As filed with the Securities and Exchange Commission on October 13, 2020
File No. 333-248305
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
☒ Pre-Effective Amendment No. 1
☐ Post-Effective Amendment No.
NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
333 West Wacker Drive
Chicago, Illinois 60606
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)
(800) 257-8787
(Area Code and Telephone Number)
Gifford R. Zimmerman
Vice President and Secretary
Nuveen Investments
333 West Wacker Drive
Chicago, Illinois 60606
(Name and Address of Agent for Service)
Copies to:
Deborah Bielicke Eades Vedder Price P.C. 222 North LaSalle Street Chicago, Illinois 60601 |
Eric F. Fess Chapman and Cutler LLP 111 West Monroe Street Chicago, Illinois 60603 |
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Title of Securities
Being Registered |
Amount
Being Registered |
Proposed
Maximum Offering Price Per Unit(1) |
Proposed
Maximum Aggregate Offering Price |
Amount of
Registration Fee(2) |
||||
Common Stock, par value $0.01 per share |
4,079,546 shares | $10.01(1) | $40,836,255.46 | $4,455.24 | ||||
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(1) |
Net asset value per common share on October 2, 2020. |
(2) |
Transmitted prior to filing. A registration fee of $1.31 was paid in connection with the initial filing. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
IMPORTANT NOTICE TO SHAREHOLDERS OF
NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC. (NNY)
AND
NUVEEN NEW YORK MUNICIPAL VALUE FUND 2 (NYV) (EACH, A FUND AND TOGETHER, THE FUNDS)
[●], 2020
Although we recommend that you read the complete Joint Proxy Statement/Prospectus, for your convenience, we have provided a brief overview of the proposals to be voted on.
Q. |
Why am I receiving the enclosed Joint Proxy Statement/Prospectus? |
A. |
You are receiving the Joint Proxy Statement/Prospectus as a holder of common shares of Nuveen New York Municipal Value Fund, Inc. (the Acquiring Fund) or a holder of common shares of Nuveen New York Municipal Value Fund 2 (the Target Fund) in connection with the solicitation of proxies by each Funds Board of Directors or Board of Trustees (each, a Board and each Director or Trustee, a Board Member) for use at special meetings of shareholders of the Acquiring Fund and the Target Fund (each, a Special Meeting and together, the Special Meetings). At the Special Meetings, shareholders of the Funds will be asked to vote on the following proposals, as applicable: |
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(shareholders of each Fund) the reorganization of the Funds pursuant to an Agreement and Plan of Reorganization (the Reorganization Agreement) under which the Target Fund will transfer substantially all of its assets and liabilities to the Acquiring Fund in exchange for newly issued common shares of the Acquiring Fund (the Reorganization); and |
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(shareholders of the Acquiring Fund only) the change of domicile of the Acquiring Fund from a Minnesota corporation to a Massachusetts business trust (the Domicile Change). |
The Acquiring Funds Board and the Target Funds Board, including the independent Board Members, unanimously recommend that you vote FOR each proposal that is applicable to your Fund.
Proposal Regarding the Reorganization (Both Funds)
Q. |
Why has each Funds Board recommended the Proposal? |
A. |
Nuveen Fund Advisors, LLC (Nuveen Fund Advisors), a subsidiary of Nuveen, LLC (Nuveen) and the Funds investment adviser, recommended the proposed Reorganization as part of an ongoing initiative to streamline Nuveens municipal closed-end fund line-up and eliminate overlapping products. Based on information provided by Nuveen Fund Advisors, the Target Funds Board believes that the proposed Reorganization may benefit common shareholders of the Target Fund in a number of ways, including, among other things: |
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Target Fund shareholders will maintain exposure to state bonds where issuance remains diverse and robust; |
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The potential for higher common share net earnings, due in part to operating economies from the combined funds greater scale; |
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Greater secondary market liquidity and improved secondary market trading for common shares as a result of the combined funds greater share volume, which may lead to narrower bid-ask spreads and smaller trade-to-trade price movements; |
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The potential for a narrower trading discount as a result of the Acquiring Funds shares trading at a discount that is historically lower than that of the Target Fund; and |
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Lower net operating expenses, as certain fixed costs are spread over a larger asset base and a lower effective management fee rate for shareholders of the combined fund due to the Acquiring Funds lower fund-level management fee rate. |
For these reasons, the Target Funds Board has determined that the Reorganization is in the best interests of its Fund and has approved the Reorganization. |
Based on information provided by Nuveen Fund Advisors, the Acquiring Funds Board considered that the Acquiring Fund may benefit in the near term from a modest increase in operating efficiencies and may also experience modest secondary market benefits due to increased scale. |
Q. |
Do the Funds have similar investment objectives, policies and risks? |
A. |
Yes. The Funds have substantially similar (but not identical) investment objectives, policies and risks, and are managed by the same portfolio manager. The Acquiring Funds investment objective is to provide, through investment in a professionally managed portfolio of tax-exempt New York municipal obligations, current interest income exempt from both federal and New York State and New York City personal income taxes. A secondary objective of the Acquiring Fund is to achieve enhancement of portfolio value through investments in tax-exempt New York municipal obligations that, in the opinion of the Funds investment adviser and/or sub-adviser, are underrated or represent municipal market sectors that are undervalued. The Target Funds primary investment objective is to provide current income exempt from regular federal, New York State and New York City income taxes. The Target Funds secondary investment objective is to enhance portfolio value and total return. |
Each Fund is a diversified, closed-end management investment company. Each Fund invests primarily in investment grade municipal securities exempt from regular federal, New York State and New York City income taxes and is permitted to invest up to 20% of its net assets in below investment grade municipal securities (commonly referred to as junk bonds). Investment grade securities are securities rated within the four highest grades (BBB or Baa or better) by a nationally recognized statistical rating organization, or unrated but judged by the Funds investment adviser and/or sub-adviser to be of comparable quality. See Proposal No. 1A. SynopsisComparison of the Acquiring Fund and the Target FundInvestment Objectives and Policies and Proposal No. 1A. SynopsisComparative Risk Information for more information. |
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Q. |
How will the Reorganization impact fees and expenses? |
A. |
As discussed above, the Target Funds Board considered that the Reorganization is expected to result in a lower effective management fee rate and, due to the greater asset base of the combined fund, each Funds Board considered that the Reorganization is expected to result in economies of scale and a resulting reduction in certain other expenses. Based on information for each Funds fiscal year ended February 29, 2020, the pro forma expense ratio of the combined fund following the Reorganization is estimated to be two basis points (0.02%) lower than the total expense ratio of the Acquiring Fund and eighteen basis points (0.18%) lower than the total expense ratio of the Target Fund. |
