistant Secretary of such Auction Agent assigned to its Corporate Trust and Agency Group and every other officer or employee of such Auction Agent designated as an "Authorized Officer" for purposes of the Agreement in a communication to BD.
(g) "BD Officer" shall mean each officer or employee of BD designated as a "BD Officer" for purposes of the Agreement in a communication to any Auction Agent.
(h) "MuniPreferred" shall mean the preferred stock or shares, par value $.01 per share, of any Fund designated as its "Municipal Auction Rate Cumulative Preferred Stock" or "Municipal Auction Rate Cumulative Preferred Shares" and bearing such further designation as to series as the Board of Directors or Board of Trustees, as the case may be, of such Fund or any committee thereof shall specify, as set forth in a Request Letter.
(i) "Request Letter", with respect to any Fund, shall mean the letter from such Fund to the Adviser and the Auction Agent for such Fund pursuant to which such Fund appoints BD as a Broker-Dealer for each series of MuniPreferred of such Fund.
(j) "Settlement Procedures" shall mean the Settlement Procedures attached hereto as Exhibit A.
(k) "Statement", with respect to any Fund, shall mean the Statement Establishing and Fixing the Rights and Preferences of, and authorizing the issuance of, one or more series of Municipal Auction Rate Cumulative Preferred Stock or Municipal Auction Rate Cumulative Preferred Shares, as filed by such Fund with the office of the Secretary of State or other officer of the state where such Fund was incorporated or organized, a copy of which will be attached to the Request Letter of such Fund.
1.3. Rules of Construction.
Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of each Agreement:
(a) Words importing the singular number shall include the plural number and vice versa.
(b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of such Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto", and other words of similar import refer to such Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York City time.
2. The Auction.
2.1. Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures.
(a) The provisions of the Auction Procedures of any Fund will be followed by the Auction Agent of such Fund for the purpose of determining the Applicable Rate for any Subsequent Rate Period of any series of MuniPreferred of such Fund for which the Applicable
Rate is to be determined by an Auction. Each periodic operation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part hereof to the same extent as if such provisions were fully set forth herein.
(c) BD agrees to act as, and assumes the obligations of, and limitations and restrictions placed upon, a Broker-Dealer under each Agreement for each series of MuniPreferred. BD understands that other Persons meeting the requirements specified in the definition of "Broker-Dealer" contained in the Auction Procedures may execute Agreements and participate as Broker-Dealers in Auctions.
2.2. Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for any series of MuniPreferred, the Auction Agent for such series shall advise the Broker-Dealers for such series by telephone of the Maximum Rate therefor and the Reference Rate(s) and Treasury Note Rate(s), as the case may be, used in determining such Maximum Rate.
(b) In the event that any Auction Date for any series of MuniPreferred shall be changed after the Auction Agent for such series has given the notice referred to in clause (vi) of paragraph (a) of the Settlement Procedures, or after the notice referred to in Section 2.5(a) hereof, if applicable, such Auction Agent, by such means as such Auction Agent deems practicable, shall give notice of such change to BD, if it is a Broker-Dealer for such series, not later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date.
(c) For purposes of maintaining its list of Existing Holders, the Auction Agent for any series of MuniPreferred from time to time may request any Broker-Dealer to provide such Auction Agent with a list of Persons who such Broker-Dealer believes should be Existing Holders based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction and with respect to each such Person, the number of shares of such series of MuniPreferred such Broker-Dealer believes are owned by such Person. BD shall comply with any such request relating to a series of MuniPreferred in respect of which BD was named a Broker-Dealer, and the Auction Agent shall keep confidential any such information so provided by BD and shall not disclose any information so provided by BD to any Person other than the Fund and BD.
(d) BD agrees to maintain a list of customers relating to a series of MuniPreferred and to use its best efforts, subject to existing laws and regulations, to contact the customers on such list whom BD believes may be interested in participating in the Auction on each Auction Date, as a Potential Holder or a Potential Beneficial Owner, for the purposes set forth in
the Auction Procedures. Nothing herein shall require BD to submit an Order for any customer in any Auction.
(e) The Auction Agent's registry of Existing Holders of shares of a series of MuniPreferred shall be conclusive and binding on BD. BD may inquire of the Auction Agent between 3:00 P.M. on the Business Day preceding an Auction for shares of a series of MuniPreferred and 9:30 A.M. on the Auction Date for such Auction to ascertain the number of shares of such series in respect of which the Auction Agent has determined BD to be an Existing Holder. If BD believes it is the Existing Holder of fewer shares of such series than specified by the Auction Agent in response to BD's inquiry, BD may so inform the Auction Agent of that belief. BD shall not, in its capacity as Existing Holder of shares of such series, submit Orders in such Auction in respect of shares of such series covering in the aggregate more than the number of shares of such series specified by the Auction Agent in response to BD's inquiry.
2.3. Auction Schedule; Method of Submission of Orders.
(a) Each Fund and the Auction Agent for such Fund shall conduct Auctions for MuniPreferred in accordance with the schedule set forth below. Such schedule with respect to any series of MuniPreferred of any Fund may be changed by the Auction Agent for such series with the consent of such Fund, which consent shall not be unreasonably withheld. Such Auction Agent shall give written notice of any such change to each Broker-Dealer of such series. Such notice shall be given prior to the close of business on the Business Day next preceding the first Auction Date on which such change shall be effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent for such series advises such
Fund and the Broker-Dealers for such series
of the applicable Maximum Rate and the
Reference Rate(s) and Treasury Note Rate(s),
as the case may be, used in determining such
Maximum Rate as set forth in Section 2.2(a)
hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in Section 2(a) of the Auction
Procedures of such Fund. Submission Deadline
is 1:30 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant
to Section 3(a) of the Auction Procedures of
such Fund.
|
Time Event
---- -----
By approximately 3:00 P.M. Auction Agent advises Fund of results of
Auction as provided in Section 3(b) of the
Auction Procedures of such Fund.
Submitted Bids and Submitted Sell Orders are
accepted and rejected and shares of such
series of MuniPreferred allocated as
provided in Section 4 of the Auction
Procedures of such Fund.
Auction Agent gives notice of Auction
results as set forth in Section 2.4(a)
hereof.
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(b) BD shall submit Orders to the appropriate Auction Agent in writing substantially in the form attached hereto as Exhibit B. BD shall submit a separate Order to such Auction Agent for each Potential Holder or Existing Holder with respect to whom BD is submitting an Order and shall not otherwise net or aggregate such Orders prior to their submission to such Auction Agent.
(c) BD shall deliver to the appropriate Auction Agent (i) a written notice in substantially the form attached hereto as Exhibit C of transfers of shares of MuniPreferred to BD from another Person other than pursuant to an Auction and (ii) a written notice substantially in the form attached hereto as Exhibit D, of the failure of any shares of MuniPreferred to be transferred to or by any Person that purchased or sold shares of MuniPreferred through BD pursuant to an Auction. Such Auction Agent is not required to accept any such notice described in clause (i) for an Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business Day preceding such Auction.
(d) BD and other Broker-Dealers may submit Orders in Auctions for their own accounts (including Orders for their own accounts where the Order is placed beneficially for a customer) unless the relevant Fund shall have notified BD and all other Broker-Dealers that they may no longer do so, in which case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their own accounts.
(e) BD agrees to handle its customers' orders in accordance with its duties under applicable securities laws and rules.
(f) To the extent that pursuant to Section 4 of the Auction Procedures of any Fund, BD continues to hold, sells, or purchases a number of shares that is fewer than the number of shares in an Order submitted by BD to the Auction Agent in which BD designated itself as an
Existing Holder or Potential Holder in respect of customer Orders, BD shall make appropriate pro rata allocations among its customers for which it submitted Orders of similar tenor. If as a result of such allocations, any Beneficial Owner would be entitled or required to sell, or any Potential Beneficial Owner would be entitled or required to purchase, a fraction of a share of MuniPreferred on any Auction Date, BD shall, in such manner as it shall determine in its sole discretion, round up or down the number of shares of MuniPreferred to be purchased or sold on such Auction Date by any Beneficial Owner or Potential Beneficial Owner on whose behalf BD submitted an Order so that the number of shares so purchased or sold by each such Beneficial Owner or Potential Beneficial Owner on such Auction Date shall be whole shares of MuniPreferred.
2.4. Notices.
(a) On each Auction Date for any series of MuniPreferred, the Auction Agent for such series shall notify BD, if BD is a Broker-Dealer of such series, by telephone of the results of the Auction as set forth in paragraph (a) of the Settlement Procedures. By approximately 11:30 A.M. on the Business Day next succeeding such Auction Date, the relevant Auction Agent shall confirm to BD in writing the disposition of all Orders submitted by BD in such Auction.