See the Comparative Fee Table on page 15 of the enclosed Joint Proxy Statement/Prospectus for more detailed information regarding fees and expenses. See also Additional Information About the Acquiring Fund at page 78. |
Q. |
Will shareholders of the Funds have to pay any fees or expenses in connection with the Reorganization? |
A. |
Yes. The Funds, and indirectly their common shareholders, will bear the costs of the Reorganization, whether or not the Reorganization is consummated. The allocation of the costs of the Reorganization to the Funds is based on the projected relative benefits of the Reorganization, based on forecasted increases to net earnings, if any, to Fund shareholders following the Reorganization. |
The costs of the Reorganization are estimated to be $445,000. These costs represent the estimated nonrecurring expenses of the Funds in carrying out their obligations under the Reorganization Agreement and consist of managements estimate of professional service fees, printing costs and mailing charges related to the proposed Reorganization. Based on the projected relative benefits to each Fund, the Target Fund is expected to be allocated approximately $420,000 and the Acquiring Fund is expected to be allocated approximately $25,000 of expenses in connection with the Reorganization. If the Reorganization is not consummated for any reason, including because the requisite shareholder approvals are not obtained, the Funds, and common shareholders of the Funds indirectly, will still bear the costs of the Reorganization. |
A Target Fund shareholders broker, dealer or other financial intermediary (each, a Financial Intermediary) may impose its own shareholder account fees for processing corporate actions, which could apply as a result of the Reorganization. These shareholder account fees, if applicable, are not paid or otherwise remitted to the Target Fund or the Target Funds investment adviser. The imposition of such fees is based solely on the terms of a shareholders account agreement with his, her or its Financial Intermediary and/or is in the discretion of the Financial Intermediary. Questions concerning any such shareholder account fees or other similar fees should be directed to a shareholders Financial Intermediary. |
Q. |
Does the Reorganization constitute a taxable event for the Target Funds shareholders? |
A. |
No. The Reorganization is intended to qualify as a tax-free reorganization for federal income tax purposes. It is expected that Target Fund shareholders will recognize no gain or loss for |
iii
federal income tax purposes as a direct result of the Reorganization, except to the extent that a Target Fund common shareholder receives cash in lieu of a fractional Acquiring Fund common share. Prior to the closing of the Reorganization, the Target Fund expects to declare a distribution of all of its net investment income and net capital gains, if any. All or a portion of such distribution may be taxable to the Target Funds shareholders for federal income tax purposes. Based on the Target Funds portfolio as of February 29, 2020, the Target Fund does not expect to sell a material portion of its portfolio (less than 5% of the assets of the Target Fund) prior to the Reorganization. To the extent that portfolio securities of the Target Fund are sold prior to the closing of the Reorganization, the Target Fund may realize gains or losses, which may increase or decrease the net capital gains or net investment income to be distributed by the Target Fund. |
Q. |
As a result of the Reorganization, will common shareholders of the Target Fund receive new shares in exchange for their current shares? |
A. |
Yes. Upon the closing of the Reorganization, Target Fund shareholders will become shareholders of the Acquiring Fund. Holders of common shares of the Target Fund will receive newly issued common shares of the Acquiring Fund, with cash being distributed in lieu of fractional common shares. The aggregate net asset value, as of the close of trading on the business day immediately prior to the closing of the Reorganization, of the Acquiring Fund common shares received by Target Fund common shareholders (including, for this purpose, fractional Acquiring Fund common shares to which common shareholders would be entitled) will be equal to the aggregate net asset value of the common shares of the Target Fund held by its shareholders as of such time. Fractional Acquiring Fund shares due to the Target Fund common shareholders will be aggregated and sold on the open market, and Target Fund common shareholders will receive cash in lieu of such fractional shares. |
Following the Reorganization, common shareholders of each Fund will hold a smaller percentage of the outstanding common shares of the combined fund as compared to their percentage holdings of the applicable Fund prior to the Reorganization. |
Q. |
What will happen if the required shareholder approvals are not obtained? |
A. |
The closing of the Reorganization is subject to the satisfaction or waiver of certain closing conditions, which include customary closing conditions. In order for the Reorganization to occur, all requisite shareholder approvals must be obtained. Because the closing of the Reorganization is contingent upon each of the Target Fund and the Acquiring Fund obtaining such shareholder approvals and satisfying (or obtaining the waiver of) other closing conditions, it is possible that the Reorganization will not occur, even if shareholders of your Fund entitled to vote approve the Reorganization proposal and your Fund satisfies all of its closing conditions, if the other Fund does not obtain its requisite shareholder approval or satisfy (or obtain the waiver of) its closing conditions. If the Reorganization is not consummated, each Funds Board may take such actions as it deems in the best interests of its Fund, including conducting additional solicitations with respect to the proposal, or, with respect to the Target Funds Board, continuing to operate the Target Fund as a stand-alone fund. |
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Proposal Regarding the Domicile Change (Acquiring Fund only)
Q. |
What actions has the Acquiring Funds Board approved? |
A. |
The Acquiring Funds Board has approved the reorganization of the Fund, currently organized as a Minnesota corporation, into a newly created Massachusetts business trust for purposes of changing the Funds domicile. |
Q. |
Why has the Acquiring Funds Board recommended the proposal? |
A. |
The Acquiring Funds Board believes that the proposed Domicile Change will achieve the following advantages: |
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create savings and operating efficiencies by simplifying the administration and oversight of the Acquiring Fund through increased standardization of charter documents among the Nuveen family of funds, most of which are organized as Massachusetts business trusts; and |
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lower expenses through economies of scale associated with compliance by the Nuveen family of funds with Massachusetts law only, rather than both Minnesota and Massachusetts law. |
Q. |
How will shareholders be impacted by the Domicile Change? |
A. |
Upon the closing of the Domicile Change, common shareholders of the Acquiring Fund will receive common shares of beneficial interest of the newly created Massachusetts business trust equal in number and value to the common shares of the Acquiring Fund that they owned immediately prior to the closing of the Domicile Change, which is expected to occur before the Reorganization or such other date as the parties to the agreement governing the Domicile Change may agree. |
Q. |
Does the Domicile Change constitute a taxable event for Acquiring Fund shareholders? |
A. |