(b) BD shall notify each Existing Holder, Potential Holder, Beneficial Owner or Potential Beneficial Owner of shares of MuniPreferred with respect to whom BD has submitted an Order as set forth in paragraph (b) of the Settlement Procedures and take such other action as is required of BD pursuant to the Settlement Procedures.
2.5. Designation of Special Rate Period.
(a) If any Fund delivers to its Auction Agent a notice of the Auction Date for any series of MuniPreferred of such Fund for a Rate Period thereof that next succeeds a Rate Period that is not a Minimum Rate Period in the form of Exhibit C to the Auction Agency Agreement, and BD is a Broker-Dealer of such series, the Auction Agent shall deliver such notice to BD as promptly as practicable after its receipt of such notice from such Fund.
(b) If the Board of Directors or Board of Trustees, as the case may be, of any Fund proposes to designate any succeeding Subsequent Rate Period of any series of MuniPreferred of such Fund as a Special Rate Period and such Fund delivers to its Auction Agent a notice of such proposed Special Rate Period in the form of Exhibit D to the Auction Agency Agreement, and BD is a Broker-Dealer for such series, such Auction Agent shall deliver such notice to BD as promptly as practicable after its receipt of such notice from the Fund.
(c) If the Board of Directors or Board of Trustees, as the case may be, of any Fund determines to designate such succeeding Subsequent Rate Period as a Special Rate Period, and such Fund delivers to its Auction Agent a notice of such Special Rate Period in the form of Exhibit E to the Auction Agency Agreement not later than 11:00 A.M. on the second Business Day next preceding the first day of such Rate Period (or by such later time or date, or both, as
may be agreed to by such Auction Agent), and BD is a Broker-Dealer for such series, such Auction Agent shall deliver such notice to BD not later than 3:00 P.M. on such second Business Day (or, if such Auction Agent has agreed to a later time or date, as promptly as practicable thereafter).
(d) If any Fund shall deliver to its Auction Agent a notice not later than 11:00 A.M. on the second Business Day next preceding the first day of any Rate Period (or by such later time or date, or both, as may be agreed to by such Auction Agent) stating that such Fund has determined not to exercise its option to designate such succeeding Subsequent Rate Period as a Special Rate Period, in the form of Exhibit F to the Auction Agency Agreement, or shall fail to timely deliver either such notice or a notice in the form of Exhibit E to the Auction Agency Agreement, and BD is a Broker-Dealer for such series, such Auction Agent shall deliver a notice in the form of Exhibit F to the Auction Agency Agreement to BD not later than 3:00 P.M. on such second Business Day (or, if such Auction Agent has agreed to a later time or date, as promptly as practicable thereafter).
2.6. Allocation of Taxable Income.
If any Fund delivers to its Auction Agent a notice in the form of Exhibit I to the Auction Agency Agreement designating all or a portion of any dividend on shares of any series of MuniPreferred of such Fund to consist of net capital gains or other income taxable for Federal income tax purposes, and BD is a Broker-Dealer for such series, such Auction Agent shall deliver such notice to BD on the Business Day following its receipt of such notice from such Fund. On or prior to the Auction Date referred to in such notice, BD will contact each of its customers that is a Beneficial Owner of shares of such series of MuniPreferred or a Potential Beneficial Owner of shares of such series of MuniPreferred interested in submitting an Order in the Auction to be held on such Auction Date, and BD will notify such Beneficial Owners and Potential Beneficial Owners of the contents of such notice. BD will be deemed to have notified such Beneficial Owners and Potential Beneficial Owners if, for each of them, (i) BD makes a reasonable effort to contact such Beneficial Owner or Potential Beneficial Owner by telephone, and (ii) upon failing to contact such Beneficial Owner or Potential Beneficial Owner by telephone BD mails written notification to such Beneficial Owner or Potential Beneficial Owner at the mailing address indicated in the account records of BD.
The Auction Agent for any series of MuniPreferred shall be required to notify BD if it is a Broker-Dealer for such series within two Business Days after each Auction of such series that involves an allocation of income taxable for Federal income tax purposes as to the dollar amount per share of such taxable income and income exempt from Federal income taxation included in the related dividend.
2.7. Failure to Deposit.
(a) If:
(i) any Failure to Deposit shall have occurred with respect to shares of any series of MuniPreferred of any Fund during any Rate Period thereof (other than any Special Rate Period of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate Period of more than 364 Rate Period Days during which a Failure to Deposit occurred that has not been cured), but, prior to 12:00 Noon, New York City time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall have been cured in accordance with Section 2.7 of the Auction Agency Agreement and such Fund shall have paid to the Auction Agent for such series the applicable Late Charge as described in Section 2.7 of the Auction Agency Agreement,
then, if BD is a Broker-Dealer for such series, such Auction Agent shall deliver a notice in the form of Exhibit G to the Auction Agency Agreement by first-class mail, postage prepaid, to BD not later than one Business Day after its receipt of the payment from such Fund curing such Failure to Deposit and such Late Charge.
(b) If:
(i) any Failure to Deposit shall have occurred with respect to shares of any series of MuniPreferred of any Fund during any Rate Period thereof (other than any Special Rate Period of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate Period of more than 364 Rate Period Days during which a Failure to Deposit occurred but has not been cured), and, prior to 12:00 Noon, New York City time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall not have been cured as described in Section 2.7 of the Auction Agency Agreement or such Fund shall not have paid to the Auction Agent for such series the applicable Late Charge described in Section 2.7 of the Auction Agency Agreement; or
(ii) any Failure to Deposit shall have occurred with respect to shares of any series of MuniPreferred of any Fund during a Special Rate Period thereof of more than 364 Rate Period Days, or during any Rate Period thereof succeeding any Special Rate Period of more than 364 Rate Period Days during which a Failure to Deposit occurred that has not been cured, and, prior to 12:00 noon, New York City time, on the fourth Business Day preceding the Auction Date for the Rate Period subsequent to such Rate Period, such Failure to Deposit shall not have been cured as described in Section 2.7 of the Auction Agency Agreement or such Fund shall not have paid to the Auction Agent for such series the applicable Late Charge described in Section 2.7 of the Auction Agency Agreement;
then such Auction Agent shall deliver a notice in the form of Exhibit H to the Auction Agency Agreement to the Broker-Dealers for such series not later than one Business Day after the receipt of the payment from such Fund curing such Failure to Deposit and such Late Charge.
2.8. Service Charge to be Paid to BD.
On the Business Day next succeeding each Auction Date for any
series of MuniPreferred specified in, or on Schedule A to, the Request Letter of
any Fund, the Auction Agent for such series shall pay to BD from moneys received
from such Fund an amount equal to the product of (a) (i) in the case of any
Auction Date immediately preceding a Rate Period of such series consisting of
364 Rate Period Days or fewer, 1/4 of 1%, or (ii) in the case of any Auction
Date immediately preceding a Rate Period of such series consisting of more than
364 Rate Period Days, such percentage as may be agreed upon by such Fund and BD
with respect to such Rate Period, times (b) a fraction, the numerator of which
is the number of Rate Period Days in the Rate Period therefor beginning on such
Business Day and the denominator of which is 365 if such Rate Period consists of
7 Rate Period Days and 360 for all other Rate Periods, times (c) $50,000 times
(d) the sum of (i) the aggregate number of shares of such series placed by BD in
such Auction that were (A) the subject of Submitted Bids of Existing Holders
submitted by BD and continued to be held as a result of such submission and (B)
the subject of Submitted Bids of Potential Holders submitted by BD and purchased
as a result of such submission plus (ii) the aggregate number of shares of such
series subject to valid Hold Orders (determined in accordance with paragraph (d)
of Section 2 of the Auction Procedures) submitted to the Auction Agent by BD
plus (iii) the number of shares of MuniPreferred deemed to be subject to Hold
Orders of Existing Holders pursuant to paragraph (c) of Section 2 of the Auction
Procedures of such Fund that were acquired by BD for its own account or were
acquired by BD for its customers who are Beneficial Owners.
For purposes of subclause (d)(iii) of the foregoing paragraph, if any Existing Holder or Beneficial Owner who acquired shares of any series of MuniPreferred through BD transfers those shares to another Person other than pursuant to an Auction, then the Broker-Dealer for the shares so transferred shall continue to be BD; provided, however, that if the transfer was effected by, or if the transferee is, a Broker-Dealer other than BD, then such Broker-Dealer shall be the Broker-Dealer for such shares.