No. The Domicile Change is intended to qualify as a tax-free reorganization for federal income tax purposes. It is expected that Acquiring Fund shareholders will recognize no gain or loss for federal income tax purposes as a direct result of the Domicile Change. |
General
Q. |
What is the timetable for the Reorganization and Domicile Change? |
A. |
If the shareholder approvals and other conditions to closing are satisfied (or waived), the Reorganization is expected to take effect on or about January 11, 2021, or such other date as the parties may agree. The Domicile Change, if approved by shareholders of the Acquiring Fund, is expected to occur before the Reorganization. |
Q. |
How does the Board recommend that shareholders vote on the proposals? |
A. |
After careful consideration, each Board has determined that each applicable proposal is in the best interests of its Fund and recommends that you vote FOR such proposals. |
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Q. |
Who do I call if I have questions? |
A. |
If you need any assistance, or have any questions regarding the proposals or how to vote your shares, please call Computershare Fund Services, the proxy solicitor hired by your Fund, at 866-905-8147 weekdays during its business hours of 9:00 a.m. to 11:00 p.m. and Saturdays 12:00 p.m. to 6:00 p.m. Eastern time. Please have your proxy materials available when you call. |
Q. |
How do I vote my shares? |
A. |
You may vote by mail, by telephone or over the Internet: |
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To vote at the meeting, please follow the instructions below for attending the meeting, which will be held virtually. |
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To vote by mail, please mark, sign, date and mail the enclosed proxy card. No postage is required if mailed in the United States. |
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To vote by telephone, please call the toll-free number located on your proxy card and follow the recorded instructions, using your proxy card as a guide. |
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To vote over the Internet, go to the Internet address provided on your proxy card and follow the instructions, using your proxy card as a guide. |
Q. |
How can I attend the Special Meetings? |
Q. |
The Special Meetings will be completely virtual meetings of shareholders, which will be conducted exclusively by webcast. You are entitled to participate in the Special Meetings only if you were a shareholder of record as of the close of business on September 8, 2020 for the Target Fund and on October 8, 2020 for the Acquiring Fund, or if you hold a valid proxy for the Special Meetings. No physical meetings will be held. |
You will be able to attend the Special Meetings online and submit your questions during the meetings by visiting www.meetingcenter.io/238367439. You also will be able to vote your shares online by attending the Special Meetings by webcast. To participate in the Special Meetings, you will need to log on using the control number from your proxy card or meeting notice. The control number can be found in the shaded box. The password for the meetings is NUVC2020. |
If you hold your shares through an intermediary, such as a bank or broker, you must register in advance using the instructions below. |
The online meetings will begin promptly at 2:00 p.m., Central time on December 7, 2020. We encourage you to access the meeting prior to the start time leaving ample time for the check in. Please follow the access instructions as outlined herein. |
Q. |
How do I register to attend the Special Meetings virtually on the Internet? |
A. |
If your shares are registered in your name, you do not need to register to attend the Special Meetings virtually on the Internet. If you hold your shares through an intermediary, such as a bank or broker, you must register in advance to attend the Special Meetings virtually on the Internet. |
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To register to attend the Special Meetings online by webcast you must submit proof of your proxy power (legal proxy) reflecting your Fund holdings along with your name and email address to Computershare. You must contact the bank or broker who holds your shares to obtain your legal proxy. Requests for registration must be labeled as Legal Proxy and be received no later than 5:00 p.m., Eastern Time, three business days prior to the meeting date. |
You will receive a confirmation of your registration by email after we receive your registration materials. |
Requests for registration should be directed to us by emailing an image of your legal proxy to shareholdermeetings@computershare.com. |
Q. |
Why hold virtual meetings? |
A. |
In light of the public health concerns regarding the coronavirus outbreak (COVID-19), we believe that hosting virtual meetings is in the best interests of the Funds and their shareholders. |
Q. |
Will anyone contact me? |
A. |
You may receive a call from Computershare Fund Services, the proxy solicitor hired by each Fund, to verify that you received your proxy materials, to answer any questions you may have about the proposals and to encourage you to vote your proxy. |
We recognize the inconvenience of the proxy solicitation process and would not impose on you if we did not believe that the matter being proposed was important. Once your vote has been registered with the proxy solicitor, your name will be removed from the solicitors follow-up contact list. |
Your vote is very important. We encourage you as a shareholder to participate in your Funds governance by returning your vote as soon as possible. If enough shareholders fail to cast their votes, a Fund may not be able to hold the Special Meeting or the vote on the proposals, and will be required to incur additional solicitation costs in order to obtain sufficient shareholder participation. |
vii
[●], 2020
NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC. (NNY)
AND
NUVEEN NEW YORK MUNICIPAL VALUE FUND 2 (NYV)
(EACH, A FUND AND TOGETHER, THE FUNDS)
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON DECEMBER 7, 2020
To the Shareholders:
Notice is hereby given that the Special Meetings of Shareholders (each a Special Meeting and together, the Special Meetings) of Nuveen New York Municipal Value Fund, Inc. (the Acquiring Fund) and Nuveen New York Municipal Value Fund 2 (the Target Fund) will be held on Monday, December 7, 2020 at 2:00 p.m. Central time, for the following purposes:
1. |
Fund Reorganization. (Both Funds) The shareholders of each Fund will vote on a proposal to approve an Agreement and Plan of Reorganization pursuant to which the Target Fund would: (i) transfer substantially all of its assets to the Acquiring Fund in exchange solely for newly issued common shares of the Acquiring Fund and the Acquiring Funds assumption of substantially all of the liabilities of the Target Fund; (ii) distribute such newly issued shares of the Acquiring Fund to the common shareholders of the Target Fund; and (iii) liquidate, dissolve and terminate in accordance with applicable law. |
2. |
Domicile Change. (Acquiring Fund only) The shareholders of the Acquiring Fund will vote on a proposal to approve an Agreement and Plan of Reorganization that would result in the Acquiring Fund reorganizing as a newly created Massachusetts business trust. |
To transact such other business as may properly come before the Special Meetings.
In light of the public health concerns regarding the coronavirus outbreak (COVID-19), the Special Meetings will be held in a virtual meeting format only, which will be conducted online via webcast. Shareholders may attend and vote at the virtual Special Meetings by following the instructions included in the Q&A and Joint Proxy Statement/Prospectus. Only shareholders of record as of the close of business on September 8, 2020 for the Target Fund and on October 8, 2020 for the Acquiring Fund are entitled to notice of and to vote at the Special Meetings and any and all adjournments or postponements thereof.