2.9. Settlement.
(a) If any Existing Holder or Beneficial Owner with respect to whom BD has submitted a Bid or Sell Order for shares of MuniPreferred of any series that was accepted in whole or in part fails to instruct its Agent Member to deliver the shares of MuniPreferred subject to such Bid or Sell Order against payment therefor, BD, if it knows the identity of such Agent Member, shall instruct such Agent Member to deliver such shares against payment therefor and, if such Agent Member fails to comply with such instructions, BD may deliver to the Potential Holder or Potential Beneficial Owner with respect to whom BD submitted a Bid for shares of MuniPreferred of such series that was accepted in whole or in part a number of shares of MuniPreferred of such
series that is less than the number of shares of MuniPreferred of such series specified in such Bid to be purchased by such Potential Holder or Potential Beneficial Owner.
(b) Neither the Auction Agent nor the Fund shall have any responsibility or liability with respect to the failure of an Existing Holder, Beneficial Owner, Potential Holder or Potential Beneficial Owner or its respective Agent Member to deliver shares of MuniPreferred of any series or to pay for shares of MuniPreferred of any series sold or purchased pursuant to the Auction Procedures or otherwise.
(c) Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event BD is an Existing Holder with respect to shares of a series of MuniPreferred and the Auction Procedures provide that BD shall be deemed to have submitted a Sell Order in an Auction with respect to such shares if BD fails to submit an Order in that Auction with respect to such shares, BD shall have no liability to any Person for failing to sell such shares pursuant to such a deemed Sell Order if (i) such shares were transferred by the beneficial owner thereof without notification of such transfer in compliance with the Auction Procedures or (ii) BD has indicated to the Auction Agent pursuant to Section 2.2(e) of this Agreement that, according BD's records, BD is not the Existing Holder of such shares.
(d) Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event an Existing Holder or Beneficial Owner of shares of a series of MuniPreferred with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefor, partial deliveries of shares of MuniPreferred that have been made in respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares of such series that have been accepted in whole or in part shall constitute good delivery to such Potential Holders and Potential Beneficial Owners.
(e) Notwithstanding the foregoing terms of this Section, any delivery or non-delivery of shares of MuniPreferred of any series which represents any departure from the results of an Auction for shares of such series, as determined by the Auction Agent, shall be of no effect for purposes of the registry of Existing Holders maintained by the Auction Agent pursuant to the Auction Agency Agreement unless and until the Auction Agent shall have been notified of such delivery or non-delivery.
(f) The Auction Agent shall have no duty or liability with respect to enforcement of this Section 2.9.
3. The Auction Agent.
3.1. Duties and Responsibilities.
(a) Each Auction Agent is acting solely as agent for the Funds with whom such Auction Agent has entered into Request Letters and owes no fiduciary duties to any other Person, other than such Funds, by reason of the Agreements to which such Auction Agent is a party.
(b) Each Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in the Agreements to which it is a party, and no implied covenants or obligations shall be read into such Agreements against such Auction Agent.
(c) In the absence of bad faith or negligence on its part, each Auction Agent shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Agreements to which it is a party. Each Auction Agent shall not be liable for any error of judgment made in good faith unless such Auction Agent shall have been negligent in ascertaining the pertinent facts.
3.2. Rights of the Auction Agents.
(a) Each Auction Agent may rely and shall be protected in acting or refraining from acting upon any communication authorized hereby and upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document believed in good faith by it to be genuine. Each Auction Agent shall not be liable for acting upon any telephone communication authorized by the Agreements to which it is a party that such Auction Agent believes in good faith to have been given by the appropriate Fund, by the Adviser or by a Broker-Dealer. Each Auction Agent may record telephone communications with the Broker-Dealers.
(b) Each Auction Agent may consult with counsel of its choice and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) Each Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.
3.3. Auction Agents' Disclaimers.
Each Auction Agent makes no representation as to the validity or adequacy of the Agreements to which it is a party, the Auction Agency Agreements to which it is a party or the shares of MuniPreferred of any series.
4. Miscellaneous.
4.1. Termination.
Any party to any Agreement may terminate such Agreement at any time on five days' notice to the other parties to such Agreement, provided that the Fund party to such Agreement shall not terminate the Agreement unless at least one Broker-Dealer Agreement would be in effect for each series of MuniPreferred of such Fund after such termination. Each Agreement shall automatically terminate with respect to any series of MuniPreferred with respect to which the relevant Auction Agency Agreement has terminated.
4.2. Participant in Securities Depository; Payment of Dividends in Same-Day Funds.
(a) BD is, and shall remain for the term of the Agreements, a member of, or participant in, the Securities Depository (or an affiliate of such a member or participant).
(b) BD represents that it (or if BD does not act as Agent Member, one of its affiliates) shall make all dividend payments on the MuniPreferred available in same-day funds on each Dividend Payment Date to customers that use BD or affiliate as Agent Member.
4.3. Communications.
Except for (i) communications authorized to be by telephone by the Agreement of any Fund or the Auction Procedures of such Fund and (ii) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party under such Agreement shall be in writing (including telecopy or similar writing) and shall be given to such party, addressed to it, at its address or telecopy number set forth below:
If to a Fund, [Name of Fund]
addressed: 333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
Telecopier No.: (312) 917-7942
Telephone No.: (312) 917-7700
If to the Adviser, Nuveen Advisory Corp.
addressed: 333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
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If to BD, to the
address or telecopy number
as set forth in the Acceptance
Letter,
If to an Auction
Agent, to the address
or telecopy number as set
forth in the Request Letter,
or such other address or telecopy number as such party may hereafter specify for such purpose by notice to the other parties. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of BD by a BD Officer and on behalf of an Auction Agent by an Authorized Officer of such Auction Agent. BD may record telephone communications with any Auction Agent.
4.4. Entire Agreement.
Each Agreement contains the entire agreement among the parties thereto relating to the subject matter thereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, among the parties thereto relating to the subject matter thereof. Each Agreement supersedes any prior agreement to which BD was a party in respect of any Fund.
4.5. Benefits.
Nothing in any Agreement, express or implied, shall give to any person, other than the Fund party to such Agreement, the Adviser, the Auction Agent party to such Agreement and BD and their respective successors and assigns, any benefit or any legal or equitable right, remedy or claim under such Agreement.
4.6. Amendment; Waiver.
(a) Each Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged.
(b) Failure of any party to any Agreement to exercise any right or remedy thereunder in the event of a breach thereof by any other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.
4.7. Successors and Assigns.
Each Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and assigns of the Fund party to such Agreement, the Adviser, the Auction Agent party to such Agreement and BD.
4.8. Severability.
If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof.
4.9. GOVERNING LAW.
EACH AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
4.10. Declaration of Trust.
The Declaration of each Fund that is a Massachusetts business trust is on file with the Secretary of State of the Commonwealth of Massachusetts. Each Agreement to which a Fund that is a Massachusetts business trust is a party has been executed on behalf of such Fund by the Vice President and Treasurer of such Fund acting in such capacity and not individually, and the obligations of such Fund set forth in such Agreement are not binding upon any of such Fund's trustees, officers or shareholders individually, but are binding only upon the assets and property of such Fund.
EXHIBIT A
SETTLEMENT PROCEDURES
[INTENTIONALLY OMITTED]
EXHIBIT B
[Name of Fund]
$_____ Municipal Auction Rate Cumulative Preferred Stock [Shares], Series ____
$_____ Municipal Auction Rate Cumulative Preferred Stock [Shares], Series ____
AUCTION DATE: _____________
ISSUE: ___________________ SERIES: _________
ORDERS BY EXISTING HOLDERS- NUMBER OF SHARES OF MUNIPREFERRED
EXISTING HOLDER HOLD BID/RATE SELL 1._________________________ ________ _________/________ _______ 2._________________________ ________ _________/________ _______ 3._________________________ ________ _________/________ _______ 4._________________________ ________ _________/________ _______ 5._________________________ ________ _________/________ _______ 6._________________________ ________ _________/________ _______ 7._________________________ ________ _________/________ _______ 8._________________________ ________ _________/________ _______ 9._________________________ ________ _________/________ _______ 10.________________________ ________ _________/________ _______ |
ORDERS BY POTENTIAL HOLDERS- NUMBER OF SHARES OF MUNIPREFERRED
POTENTIAL HOLDER BID/RATE 1._____________________________ _________/________ 2._____________________________ _________/________ 3._____________________________ _________/________ 4._____________________________ _________/________ 5._____________________________ _________/________ 6._____________________________ _________/________ 7._____________________________ _________/________ 8._____________________________ _________/________ 9._____________________________ _________/________ 10.____________________________ _________/________ 11.____________________________ _________/________ 12.____________________________ _________/________ 13.____________________________ _________/________ 14.____________________________ _________/________ 15.____________________________ _________/________ |
NOTES:
1. If one or more Orders covering in the aggregate more than the number of outstanding shares of MuniPreferred held by any Existing Holder are submitted, such Orders shall be considered valid in the order of priority set forth in the Auction Procedures.
2. A Hold Order or Sell Order may be placed only by an Existing Holder covering a number of shares of MuniPreferred not greater than the number of shares of MuniPreferred currently held by such Existing Holder.
3. Potential Holders may make Bids only, each of which must specify a rate. If more than one Bid is submitted on behalf of any Potential Holder, each Bid submitted shall be a separate Bid with the rate specified.
4. Bids may contain no more than three figures to the right of the decimal point (.001 of 1%).
[AUCTION AGENT] AUCTION BID FORM NAME OF Broker-Dealer:___________________
AUTHORIZED
Submit to: SIGNATURE:_______________________________
TOTAL NUMBER OF ORDERS ON THIS BID FORM:
================================================================================
|
EXHIBIT C
(To be used only for transfers made to a
Broker-Dealer other than pursuant to an Auction)
[NAME OF FUND]
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES],
SERIES ___
TRANSFER FORM
We are the Broker-Dealer to whom the Existing Holder or Beneficial Owner named below transferred shares of the above series of MuniPreferred other than pursuant to an Auction. We hereby notify you that such Existing Holder or Beneficial Owner has transferred ______ shares of the above series of Muni- Preferred to us.
Title:
EXHIBIT D
(To be used only for failures to deliver shares of MuniPreferred sold pursuant to an Auction)
[NAME OF FUND]
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES],
SERIES ____
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ________________ (the "Purchaser"), which purchased _______ shares of the above series of MuniPreferred in the Auction held on _____ from the seller of such shares.
II. We are a Broker-Dealer for ____________ (the "Seller"), which sold ________ shares of the above series of MuniPreferred in the Auction held on ______ to the purchaser of such shares.
We hereby notify you that (check one) --
o the Seller failed to deliver such shares of MuniPreferred to the Purchaser
o the Purchaser failed to make payment to the Seller upon delivery of such shares of MuniPreferred
Title:
[Form of Broker-Dealer Acceptance Letter]
Nuveen Advisory Corp.
____________, ____
[Broker-Dealer]
[Address]
Ladies and Gentlemen:
Reference is made to (a) the Broker-Dealer Agreements executed
by the Funds (as hereinafter defined) listed on Exhibit A hereto, Bankers Trust
Company and various broker-dealers, copies of which will be made available to
you upon request by Bankers Trust Company (the "Broker-Dealer Agreements") and
(b) the Nuveen Broker-Dealer Agreement-Basic Terms for Acting as a Broker-Dealer
dated December 14, 1993, receipt of which is hereby acknowledged by you (the
"Basic Terms"). For purposes of this letter ("Acceptance Letter"), (a) "Fund"
shall mean any closed-end investment company registered under the Investment
Company Act of 1940, as amended, for which Nuveen Advisory Corp. acts as
investment adviser; (b) except as otherwise provided below, the terms of each
Broker-Dealer Agreement shall be incorporated herein by reference, and you shall
be considered BD for all purposes thereof, as if you were the Broker-Dealer
signatory thereto in the place of the actual Broker-Dealer signatory thereto;
and (c) the Basic Terms are incorporated herein by reference, you shall be
considered BD for all purposes thereof, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund not listed
on Exhibit A hereto shall be considered a Fund for all purposes thereof.
We hereby request that you act as a Broker-Dealer for the
Money Market Cumulative Preferred Stock ("MMP") of each series, and the
Municipal Auction Rate Cumulative Preferred Stock or Shares ("MPS" or
"MuniPreferred") of each series, of each Fund that executes a letter,
substantially in the form attached hereto as Exhibit B or Exhibit C, as
appropriate, appointing you as a Broker-Dealer ("Request Letter"). You hereby
(a) accept such appointment as a Broker-Dealer for each series of MMP, MPS or
MuniPreferred of each Fund identified in a Request Letter and (b) agree to act
as BD in accordance with (1) the terms of the Broker-Dealer Agreement relating
to such Fund, in the case of any Fund listed on Exhibit A hereto or (2) the
Basic Terms, in the case of any other Fund; provided, however, that:
(1) for purposes of any such Broker-Dealer Agreement or the Basic Terms, and notwithstanding any provision of any Broker-Dealer Agreement to the contrary, your address, telecopy number and telephone number for communications pursuant to such Broker-Dealer Agreement or the Basic Terms shall be as follows:
and the address, telecopy number and telephone number of the Auction Agent for communications pursuant to such Broker-Dealer or the Basic Terms shall be as follows:
(2) notwithstanding any provision of a Broker-Dealer Agreement to the contrary, except as otherwise set forth herein, your appointment as Broker-Dealer extends to each series of MMP, MPS or MuniPreferred issued by the Fund to which such Broker-Dealer Agreement relates.
(3) the text of Section 2.9 of each Broker-Dealer Agreement shall be deleted and the following shall be deemed to be inserted in its place:
(a) If any Existing Holder with respect to whom BD has submitted a Bid or Sell Order for shares of MMP, MPS or MuniPreferred of any series that was accepted in whole or in part fails to instruct its Agent Member to deliver the shares of MMP, MPS or MuniPreferred subject to such Bid or Sell Order against payment therefor, BD, if it knows the identity of such Agent Member, shall instruct such Agent Member to deliver such shares against payment therefor and, if such Agent Member fails to comply with such instructions, BD may deliver to the Potential Holder with respect to whom BD submitted a Bid for shares of MMP, MPS or MuniPreferred of such series that was accepted in whole or in part a number of shares of MMP, MPS or MuniPreferred of such series that is less
than the number of shares of MMP, MPS, or MuniPreferred of such series specified in such Bid to be purchased by such Potential Holder.
(b) Neither the Auction Agent nor the Fund shall have any responsibility or liability with respect to the failure of an Existing Holder or a Potential Holder or its respective Agent Member to deliver shares of MMP, MPS or MuniPreferred of any series or to pay for shares of MMP, MPS or MuniPreferred of any series sold or purchased pursuant to the Auction Procedures or otherwise.
(c) Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event BD is an Existing Holder with respect to shares of a series of MMP, MPS or MuniPreferred and the Auction Procedures provide that BD shall be deemed to have submitted a Sell Order in an Auction with respect to such shares if BD fails to submit in Order in that Auction with respect to such shares, BD shall have no liability to any Person for failing to sell such shares pursuant to such a deemed Sell Order if (i) such shares were transferred by the beneficial owner thereof without notification of such transfer in compliance with the Auction Procedures or (ii) BD has informed the Auction Agent pursuant to Section 2.2(g) of this Agreement that, according to BD's records, BD believes it is not the Existing Holder of such shares.
(d) Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event an Existing Holder of shares of a series of MMP, MPS or MuniPreferred with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefor, partial deliveries of shares of MMP, MPS or MuniPreferred that have been made in respect of Potential Holders' Submitted Bids for shares of such series that have been accepted in whole or in part shall constitute good delivery to such Potential Holders.
(e) Notwithstanding the foregoing terms of this Section, any delivery or non-delivery of shares of MMP, MPS or MuniPreferred of any series which represents any departure from the results of an Auction for shares of such series, as determined by the Auction Agent, shall be of no effect for purposes of the registry of Existing Holders maintained by the Auction Agent pursuant to the Auction Agency Agreement unless and until the Auction Agent shall have been notified of such delivery or non-delivery.
(f) The Auction Agent shall have no duty or liability with respect to enforcement of this Section 2.9.
(4) a new Section 2.2(g) shall be added to each Broker-Dealer Agreement, to read as follows:
(g) The Auction Agent's registry of Existing Holders of shares of a series of MMP, MPS or MuniPreferred shall be conclusive and binding on BD. BD may inquire of the Auction Agent between 3:00 P.M. on the Business Day preceding an Auction for shares of a series of MMP, MPS or MuniPreferred and 9:30 A.M. on the Auction Date for such Auction to ascertain the number of shares of such series in respect of which the Auction Agent has determined BD to be an Existing Holder. If BD believes it is the Existing Holder of fewer shares of such series than specified by the Auction Agent in response to BD's inquiry, BD may so inform the Auction Agent of that belief. BD shall not, in its capacity as Existing Holder of shares of such series, submit Orders in such Auction in respect of shares of such series covering in the aggregate more than the number of shares of such series specified by the Auction Agent in response to BD's inquiry.