All Fund shareholders are cordially invited to attend the virtual Special Meetings. In order to avoid delay and additional expense for the Funds and to assure that your shares are represented, please vote as promptly as possible, regardless of whether or not you plan to attend your Special Meeting. You may vote by mail, by telephone or over the Internet.
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To vote by mail, please mark, sign, date and mail the enclosed proxy card. No postage is required if mailed in the United States. |
1
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To vote by telephone, please call the toll-free number located on your proxy card and follow the recorded instructions, using your proxy card as a guide. |
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To vote over the Internet, go to the Internet address provided on your proxy card and follow the instructions, using your proxy card as a guide. |
You will be able to attend and participate in the Special Meetings online, vote your shares electronically and submit your questions during the meetings by visiting: www.meetingcenter.io/238367439 at the meeting date and time described in the enclosed Joint Proxy Statement/Prospectus. To participate in the Special Meetings, you will need to log on using the control number from your proxy card or meeting notice. The control number can be found in the shaded box. The password for the meeting is NUVC2020. There is no physical location for the Special Meetings.
If you hold your shares through an intermediary, you will need to register at least three business days prior to the Special Meetings by following the instructions in the enclosed Joint Proxy Statement/Prospectus.
Gifford R. Zimmerman
Vice President and Secretary
The Nuveen Closed-End Funds
2
The information contained in this Joint Proxy Statement/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 Joint Proxy Statement/Prospectus is not an offer to sell these securities, and it is not a solicitation of an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION,
DATED OCTOBER 13, 2020
NUVEEN FUNDS
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(800) 257-8787
JOINT PROXY STATEMENT/PROSPECTUS
NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC. (NNY)
AND
NUVEEN NEW YORK MUNICIPAL VALUE FUND 2 (NYV)
(EACH, A FUND AND TOGETHER, THE FUNDS)
[●], 2020
This Joint Proxy Statement/Prospectus is being furnished to common shareholders of Nuveen New York Municipal Value Fund, Inc. (the Acquiring Fund) and common shareholders of Nuveen New York Municipal Value Fund 2 (the Target Fund), each a closed-end management investment company, in connection with the solicitation of proxies by each Funds Board of Directors or Board of Trustees (each, a Board and each Director or Trustee, a Board Member) for use at the Special Meeting of Shareholders of each Fund to be held on Monday, December 7, 2020, at 2:00 p.m. Central time, and at any and all adjournments or postponements thereof (each, a Special Meeting and together, the Special Meetings), to consider the proposals described below and discussed in greater detail elsewhere in this Joint Proxy Statement/Prospectus. The Acquiring Fund is organized as a Minnesota corporation and the Target Fund is organized as a Massachusetts business trust. The enclosed proxy card and this Joint Proxy Statement/Prospectus are first being sent to shareholders of the Funds on or about [●], 2020. Shareholders of record as of the close of business on September 8, 2020 for the Target Fund and on October 8, 2020 for the Acquiring Fund are entitled to notice of and to vote at the Special Meetings and any and all adjournments or postponements thereof.
The Special Meetings will be held in a virtual meeting format only, which will be conducted online via live webcast. There is no physical location for the Special Meetings. If your shares are registered in your name, you will be able to attend and participate in the Special Meetings online, vote your shares electronically and submit your questions during the meeting by visiting: www.meetingcenter.io/238367439 at the meeting date and time. To participate in the Special Meetings, you will need to log on using the control number from your proxy card or meeting notice. The control number can be found in the shaded box. The password for the meeting is NUVC2020.
If your shares are held through an intermediary, you must register to participate in the virtual Special Meetings. To register to attend the Special Meetings online by webcast, you must submit proof of your proxy power (legal proxy) reflecting your Fund holdings along with your name and email address to Computershare. You must contact the bank or broker who holds your shares to obtain your legal proxy. Requests for registration must be labeled as Legal Proxy and be received no later than 5:00 p.m., Eastern Time, three business days prior to the meeting date. You will receive a confirmation of your registration by email after we receive your registration materials. Requests for registration should be directed to us by emailing an image of your legal proxy to shareholdermeetings@computershare.com.
This Joint Proxy Statement/Prospectus explains concisely what you should know before voting on the proposals described in this Joint Proxy Statement/Prospectus or investing in the Acquiring Fund. Please read it carefully and keep it for future reference.
The securities offered by this Joint Proxy Statement/Prospectus have not been approved or disapproved by the Securities and Exchange Commission (SEC), nor has the SEC passed upon the accuracy or adequacy of this Joint Proxy Statement/Prospectus. Any representation to the contrary is a criminal offense.
On the matter coming before each Special Meeting as to which a choice has been specified by shareholders on the accompanying proxy card, the shares will be voted accordingly where such proxy card is properly executed, timely received and not properly revoked (pursuant to the instructions below). If a proxy is returned and no choice is specified, the shares will be voted FOR the proposals. Shareholders of a Fund who execute proxies or provide voting instructions by telephone or by Internet may revoke them at any time before a vote is taken on a proposal by filing with that Fund a written notice of revocation, by delivering a duly executed proxy bearing a later date or by attending that virtual Special Meeting and voting. A prior proxy can also be revoked by voting again through the toll-free number or the Internet address listed in the proxy card. However, merely attending a virtual Special Meeting will not revoke any previously submitted proxy.
To be approved, the following proposals must be approved by a majority (more than 50%) of each Funds outstanding common shares entitled to vote on the matter:
Fund Reorganization | ||
Proposal No. 1. | (Both Funds) To approve an Agreement and Plan of Reorganization (the Reorganization Agreement) pursuant to which the Target Fund would: (i) transfer substantially all of its assets to the Acquiring Fund in exchange solely for newly issued common shares of the Acquiring Fund and the Acquiring Funds assumption of substantially all of the liabilities of the Target Fund; (ii) distribute such newly issued shares of the Acquiring Fund to the common shareholders of the Target Fund; and (iii) liquidate, dissolve and terminate in accordance with applicable law (the Reorganization). | |
Domicile Change | ||
Proposal No. 2. | (Acquiring Fund only) To approve an Agreement and Plan of Reorganization that would result in the Acquiring Fund reorganizing as a newly created Massachusetts business trust (the Domicile Change). |
In this Joint Proxy Statement/Prospectus, unless the context otherwise requires, references to the Acquiring Fund include references to the Acquiring Fund following the proposed Domicile Change.
A quorum of shareholders is required to take action at the Special Meeting for each Fund. A majority (more than 50%) of the shares entitled to vote at each Special Meeting, represented in person (including participation by means of remote or virtual communication) or by proxy, will constitute a quorum of shareholders at that Special Meeting. Votes cast in person or by proxy at each Special Meeting will be tabulated by the inspectors of election appointed for that Special Meeting. The inspectors of election will determine whether or not a quorum is present at the Special Meeting. Broker non-votes are shares held by brokers or nominees, typically in street name, for which the broker or nominee returns a voted proxy but are not voted because instructions have not been received from beneficial owners or persons entitled to vote and the broker or nominee does not have discretionary authority to vote such shares on a particular matter. For purposes of holding a meeting, all properly submitted proxies, including abstentions and broker non-votes, if any, will be counted as present for purposes of determining whether a quorum is present.
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Broker-dealer firms holding shares of a Fund in street name for the benefit of their customers and clients are generally required to request the instructions of such customers and clients on how to vote their shares before the Funds Special Meeting. The Funds understand that, under the rules of the New York Stock Exchange (the NYSE), such broker-dealer firms may, for certain routine matters, grant discretionary authority to the proxies designated by each Board to vote without instructions from their customers and clients if no instructions have been received prior to the date specified in the broker-dealer firms request for voting instructions. The proposals described in this Joint Proxy Statement/Prospectus are considered non-routine matters for which, under the rules of the NYSE, uninstructed shares may not be voted by broker-dealers. As a result, there are unlikely to be any broker non-votes at either Funds Special Meeting. Because the approval of Proposal No. 1 requires that a minimum percentage of each Funds outstanding common shares be voted in favor of the proposal, and because the approval of Proposal No. 2 requires that a minimum percentage of the Acquiring Funds common shares be voted in favor of the proposal, abstentions and broker non-votes, if any, will have the same effect as a vote against the proposals.
Broker-dealers who are not members of the NYSE may be subject to other rules, which may or may not permit them to vote your shares without instruction. We urge you to provide instructions to your broker or nominee so that your votes may be counted.
Those persons who were shareholders of record as of the close of business on September 8, 2020 for the Target Fund and on October 8, 2020 for the Acquiring Fund will be entitled to one vote for each share held and a proportionate fractional vote for each fractional share held.
As of September 30, 2020 for each Fund, the shares of the Funds issued and outstanding are as follows:
Fund
|
Common
|
|
Acquiring Fund (NNY) |
15,235,167 | |
Target Fund (NYV) |
2,349,612 |
(1) |
The common shares of the Acquiring Fund and the Target Fund are listed on the NYSE. Upon the closing of the Reorganization, it is expected that the common shares of the Acquiring Fund will continue to be listed on the NYSE. |
The following documents have been filed with the SEC and are incorporated into this Joint Proxy Statement/Prospectus by reference:
(1) the Statement of Additional Information relating to the proposed Reorganization, dated [●], 2020 (the Reorganization SAI);
No other parts of the Funds Annual Reports are incorporated by reference herein.
iii
Copies of the foregoing may be obtained without charge by calling (800) 257-8787 or writing the Funds at 333 West Wacker Drive, Chicago, Illinois 60606. If you wish to request a copy of the Reorganization SAI, please ask for the New York Municipal Value Fund Reorganization SAI. In addition, each Fund will furnish, without charge, a copy of its most recent Annual Report or Semi-Annual Report to a shareholder upon request. Any such request should be directed to the Funds by calling (800) 257-8787 or by writing the Funds at 333 West Wacker Drive, Chicago, Illinois 60606.
The Funds are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the Investment Company Act of 1940, as amended (the 1940 Act), and in accordance therewith file reports and other information with the SEC. Reports, proxy statements, registration statements and other information filed by the Funds, including the Registration Statement on Form N-14 relating to the common shares of the Acquiring Fund of which this Joint Proxy Statement/Prospectus is a part, may be obtained through the EDGAR database on the SECs Internet site at http://www.sec.gov. You may obtain copies of this information, with payment of a duplication fee, by electronic request at the following e-mail address: publicinfo@sec.gov. Reports, proxy statements and other information concerning the Funds can be inspected at the offices of the NYSE, 11 Wall Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus serves as a prospectus of the Acquiring Fund in connection with the issuance of the Acquiring Fund common shares in the Reorganization. In this connection, no person has been authorized to give any information or make any representation not contained in this Joint Proxy Statement/Prospectus and, if so given or made, such information or representation must not be relied upon as having been authorized. This Joint Proxy Statement/Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer or solicitation.
iv
JOINT PROXY STATEMENT/PROSPECTUS
[●], 2020
NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC. (NNY)
AND
NUVEEN NEW YORK MUNICIPAL VALUE FUND 2 (NYV)
i
ii
PROPOSAL NO. 1REORGANIZATION OF THE TARGET FUND INTO THE ACQUIRING FUND
The following is a summary of certain information contained elsewhere in this Joint Proxy Statement/Prospectus with respect to the proposed Reorganization. More complete information is contained elsewhere in this Joint Proxy Statement/Prospectus and in the Reorganization SAI and the appendices hereto and thereto. Shareholders should read the entire Joint Proxy Statement/Prospectus carefully.
Background and Reasons for the Reorganization
The Target Funds Board has approved the Reorganization as part of an ongoing initiative to streamline Nuveens municipal closed-end fund line-up and eliminate overlapping products. Nuveen Fund Advisors, LLC (Nuveen Fund Advisors or the Adviser), a subsidiary of Nuveen, LLC (Nuveen) and the Funds investment adviser, recommended the Reorganization because the Target Fund was launched in 2009 in order to take advantage of investment opportunities presented by the financial crisis of 2008, but has been unable to achieve sufficient scale. The Target Funds Board considered the Reorganization in connection with this initiative and determined that the Reorganization would be in the best interests of the Target Fund. The Acquiring Fund and the Target Fund each invest primarily in investment grade municipal securities the income from which is exempt from regular federal, New York State and New York City income taxes.
Based on information provided by Nuveen Fund Advisors, the Target Funds Board believes that the Reorganization may benefit common shareholders of the Target Fund in a number of ways, including, among other things:
|
Target Fund shareholders will maintain exposure to state bonds where issuance remains diverse and robust; |
|
The potential for higher common share net earnings due in part to operating economies from the combined funds greater scale; |
|
Greater secondary market liquidity and improved secondary market trading for common shares as a result of the combined funds greater share volume, which may lead to narrower bid-ask spreads and smaller trade-to-trade price movements; |
|
The potential for a narrower trading discount as a result of the Acquiring Funds shares trading at a discount that is historically lower than that of the Target Fund; and |
|
Lower net operating expenses, as certain fixed costs are spread over a larger asset base and a lower effective management fee rate for shareholders of the combined fund due to the Acquiring Funds lower fund-level management fee rate. |
Based on information provided by Nuveen Fund Advisors, the Acquiring Funds Board considered that the Acquiring Fund may benefit in the near term from a modest increase in operating efficiencies and may also experience modest secondary market benefits due to increased scale.