(5) a new sentence shall be added to the end of Section 2.2(d) of each Broker-Dealer Agreement, to read as follows:
Nothing contained herein shall require BD to submit an Order for any customer in any Auction.
You hereby acknowledge that, notwithstanding any provision of any Broker-Dealer Agreement or the Basic Terms to the contrary, the Fund may (a) upon five business days' notice to the Auction Agent and you, amend, alter or repeal any of the provisions contained in any Broker-Dealer Agreement or the Basic Terms, it being understood and agreed that you shall be deemed to have accepted any such amendment, alteration or repeal if, after the expiration of such five business day period, you submit an Order to the Auction Agent in respect of the shares of MMP, MPS, MuniPreferred of the Fund or Funds to which such amendment, alteration or repeal relates, and (b) upon two business days' notice to the Auction Agent and you, exclude you from participating as a Broker-Dealer in any particular Auction for any particular series of MMP, MPS or MuniPreferred.
This Acceptance Letter shall be deemed to form part of each Broker-Dealer Agreement and the Basic Terms.
Capitalized terms not defined in this Acceptance Letter shall have the meanings ascribed to them in the relevant Broker-Dealer Agreement or the Basic Terms, as the case may be.
If the foregoing terms are acceptable to you, please so indicate in the space provided below. This Acceptance Letter may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.
NUVEEN ADVISORY CORP.
Title:
Accepted by and Agreed to as of
the date first written above:
[Broker-Dealer]
EXHIBIT A TO ACCEPTANCE LETTER
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen New Jersey Quality Income Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Municipal Market Opportunity Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.
EXHIBIT B TO ACCEPTANCE LETTER
[Form of Request Letter]
______________ ____, ____
FROM: All investment companies registered under the Investment
Company Act of 1940, as amended, for which Nuveen Advisory
Corp. acts as investment adviser and whose registration
statements relating to shares of Money Market Cumulative
Preferred Stock or Municipal Auction Rate Cumulative Preferred
Stock or Shares have been declared effective by the Securities
and Exchange Commission on or prior to the date hereof.
TO: Nuveen Advisory Corp.
Deutsche Bank Trust Company Americas
|
Ladies and Gentlemen:
Reference is made to (a) the respective Broker-Dealer Agreements, previously executed by the Funds (as hereinafter defined) listed on Exhibit A hereto, various Broker-Dealers and Bankers Trust Company (the "Broker-Dealer Agreements"); (b) the respective Auction Agency Agreements previously executed by the Funds listed on Exhibit A hereto and Bankers Trust Company (the "Auction Agency Agreements"); (c) the Nuveen Broker-Dealer Agreement -- Basic Terms for Acting as a Broker-Dealer dated December 14, 1993, receipt of which is hereby acknowledged by you (the "Broker-Dealer Basic Terms"); and (d) the Nuveen Auction Agency Agreement -- Basic Terms for Acting as Auction Agent dated November 1, 1993, receipt of which is hereby acknowledged by you (the "Auction Agency Basic Terms"). For purposes of this letter ("Request Letter"), (a) "Fund" shall mean any closed-end investment company registered under the Investment Company Act of 1940, as amended, for which Nuveen Advisory Corp. acts as investment adviser; (b) except as otherwise provided below, the terms of each Broker-Dealer Agreement shall be incorporated herein by reference, and each Broker-Dealer listed on Exhibit B hereto shall be considered BD for all purposes thereof, as if such Broker-Dealer were the Broker-Dealer signatory thereto in the place of the actual Broker-Dealer signatory thereto; (c) the Broker-Dealer Basic Terms are incorporated herein by reference, each Broker-Dealer listed on Exhibit B hereto shall be considered BD for all purposes thereof, Bankers Trust Company shall be considered the Auction Agent for all purposes thereof, and each Fund referred to on Exhibit C hereto shall be considered a Fund for all purposes thereof; (d) except as otherwise provided below, the terms of each Auction Agency Agreement shall be incorporated herein by reference, and each Broker-Dealer listed on Exhibit B shall be considered a Broker-Dealer for all purposes thereof; and (e) the Auction Agency Basic Terms are incorporated herein by reference, Bankers
Trust Company shall be considered the Auction Agent for all purposes thereof, and each Fund referred to on Exhibit C hereto shall be considered a Fund for all purposes thereof.
We hereby appoint the Broker-Dealers listed on Exhibit B hereto as Broker-Dealers for the Money Market Cumulative Preferred Stock ("MMP") or Municipal Auction Rate Cumulative Preferred Stock or Shares ("MPS" or "MuniPreferred") of each series of each Fund listed on Exhibit A hereto or referred to on Exhibit C hereto. Each such Broker-Dealer will act as BD in respect of such series in accordance with (1) the terms of the Broker-Dealer Agreement relating to such Fund, in the case of any Fund listed on Exhibit A hereto, except as otherwise set forth in an Acceptance Letter relating to such Broker-Dealer from Nuveen Advisory Corp., to such Broker-Dealer or (2) the Broker-Dealer Basic Terms, in the case of any Fund referred to on Exhibit C hereto; provided, however, that for purposes of any such Broker-Dealer Agreement or the Broker-Dealer Basic Terms, and notwithstanding any provision of any Broker-Dealer Agreement to the contrary, Bankers Trust Company's address, telecopy number and telephone number for communications pursuant to such Broker-Dealer Agreement or the Broker-Dealer Basic Terms shall be as follows:
Bankers Trust Company agrees to act as Auction Agent with respect to shares of each series of MMP, MPS or MuniPreferred of each Fund listed on Exhibit A or referred to on Exhibit C hereto in accordance with (1) the terms of the Auction Agency Agreement relating to the MMP, MPS or MuniPreferred of such Fund, in the case of any Fund listed on Exhibit A hereto or (2) the Auction Agency Basic Terms, in the case of any Fund referred to on Exhibit C hereto; provided, however, that Section 2.2(c)(i) of each Auction Agency Agreement shall be amended to read as follows:
(c)(i) The Auction Agent shall maintain a registry of the beneficial owners of the shares of MMP, MPS or MuniPreferred who shall constitute Existing Holders of shares of MMP, MPS or MuniPreferred for purposes of Auctions and shall indicate thereon the identity of the respective Broker-Dealer of each Existing Holder, if any, on whose behalf such Broker-Dealer submitted the most recent Order in any Auction which resulted in such Existing Holder continuing to hold or purchasing shares of MMP, MPS or MuniPreferred. The Auction Agent shall keep such registry current and accurate. The Fund shall provide or cause to be provided to the Auction Agent at or prior to the Date of Original Issue of the shares of MMP, MPS or MuniPreferred a list of the initial Existing Holders of the shares of MMP, MPS or MuniPreferred, the number of shares purchased by each such
Existing Holder and the respective Broker-Dealer of each such Existing Holder or the affiliate thereof through which each such Existing Holder purchased such shares. The Auction Agent shall advise the Fund in writing whenever the number of Existing Holders is 500 or more. The Auction Agent may rely upon, as conclusive evidence of the identities of the Existing Holders of shares of MMP, MPS or MuniPreferred (A) such list, (B) the results of Auctions, (C) notices from any Existing Holder, the Agent Member of any Existing Holder or the Broker-Dealer of any Existing Holder as described in the first sentence of Section 2.2(c)(iii) hereof and (D) the results of any procedures approved by the Fund that have been devised for the purpose of determining the identities of Existing Holders in situations where shares of MMP, MPS or MuniPreferred may have been transferred without compliance with any restrictions on the transfer thereof set forth in the Auction Procedures.
This Request Letter shall be deemed to form part of each Auction Agency Agreement and the Auction Agency Basic Terms.
Capitalized terms not defined in this Request Letter shall have the meanings ascribed to them in the relevant Broker-Dealer Agreement, Broker-Dealer Basic Terms, Auction Agency Agreement or Auction Agency Basic Terms, as the case may be.
If the foregoing terms are acceptable to you, please so indicate in the space provided below. This Request Letter may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.
All investment companies registered under the Investment Company Act of 1940, as amended, for which Nuveen Advisory Corp.
acts as investment adviser and whose
registration statements relating to shares
of Money Market Cumulative Preferred Stock
or Municipal Auction Rate Cumulative
Preferred Stock or Shares have been declared
effective by the Securities and Exchange
Commission on or prior to the date hereof.