The closing of the Reorganization is subject to the satisfaction or waiver of certain closing conditions, which include customary closing conditions. In order for the Reorganization to occur, all
requisite shareholder approvals must be obtained. Because the closing of the Reorganization is contingent upon each of the Target Fund and the Acquiring Fund obtaining such shareholder approvals and satisfying (or obtaining the waiver of) other closing conditions, it is possible that the Reorganization will not occur, even if shareholders of your Fund entitled to vote approve the Reorganization proposal and your Fund satisfies all of its closing conditions, if the other Fund does not obtain its requisite shareholder approval or satisfy (or obtain the waiver of) its closing conditions. If the Reorganization is not consummated, each Funds Board may take such actions as it deems in the best interests of its Fund, including conducting additional solicitations with respect to the proposal or, with respect to the Target Funds Board, continuing to operate as a stand-alone fund. For a discussion of the Boards considerations regarding the approval of the Reorganization, see Proposal No. 1C. Information about the ReorganizationReasons for the Reorganization.
The Reorganization is not contingent on the approval of Proposal No. 2 relating to a change of domicile of the Acquiring Fund to a Massachusetts business trust. If shareholders of both Funds approve the Reorganization and the other conditions to closing are satisfied or waived, but shareholders of the Acquiring Fund do not approve the Domicile Change, the Target Fund will be reorganized into the Acquiring Fund, which will remain a Minnesota corporation.
Material Federal Income Tax Consequences of the Reorganization
As a non-waivable condition to closing, each Fund will receive an opinion of Vedder Price P.C., subject to certain representations, assumptions and conditions, substantially to the effect that the proposed Reorganization will qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code). Accordingly, it is expected that neither Fund will generally recognize gain or loss for federal income tax purposes as a direct result of the Reorganization. It is also expected that shareholders of the Target Fund who receive Acquiring Fund shares pursuant to the Reorganization will recognize no gain or loss for federal income tax purposes as a result of such exchange, except to the extent a common shareholder of the Target Fund receives cash in lieu of a fractional Acquiring Fund common share. Prior to the closing of the Reorganization, the Target Fund expects to declare a distribution to common shareholders of all of its net investment income and net capital gains, if any. All or a portion of such a distribution may be taxable to the Target Funds shareholders for federal income tax purposes. Based on the Target Funds portfolio as of February 29, 2020, the Target Fund does not expect to sell a material portion of its portfolio (less than 5% of the assets of the Target Fund) prior to the Reorganization. To the extent that portfolio securities of the Target Fund are sold prior to the closing of the Reorganization, the Target Fund may realize gains or losses, which may increase or decrease the net capital gains or net investment income to be distributed by the Target Fund. See Proposal No. 1C. Information About the ReorganizationMaterial Federal Income Tax Consequences of the Reorganization.
Comparison of the Acquiring Fund and the Target Fund
General. The Acquiring Fund and the Target Fund are diversified, closed-end management investment companies. Set forth below is certain comparative information about the organization, capitalization and operation of the Funds.
Organization
Fund |
Organization Date |
State of Organization |
Entity Type |
|||
Acquiring Fund |
July 14, 1987 | State of Minnesota* | Corporation | |||
Target Fund |
January 26, 2009 | Commonwealth of Massachusetts | Business Trust |
* |
If Proposal No. 2 is approved by shareholders of the Acquiring Fund, the Acquiring Fund will change its domicile and type of entity to a Massachusetts business trust. |
2
CapitalizationCommon Shares(1)
Fund |
Authorized
Shares |
Shares
Outstanding |
Par Value
Per Share |
Preemptive,
Conversion or Exchange Rights |
Rights to
Cumulative Voting |
Exchange
on which Common Shares are Listed |
||||||||||||||||||
Acquiring Fund |
250,000,000 | 15,235,167 | $ | 0.01 | None | None | NYSE | |||||||||||||||||
Target Fund |
Unlimited | 2,349,612 | $ | 0.01 | None | None | NYSE |
(1) |
As of September 30, 2020. If the Domicile Change is consummated, the Acquiring Fund will have an unlimited number of authorized shares. |
Investment Objectives and Policies. The Funds have substantially similar investment objectives and policies. The Acquiring Funds primary investment objective is to provide, through investment in a professionally managed portfolio of tax-exempt New York municipal obligations, current interest income exempt from both federal and New York State and New York City personal income taxes. The Acquiring Funds secondary investment objective is to achieve enhancement of portfolio value through investments in tax-exempt New York municipal obligations that, in the opinion of the Funds investment adviser and/or sub-adviser, are underrated or represent municipal market sectors that are undervalued. The Target Funds primary investment objective is to provide current income exempt from regular federal, New York State and New York City income taxes, and its secondary investment objective is to enhance portfolio value and total return.
Each Fund is a diversified, closed-end management investment company. Each Fund invests primarily in investment grade municipal securities exempt from regular federal, New York State and New York City income taxes and is permitted to invest up to 20% of its net assets in below investment grade municipal securities (commonly referred to as junk bonds).
The following summary compares the current principal investment policies and strategies of the Acquiring Fund to the current principal investment policies and strategies of the Target Fund as of the date of this Joint Proxy Statement/Prospectus.
Acquiring Fund |
Target Fund |
Differences |
||
Principal Investment Strategy: |
Principal Investment Strategy: |
|||
As a fundamental policy, under normal circumstances, the Fund will invest at least 80% of its net assets, including assets attributable to any principal amount of any borrowings (including the issuance of commercial paper or notes) or any preferred shares outstanding, in municipal securities and other related investments, the income from which is exempt from regular federal, New York State and New York City income taxes. | As a fundamental policy, under normal circumstances, the Fund will invest at least 80% of its net assets in municipal securities, the income from which is exempt from regular federal, New York State and New York City income taxes. | Substantially identical. |
3
Acquiring Fund |
Target Fund |
Differences |
||
Credit Quality: |
Credit Quality: |
|||
Under normal circumstances, the Fund will invest at least 80% of its net assets in municipal securities that, at the time of investment, are investment grade quality.(1)
The Fund may invest up to 20% of its net assets in municipal securities that at the time of investment are rated below investment grade or are unrated but judged to be of comparable quality by the Funds investment adviser and/or sub-adviser. No more than 10% of the Funds net assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by the Funds investment adviser and/or sub-adviser. |
Under normal circumstances, the Fund will invest at least 80% of its net assets in municipal securities that, at the time of investment, are investment grade quality. (1)
The Fund may invest up to 20% of its net assets in municipal securities that at the time of investment are rated below investment grade or are unrated by any nationally recognized statistical rating organization (NRSRO) but judged to be of comparable quality by the Funds investment adviser and/or sub-adviser. The Fund may invest up to 10% of its net assets in municipal securities rated below B3/B- or that are unrated by any NRSRO but judged to be of comparable quality by the Funds investment adviser and/or sub-adviser; however, the Fund does not currently intend to invest more than 5% of its net assets in such municipal securities. |
Substantially identical. | ||
Out of State Municipal Securities: |
Out of State Municipal Securities: |
|||
| The Fund may invest up to 20% of its net assets in municipal securities that are exempt from regular federal income tax, but not from New York State and New York City income taxes if, in the judgment of the Funds investment adviser and/or sub-adviser, such purchases are expected to enhance the Funds after-tax total return potential. | Functionally identical. Although the Target Fund has a stated 20% limit on investments in out of state municipal securities, the Acquiring Fund is effectively subject to the same limit due to its 80% policy above. |
4
Acquiring Fund |
Target Fund |
Differences |
||
Alternative Minimum Tax Policy: |
Alternative Minimum Tax Policy: |
|||
The Fund may invest up to 20% of its net assets in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals. | The Fund may invest up to 20% of its net assets in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals. | Identical. | ||
Leverage: |
Leverage: |
|||
As a fundamental policy, the Fund will not issue senior securities, as defined in the 1940 Act, except in connection with bank borrowing and derivatives transactions as described in the Reorganization SAI under Investment Restrictions. However, the Fund may borrow for temporary, emergency or other purposes as permitted by the 1940 Act, and invest in certain instruments, including inverse floating rate securities, that have the economic effect of financial leverage. |
As a fundamental policy, the Fund will not leverage its capital structure by issuing senior securities such as preferred shares or debt instruments. However, the Fund may borrow for temporary, emergency or other purposes as permitted by the 1940 Act and invest in certain instruments, including inverse floating rate securities, that have the economic effect of financial leverage.
The Fund will not invest more than 15% of its net assets in residual interest bonds or inverse floating rate securities. |
Substantially similar. The Target Fund has adopted a limitation regarding investment in residual interest bonds and inverse floating rate securities. The Acquiring Fund has no such corresponding policy. |
5
Acquiring Fund |
Target Fund |
Differences |
||
Weighted Average Maturity Policy: |
Weighted Average Maturity Policy: |
|||
| The Fund will generally invest in municipal securities with intermediate or long-term maturities. Initially, the Fund is expected to have a weighted average maturity of 15 to 30 years. The weighted average maturity of securities held by the Fund may be shortened or lengthened, depending on market conditions and on an assessment by the Funds portfolio manager of which segments of the municipal securities market offer the most favorable relative investment values and opportunities for tax-exempt income and total return. | The Target Fund generally will invest in municipal securities with intermediate or long-term maturities. The Acquiring Fund has no such corresponding investment policy. As of February 29, 2020, the weighted average effective maturity of the portfolio of the Acquiring Fund was 18.06 years and the weighted average effective maturity of the portfolio of the Target Fund was 19.31 years. | ||
Use of Derivatives: |
Use of Derivatives: |
|||
The Fund may invest in certain derivative instruments in pursuit of its investment objectives. Such instruments include financial futures contracts, swap contracts (including interest rate and credit default swaps), options on financial futures, options on swap contracts, or other derivative instruments. The Funds investment adviser and/or sub-adviser use derivatives to seek to enhance return, to hedge some of the risks of the Funds investments in municipal securities or as a substitute for a position in the underlying asset. | The Fund may invest in certain derivative instruments in pursuit of its investment objectives. Such instruments include financial futures contracts, swap contracts (including interest rate and credit default swaps), options on financial futures, options on swap contracts, or other derivative instruments. The Funds investment adviser and/or sub-adviser use derivatives to seek to enhance return, to hedge some of the risks of the Funds investments in municipal securities or as a substitute for a position in the underlying asset. | Identical. |
6
Acquiring Fund |
Target Fund |
Differences |
||
Distressed Securities: |
Distressed Securities: |
|||
The Fund may not invest in the securities of an issuer which, at the time of investment, is in default on its obligations to pay principal or interest thereon when due or that is involved in a bankruptcy proceeding (i.e. rated below C-, at the time of investment); provided, however, that the Funds investment adviser and/or sub-adviser may determine that it is in the best interest of shareholders in pursuing a workout arrangement with issuers of defaulted securities to make loans to the defaulted issuer or another party, or purchase a debt, equity or other interest from the defaulted issuer or another party, or take other related or similar steps involving the investment of additional monies, but only if that issuers securities are already held by the Fund. |
The Fund may not invest in the securities of an issuer which, at the time of investment, is in default on its obligations to pay principal or interest thereon when due or that is involved in a bankruptcy proceeding (i.e. rated below C-, at the time of investment); provided, however, that the Funds investment adviser and/or sub-adviser may determine that it is in the best interest of shareholders in pursuing a workout arrangement with issuers of defaulted securities to make loans to the defaulted issuer or another party, or purchase a debt, equity or other interest from the defaulted issuer or another party, or take other related or similar steps involving the investment of additional monies, but only if that issuers securities are already held by the Fund.