Title:
Accepted and Agreed to as of the date first written above: NUVEEN ADVISORY CORP. DEUTSCHE BANK TRUST COMPANY AMERICAS By: By: ------------------------------ --------------------------------------- Name: Name: Title: Title: |
cc: [Broker-Dealers]
EXHIBIT A TO REQUEST LETTER
(List of Funds)
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen New Jersey Quality Income Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Municipal Market Opportunity Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.
EXHIBIT B TO REQUEST LETTER
[LIST OF BROKER-DEALERS]
EXHIBIT C TO REQUEST LETTER
Each Fund not listed on Exhibit A whose registration statement relating to shares of MMP, MPS or MuniPreferred has been declared effective by the Securities and Exchange Commission on or prior to the date of the Request Letter to which this Exhibit C is attached.
EXHIBIT C TO ACCEPTANCE LETTER
[Form of Request Letter]
[Name(s) of Fund(s)]
_____________ ____, ____
Ladies and Gentlemen:
Reference is made to (a) the Nuveen Broker-Dealer Agreement --
Basic Terms for Acting as a Broker-Dealer dated December 14, 1993, receipt of
which is hereby acknowledged by you (the "Broker-Dealer Basic Terms") and (b)
the Nuveen Auction Agency Agreement -- Basic Terms for Acting as Auction Agent
dated November 1, 1993, receipt of which is hereby acknowledged by you (the
"Auction Agency Basic Terms"). For purposes of this letter ("Request Letter"),
(a) "Fund" shall mean each undersigned closed-end investment company registered
under the Investment Company Act of 1940, as amended, for which Nuveen Advisory
Corp. acts as investment adviser; (b) the Broker-Dealer Basic Terms are
incorporated herein by reference, each Broker-Dealer listed on Exhibit A hereto
shall be considered BD for all purposes thereof, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund shall be
considered a Fund for all purposes thereof; and (c) the Auction Agency Basic
Terms are incorporated herein by reference, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund shall be
considered a Fund for all purposes thereof.
Each Fund hereby appoints the Broker-Dealers listed on Exhibit A hereto as Broker-Dealers for each series of Money Market Cumulative Preferred Stock ("MMP") or Municipal Auction Rate Cumulative Preferred Stock or Shares ("MPS" or "MuniPreferred") of such Fund. Each such Broker-Dealer will act as BD in respect of each such series in accordance with the Broker-Dealer Basic Terms; provided, however, that for purposes of the Broker-Dealer Basic Terms, Bankers Trust Company's address, telecopy number and telephone number for communications pursuant to the Broker-Dealer Basic Terms shall be as follows:
Bankers Trust Company agrees to act as Auction Agent with respect to shares of each series of MMP, MPS or MuniPreferred of each Fund in accordance with the Auction Agency Basic Terms.
This Request Letter shall be deemed to form part of the Auction Agency Basic Terms.
Capitalized terms not defined in this Request Letter shall have the meanings ascribed to them in the Broker-Dealer Basic Terms or Auction Agency Basic Terms, as the case may be.
If the foregoing terms are acceptable to you, please so indicate in the space provided below. This Request Letter may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.
[NAME(S) OF FUND(S)]
Title:
Accepted and Agreed to as of the date first
written above: NUVEEN ADVISORY CORP. DEUTSCHE BANK TRUST COMPANY AMERICAS By: By: -------------------------- --------------------------- Name: Name: Title: Title: cc: [Broker-Dealers listed on Exhibit A] |
EXHIBIT A TO REQUEST LETTER
[LIST OF BROKER-DEALERS]
EXHIBIT k.5
Book Entry Only Auction-Rate/Money Market Preferred/ and Remarketed Preferred Securities
LETTER OF REPRESENTATIONS
[To be Completed by Issuer and Trust Company]
Attention: General Counsel's Office
THE DEPOSITORY TRUST COMPANY
55 Water Street 49th Floor
New York, NY 10041-0099
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the Securities. Trust Company shall act as transfer agent,
registrar, dividend disbursing agent, redemption agent or other such agent with
respect to the Securities. The Securities have been issued pursuant to a
prospectus, private placement memorandum, or other such document authorizing the
issuance of the Securities dated ________________________ (the "Document").
_______________________________ is distributing the Securities through the
["Underwriter/Placement Agent"]
Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC, and to act in accordance with its Rules with respect to the Securities, Issuer and Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on _______________ there shall be deposited with DTC one or more Security certificates registered in the name of DTC's nominee, Cede & Co., which represents 100% of the offering value of the Securities. Said certificate(s) shall remain in DTC's custody as provided in the Document. If, however, the aggregate principal amount of the Securities exceeds $400 million, one certificate shall be issued with respect to each $400 million of principal amount and an additional certificate shall be issued with respect to any remaining principal amount. Each Security certificate shall bear the following legend:
Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
2. Issuer: (a) understands that DTC has no obligation to, and will not, communicate to its participants ("Participants") or to any person having an interest in the Securities any information contained in the Security certificate(s); and (b) acknowledges that neither DTC's Participants nor any person having an interest in the Securities shall be deemed to have notice of the provisions of the Security certificate(s) by virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by holders of the Securities, Issuer shall establish a record date for such purposes (with no provision for revocation of consents or votes by subsequent holders) and shall send notice of such record date to DTC no fewer than 15 calendar days in advance of such record date. Notices to DTC pursuant to this Paragraph by telecopy shall be directed to DTC's Reorganization Department, Proxy Unit at (212) 855-5181 or (212) 855-5182. If the party sending the notice does not receive a telecopy receipt from DTC confirming that the notice has been received, such party shall telephone (212) 855-5202. Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:
Supervisor, Proxy Unit Reorganization Department The Depository Trust Company 55 Water Street 50th Floor New York, NY 10041-0099
4. In the event of a full or partial redemption of the Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a) the number of Securities to be redeemed; and (b) the date such notice is to be distributed to Security holders (the "Publication Date"). Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business on the business day before or, if possible, two business days before the Publication Date. Issuer or Trust Company shall forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission for multiple CUSIP numbers (if applicable) which includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use of such means and the timeliness of such notice.) The Publication Date shall be no fewer than 30 days nor more than 60 days prior to the redemption date. Notices to DTC pursuant to this Paragraph by telecopy shall be directed to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190. If the party sending the notice does not receive a telecopy receipt from DTC confirming that the notice has been received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:
Manager, Call Notification Department The Depository Trust Company 711 Stewart Avenue Garden City, NY 11530-4719
5. In the event of an invitation to tender the Securities (including mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust Company to Security holders specifying the terms of the tender and the Publication Date of such notice shall be sent to DTC by a secure means in the manner set forth in the preceding Paragraph. Notices to DTC pursuant to this Paragraph and notices of other corporate actions by telecopy shall be directed to DTC's Reorganization Department at (212) 855-5488. If the party sending the notice does not receive a telecopy receipt from DTC confirming that the notice has been received, such party shall telephone (212) 855-5290. Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:
Manager, Reorganization Department Reorganization Window The Depository Trust Company 55 Water Street 50th Floor New York, NY 10041-0099
6. All notices and payment advices sent to DTC shall contain the CUSIP number of the Securities.
7. The Document indicates that the dividend rate for the Securities may vary from time to time. Absent other existing arrangements with DTC, Issuer or Trust Company shall give DTC notice of each such change in the dividend rate, on the same day that the new rate is determined, by telephoning DTC's Dividend Announcement Section at (212) 855-4550, or by telecopy sent to (212) 855-4555. Such verbal or telecopy notice shall be followed by prompt written confirmation sent by
a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business on the business day before or, if possible, two business days before the Publication Date. Issuer or Agent shall forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission for multiple CUSIP numbers (if applicable) which includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use and timeliness of such notice.) Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
8. The Document indicates that each purchaser of Securities must sign a purchaser's letter which contains provisions restricting transfer of the Securities purchased. Issuer and Trust & Co. shall be entitled to all voting rights applicable to the Securities and to receive the full amount of all dividends, liquidation proceeds, and redemption proceeds payable with respect to the Securities, even if the credits of Securities to the DTC accounts of any DTC Participant result from transfers or failures to transfer in violation of the provisions of the purchaser's letter. Issuer and Trust Company acknowledge that DTC shall treat any Participant having Securities credited to its DTC accounts as entitled to the full benefits of ownership of such Securities. Without limiting the generality of the preceding sentence, Issuer and Trust Company acknowledge that DTC shall treat any Participant having Securities credited to its DTC accounts as entitled to receive dividends, distributions, and voting rights, if any, in respect of Securities and, subject to Paragraphs 12 and 13, to receive certificates evidencing Securities if such certificates are to be issued in accordance with Issuer's certificate of incorporation. (The treatment by DTC of the effects of the crediting by it of Securities to the accounts of Participants described in the preceding two sentences shall not affect the rights of Issuer, participants in auctions relating to the Securities, purchasers, sellers, or holders of Securities against any Participant.) DTC shall not have any responsibility to ascertain whether any transfer of Securities is made in accordance with the provisions of the purchaser's letter.
9. Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to DTC as soon as the information is
available. Issuer or Trust Company shall provide this information to DTC
electronically, as previously arranged by Issuer or Trust Company and DTC, as
soon as the information is available. If electronic transmission has not been
arranged, absent any other arrangements between Issuer or Trust Company and
DTC, such information shall be sent by telecopy to DTC's Dividend Department at
(212) 855-4555 or (212) 855-4556, and receipt of such notices shall be
confirmed by telephoning (212) 855-4550. Notices to DTC pursuant to this
Paragraph, by mail or by any other means, shall be addressed as indicated in
Paragraph 7.
10. Dividend payments and distributions shall be received by Cede & Co.,
as nominee of DTC, or its registered assigns, in same-day funds no later than
2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m.
(Eastern Time) on the payment date, dividend and distribution payments due Trust
Company, or at such earlier time as may be required by Trust Company to
guarantee that DTC shall receive payment in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Absent any other arrangements between
Issuer or Trust Company and DTC, such funds shall be wired to the Dividend
Deposit Account number that will be stamped on the signature page hereof at the
time DTC executes this Letter of Representations.
11. Issuer or Trust Company shall provide DTC, no later than 12:00 noon
(Eastern Time) on each payment date, automated notification of CUSIP-level
detail. If the circumstances prevent the funds paid to DTC from equaling the
dollar amount associated with the detail payments by 12:00 noon (Eastern Time),
Issuer or Trust Company must provide CUSIP-level reconciliation to DTC no later
than 2:30 p.m. (Eastern Time). Reconciliation must be provided by either
automated means or written format. Such reconciliation notice, if sent by
telecopy, shall be directed to DTC's Dividend Department at (212) 855-4633, and
receipt of such reconciliation notice shall be confirmed by telephoning
(212) 855-4430.
12. Redemption payments shall be received by Cede & Co., as nominee of DTC, or its registered assigns, in same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern Time) on the payment date all such redemption payments due Trust Company, or at such earlier time as required by Trust Company to guarantee that DTC shall receive payment in same-day funds no later that 2:30 p.m. (Eastern Time) on the payment date. Absent any other arrangements between Issuer or Trust Company and DTC, such funds shall be wired to the Redemption Deposit Account number that will be stamped on the signature page hereof at the time DTC executes this Letter of Representations.
13. Reorganization payments and CUSIP-level detail resulting from corporate actions (such as tender offers, remarketings, or mergers) shall be received by Cede & Co., as nominee of DTC, or its registered assigns, in same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern Time) on the payment date all such reorganization payments due Trust Company, or at such earlier time as required by Trust Company to guarantee that DTC shall receive payment in same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date. Absent any other arrangements between Issuer or Trust Company and DTC, such funds shall be wired to the Reorganization Deposit Account number that will be stamped on the signature page hereof at the time DTC executes this Letter of Representations.
14. DTC my direct Issuer or Trust Company to use any other number or address as the number or address to which notices or payments may be sent.
15. In the event of a redemption acceleration, or any similar transaction (e.g., tender made and accepted in response to Issuer's or Trust Company's invitation) necessitating a reduction in the number of Securities outstanding, or an advance refunding of part of the Securities outstanding DTC, in its discretion: (a) may request Issuer or Trust Company to issue and authenticate a new Security certificate; or (b) may make an appropriate notation on the Security certificate indicating the date and amount of such reduction in the number of Securities outstanding, except in the case of final
redemption, in which case the certificate will be presented to Issuer and Trust Company prior to payment, if required.
16. In the event that Issuer determines that beneficial owners of Securities shall be able to obtain certificated Securities, Issuer or Trust Company shall notify DTC of the availability of certificates. In such event, Issuer or Trust Company shall issue, transfer, and exchange certificates in appropriate amounts, as required by DTC and others.
17. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to Issuer or Trust Company (at which time DTC will confirm with Issuer or Trust Company the aggregate principal amount of Securities outstanding). Under such circumstances, at DTC's request, Issuer and Trust Company shall cooperate fully with DTC by taking appropriate action to make available one or more separate certificates evidencing Securities to any DTC Participant having Securities credited to its DTC accounts.
18. Issuer herby authorizes DTC to provide to Trust Company listings of Participants' holdings, known as Security Position Listings ("SPLs") with respect to the Securities from time to time at the request of Trust Company. Issuer also authorizes DTC, in the event of a partial redemption of Securities, to provide Trust Company, upon request, with the names of those Participants whose positions in Securities have been selected for redemption by DTC. DTC will use its best efforts to notify Trust Company of those Participants whose positions in Securities have been selected for redemption by DTC. Issuer authorizes and instructs Trust Company to provide DTC with such signatures, examples of signatures, and authorizations to act as may be deemed necessary or appropriate by DTC to permit DTC to discharge its obligations to its Participants and appropriate regulatory authorities. DTC charges a customary fee for such SPLs. This authorization, unless revoked by Issuer, shall continue with respect to the Securities while any Securities are on deposit at DTC, until and unless Trust Company shall no longer be acting. In such event, Issuer shall provide DTC with similar evidence, satisfactory to DTC, of the authorization of any successor thereto so to act. Requests for SPLs shall be directed to the Proxy Unit of DTC's Reorganization Department at (212) 855-5181 or (212) 855-5812. Receipt of such requests shall be confirmed by telephoning (212) 855-5202. Delivery by mail or by any other means, with respect to such SPL request, shall be directed to the address indicated in Paragraph 3.
19. Nothing herein shall be deemed to require Trust Company to advance funds on behalf of Issuer.
20. This Letter of Representations may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts together shall constitute but one and the same instrument.
21. This Letter of Representations shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to principles of conflicts of law.
22. The sender of each notice delivered to DTC pursuant to this Letter of Representations is responsible for confirming that such notice was properly received by DTC.
23. Issuer recognizes that DTC does not in any way undertake to, and
shall not have any responsibility to, monitor or ascertain the compliance of
any transactions in the Securities with the following, as amended from time to
time: (a) any exemptions from registration under the Securities Act of 1933;
(b) the Investment Company Act of 1940; (c) the Employee Retirement Income
Security Act of 1974; (d) the Internal Revenue Code of 1986; (e) any rules of
any self-regulatory organizations (as defined under the Securities Exchange Act
of 1934); or (f) any other local, state, or federal laws or regulations
thereunder.
24. Issuer and Trust Company shall comply with the applicable requirements stated in DTC's Operational Arrangements, as they may be amended from time to time. DTC's Operational Arrangements are posted on DTC's website at "www.DTC.org."
25. The following rider(s), attached hereto, are hereby incorporated into this Letter of Representations:
NOTES:
A. IF THERE IS A TRUST COMPANY (AS DEFINED IN
THIS LETTER OF REPRESENTATIONS), TRUST
COMPANY, AS WELL AS ISSUER, MUST SIGN THIS
LETTER. IF THERE IS NO TRUST COMPANY, IN
SIGNING THIS LETTER ISSUER ITSELF UNDERTAKES
TO PERFORM ALL OF THE OBLIGATIONS SET FORTH
HEREIN.
B. SCHEDULE B CONTAINS STATEMENTS THAT DTC
BELIEVES ACCURATELY DESCRIBE DTC, THE METHOD
OF EFFECTING BOOK-ENTRY TRANSFERS OF
SECURITIES DISTRIBUTED THROUGH DTC, AND
CERTAIN RELATED MATTERS.
Very truly yours,
By: ________________________________
[Authorized Officer's Signature]
By: ________________________________
[Authorized Officer's Signature]
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
cc: Underwriter
Underwriter's Counsel
SCHEDULE A
SCHEDULE B
1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for [each issuer of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [If, however, the aggregate principal amount of [any] issue exceeds $400 million, one certificate will be issued with respect to each $400 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("Direct Participants") deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Direct and Indirect Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Securities may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the security documents. Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners, or in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.]
[6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.]
7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from Issuer or Agent on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividends to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.
[9. A Beneficial owner shall give notice to elect to have the Securities
purchased or tendered, through its Participant, to [Tender/Remarketing] Agent,
and shall effect delivery of such Securities by causing the Direct Participant
to transfer the Participant's interest in the Securities, on DTC's records, to
[Tender/Remarketing] Agent. The requirement for physical delivery of Securities
in connection with an optional tender or a mandatory purchase will be deemed
satisfied when the ownership rights in the Securities are transferred by Direct
Participants on DTC's records and followed by a book-entry credit of tendered
Securities to [Tender/Remarketing] Agent's DTC account.]
10. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Security certificates are required to be printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
EXHIBIT l.1
VEDDER PRICE VEDDER, PRICE, KAUFMAN & KAMMHOLZ, P.C.
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601
312-609-7500
FACSIMILE: 312-609-5005
OFFICES IN CHICAGO, NEW YORK
CITY AND LIVINGSTON, NEW JERSEY
January 15, 2004
Nuveen Municipal High Income Opportunity Fund
333 West Wacker Drive
Chicago, Illinois 60606
Re: Nuveen Municipal High Income Opportunity Fund Municipal Auction Rate Cumulative Preferred Shares to be Issued Pursuant to the Underwriting Agreement (File No. 333-111630; 811-21449)
Ladies and Gentlemen:
We are acting as counsel to Nuveen Municipal High Income Opportunity Fund, a Massachusetts business trust (the "Fund"), in connection with the Fund's filing of a registration statement on Form N-2 (the "Registration Statement") with the Securities and Exchange Commission covering the registration and proposed issuance of 3,000, 1,600 and 1,600 shares, par value $0.01 per share, of Series M, Series T and Series W, respectively of its Municipal Auction Rate Cumulative Preferred Shares ("MuniPreferred"), liquidation preference of $25,000 per share (the "Shares"). In that capacity, we have examined such corporate records, certificates and other documents, and have made such other factual and legal investigations as we have deemed necessary and appropriate for the purposes of this opinion. Insofar as this opinion pertains to matters governed by the laws of the Commonwealth of Massachusetts, we are relying, with your consent, solely upon the opinion of Bingham McCutchen LLP dated January 14, 2004, and the opinions expressed herein are subject to the assumptions, limitations and qualification conformed therein.
We have assumed that the Registration Statement, the underwriting agreement relating to the Fund's Shares and the Statement Establishing and Fixing the Rights and Preferences of Municipal Auction Rate Cumulative Preferred Shares (the "Statement") relating to the Fund's Shares will be duly completed, executed and delivered and in accordance with the resolutions of the Trustees attached to a Certificate of the Secretary of the Fund, certifying as to, and attaching copies of, the Fund's Declaration of Trust ("Declaration"), Statement, By-Laws, and certain resolutions adopted by the Trustees of the Fund and that the Statement will be duly filed with the Office of the Secretary of the Commonwealth of Massachusetts.
Based upon the foregoing, it is our opinion that:
(1) The Fund has been formed and is validly existing under the Fund's Declaration and the laws of the Commonwealth of Massachusetts as a voluntary association
VEDDER PRICE
Nuveen Municipal High Income Opportunity Fund
January 15, 2004
with transferable shares of beneficial interest commonly referred to as a "Massachusetts business trust."
(2) The Shares, when issued and sold in accordance with the Fund's Declaration, Statement and By-Laws and for the consideration described in the Underwriting Agreement, will be legally issued, fully paid and non-assessable, except that, as set forth in the Registration Statement, shareholders of the Fund may under certain circumstances be held personally liable for its obligations.
We hereby consent to the filing of this opinion as Exhibit l.1 to the Registration Statement and to the reference to us under the caption "Legal Opinions" in the prospectus contained in the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations thereunder. Except as specifically authorized above in this paragraph, this opinion is not to be quoted in whole or in part or otherwise referred to, nor is it to be filed with any governmental agency or any other person, without, in each case, our prior written consent. This opinion is given to you as of the date hereof and we assume no obligation to advise you of any change which may hereafter be brought to our attention.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ, P.C. VEDDER, PRICE, KAUFMAN & KAMMHOLZ, P.C. |
EXHIBIT l.2
January 14, 2004
Vedder Price Kaufman & Kammholz, P.C.
222 N. LaSalle Street
Chicago, Illinois 60601
RE: Nuveen Municipal High Income Opportunity Fund
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to Nuveen Municipal High Income Opportunity Fund, a Massachusetts business trust (the "Fund"), in connection with the Fund's Registration Statement on Form N-2 filed with the Securities and Exchange Commission (the "Commission") on December 30, 2003 (the "Initial Filing") as such Registration Statement is proposed to be amended by Pre-Effective Amendment No. 1 thereto to be filed with the Commission on or about January 14, 2004 (as proposed to be amended, the "Registration Statement") with respect to 3,000 shares Series M, 1,600 shares Series T and 1,600 shares Series W the Fund's MuniPreferred shares, with a liquidation preference of $25,000 per share (the "Shares"). You have requested that we deliver this opinion to you, as special counsel to the Fund, for use by you in connection with your opinion to the Fund with respect to the Shares.
In connection with the furnishing of this opinion, we have examined the following documents:
(a) a certificate dated a recent date of the Secretary of the Commonwealth of Massachusetts as to the existence of the Fund;
(b) copies of the Fund's Declaration of Trust and of all amendments thereto (the "Declaration") on file in the office of the Secretary of the Commonwealth of Massachusetts;
(c) a draft of the Fund's Statement Establishing and Fixing the Rights and Preferences of MuniPreferred shares attached as Appendix A to the Statement of Additional Information included in the printer's proof referred to in (f) below (the "Statement");
Vedder Price Kaufman & Kammholz, P.C.
January 14, 2004
(d) a certificate of the Secretary of the Fund, certifying as to, and attaching copies of, the Fund's Declaration, Statement, By-Laws, and certain resolutions adopted by the Trustees of the Fund;
(e) a conformed copy of the Initial Filing; and
(f) a printer's proof, which we received from the printer as a .pdf file on January 12, 2004, of Pre-Effective Amendment No. 1 to the Initial Filing to be filed with the Securities and Exchange Commission (the "Amendment").
In such examination, we have assumed the genuineness of all signatures, the conformity to the originals of all of the documents reviewed by us as copies, the authenticity and completeness of all original documents reviewed by us in original or copy form and the legal competence of each individual executing any document.
We have assumed that the Amendment will be duly filed with the Commission in substantially the form of the printer's proof referred to in (f) above, that the Statement will be duly completed, executed and delivered in substantially the form included in such printer's proof and in accordance with the resolutions of the Trustees attached to the certificate referred to in (d) above, and that the Statement will be duly filed with the office of the Secretary of the Commonwealth of Massachusetts.
This opinion is based entirely on our review of the documents listed above and such investigation of law as we have deemed necessary or appropriate. We have made no other review or investigation of any kind whatsoever, and we have assumed, without independent inquiry, the accuracy of the information set forth in such documents. As to our opinion below relating to the valid existence of the Fund, our opinion relies entirely upon and is limited by the certificate referenced in paragraph (a) above.
Vedder Price Kaufman & Kammholz, P.C.
January 14, 2004
This opinion is limited solely to the laws of the Commonwealth of Massachusetts as applied by courts located in such Commonwealth, except that we express no opinion as to any Massachusetts securities law. No opinion is given herein as to the choice of law or internal substantive rules of law which any tribunal may apply.
We understand that all of the foregoing assumptions and limitations are acceptable to you.
Based upon and subject to the foregoing, please be advised that it is our opinion that:
1. The Fund has been formed and is validly existing under the Fund's Declaration and the laws of the Commonwealth of Massachusetts as a voluntary association with transferable shares of beneficial interest commonly referred to as a "Massachusetts business trust."
2. The Shares, when issued and sold in accordance with the Fund's Declaration, Statement and By-Laws will be legally issued, fully paid and non-assessable, except that, as set forth in the Registration Statement, shareholders of the Fund may under certain circumstances be held personally liable for its obligations.
We hereby consent to your reliance on this opinion in connection with your opinion to the Fund with respect to the Shares, to the reliance by the Fund on this opinion, to the reference to our name in the Registration Statement and in the prospectus forming a part thereof under the heading "Legal Opinions" and to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Bingham McCutchen LLP Bingham McCutchen LLP |
EXHIBIT n
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated November 4, 2003 in the Registration Statement (Form N-2) and related Prospectus and Statement of Additional Information of the Nuveen Municipal High Income Opportunity Fund filed with the Securities and Exchange Commission in this Pre-Effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933 (Registration No. 333-111630) and in this Amendment No. 6 to the Registration Statement under the Investment Company Act of 1940 (Registration No. 811-21449).
/s/ Ernst & Young LLP
-----------------------------------------
ERNST & YOUNG LLP
Chicago, Illinois
January 14, 2004
|