The Fund may invest up to 10% of its net assets in distressed securities. |
The Target Fund has a stated limit on investment in distressed securities, but the Acquiring Fund does not. | ||
Industry Concentration: |
Industry Concentration: |
|||
The Fund will not invest more than 25% of its net assets in municipal securities in any one industry. | The Fund will not invest more than 25% of its net assets in municipal securities in any one industry. | Identical. |
7
Acquiring Fund |
Target Fund |
Differences |
||
Other Investment Companies: |
Other Investment Companies: |
|||
| The Fund may invest up to 10% of its net assets in securities of other open- or closed-end investment companies (including exchange-traded funds (ETFs)) that invest primarily in municipal securities of the types in which the Fund may invest directly. The Fund may invest up to 10% of its net assets in securities of other open- or closed-end investment companies (including ETFs) that invest primarily in municipal securities of the types in which the Fund may invest directly. | The Target Fund has a stated limit on investment in other investment companies, but the Acquiring Fund does not. | ||
Temporary Defensive Positions: |
Temporary Defensive Positions: |
|||
The Fund may temporarily depart from its normal investment policies and strategiesfor instance by allocating up to 100% of its assets to cash equivalents, short-term investments or municipal bonds that do not comply with the Funds name policyin response to adverse or unusual market, economic political or other conditions. Such conditions could include a temporary decline in the availability of municipal bonds that comply with the Funds name policy. During these periods, the weighted average maturity of the Funds investment portfolio may fall below its normal range and the Fund may not achieve its investment objective to distribute income that is exempt from regular federal, New York State and New York City income taxes. | The Fund may temporarily depart from its normal investment policies and strategiesfor instance by allocating up to 100% of its assets to cash equivalents, short-term investments or municipal bonds that do not comply with the Funds name policyin response to adverse or unusual market, economic political or other conditions. Such conditions could include a temporary decline in the availability of municipal bonds that comply with the Funds name policy. During these periods, the weighted average maturity of the Funds investment portfolio may fall below the defined range described above under Weighted Average Maturity Policy and the Fund may not achieve its investment objective to distribute income that is exempt from regular federal, New York State and New York City income taxes. | Identical. |
(1) |
The Funds define investment grade quality securities as those that are, at the time of investment, either (i) rated by one of the NRSROs that rate such securities within the four highest letter grades (by Standard & Poors Group (S&P), Moodys Investors Service, Inc. |
8
(Moodys) or Fitch Ratings, Inc. (Fitch) (BBB- or better for S&P and Fitch and Baa3 or better for Moodys)), or (ii) unrated by any NRSRO but judged to be of comparable quality by the Funds investment adviser and/or sub-adviser. Investment grade securities may include securities that, at the time of investment, are rated below investment grade by S&P, Moodys or Fitch, so long as at least one NRSRO rates such securities within the four highest grades (such securities are commonly referred to as split-rated securities). |
Credit Quality. A comparison of the credit quality(1) (as a percentage of total investment exposure, which includes the leveraged effect of the Funds investments in inverse floating rate securities of tender option bond trusts) of the portfolios of the Acquiring Fund and the Target Fund, as of February 29, 2020, is set forth below.
Target
Fund |
Acquiring
Fund |
|||||||
Rating |
Percent of Portfolio | |||||||
U.S. Guaranteed |
0.8 | % | 7.5 | % | ||||
AAA |
16.3 | % | 15.5 | % | ||||
AA |
52.1 | % | 38.7 | % | ||||
A |
12.5 | % | 11.6 | % | ||||
BBB |
4.9 | % | 10.0 | % | ||||
BB or Lower |
6.3 | % | 10.1 | % | ||||
N/R (not rated) |
7.1 | % | 6.6 | % |
(1) |
Ratings shown are the highest rating given by one of the following national rating agencies: S&P, Moodys or Fitch. Credit ratings are subject to change. AAA, AA, A, and BBB are investment-grade ratings; BB or lower are below-investment-grade ratings. Certain bonds backed by U.S. government or agency securities are regarded as having an implied rating equal to the rating of such securities. Holdings designated N/R are not rated by these national rating agencies. |
Board Members and Officers. The Acquiring Fund and the Target Fund have the same Board Members and officers. The management of each Fund, including general oversight of the duties performed by the Funds investment adviser under an investment management agreement between the investment adviser and such Fund (each, an Investment Management Agreement), is the responsibility of its Board. Each Fund currently has nine (9) Board Members, each of whom is not considered an interested person, as defined in the 1940 Act.
Pursuant to each Funds by-laws, the Board of the Fund is divided into three classes (Class I, Class II and Class III) with staggered multi-year terms, such that only the members of one of the three classes stand for election each year. The staggered board structure could delay for up to two years the election of a majority of the Board of each Fund. The Acquiring Funds board structure will remain in place following the closing of the Reorganization.
Investment Adviser. Nuveen Fund Advisors, LLC (previously defined as Nuveen Fund Advisors or the Adviser) is the investment adviser to each Fund and is responsible for overseeing each Funds overall investment strategy, including the use of leverage, and its implementation. Nuveen Fund Advisors also is responsible for the ongoing monitoring of any sub-adviser to the Funds, managing each Funds business affairs and providing certain clerical, bookkeeping and other administrative services to the Funds. Nuveen Fund Advisors is located at 333 West Wacker Drive, Chicago, Illinois 60606.
Nuveen Fund Advisors, a registered investment adviser, is a subsidiary of Nuveen, LLC (Nuveen), the investment management arm of Teachers Insurance and Annuity Association of America (TIAA). TIAA is a life insurance company founded in 1918 by the Carnegie Foundation for the Advancement of Teaching and is the companion organization of College Retirement Equities Fund.
9
As of June 30, 2020, Nuveen managed approximately $1.05 trillion in assets, of which approximately $144.4 billion was managed by Nuveen Fund Advisors.
Unless earlier terminated as described below, each Funds Investment Management Agreement with Nuveen Fund Advisors will remain in effect until August 1, 2021. Each Investment Management Agreement continues in effect from year to year so long as such continuation is approved at least annually by: (1) the Board or the vote of a majority of the outstanding voting securities of the Fund; and (2) a majority of the Board Members 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. Each Investment Management Agreement may be terminated at any time, without penalty, by either the Fund or Nuveen Fund Advisors upon 60 days written notice and is automatically terminated in the event of its assignment, as defined in the 1940 Act.
Pursuant to each Investment Management Agreement, each Fund has agreed to pay an annual management fee for the overall advisory and administrative services and general office facilities provided by Nuveen Fund Advisors. Each Funds management fee consists of two componentsa complex-level fee, based on the aggregate amount of all eligible fund assets of Nuveen-branded closed- and open-end registered investment companies organized in the U.S., and a specific fund-level fee, based only on the amount of assets of such Fund. This pricing structure enables the Funds shareholders to benefit from growth in assets within each individual Fund as well as from growth of complex-wide assets managed by Nuveen Fund Advisors.
For the fiscal year ended February 29, 2020, the effective management fee rate of the Acquiring Fund, expressed as a percentage of average total daily net assets (including assets attributable to leverage), was approximately 0.4777%. For the fiscal year ended February 29, 2020, the effective management fee rate of the Target Fund, expressed as a percentage of average total daily net assets (including assets attributable to leverage), was approximately 0.5576%.
The annual fund-level fee for the Acquiring Fund, payable monthly, is 0.15% of the average daily net assets of the Fund, as well as 4.125% of the gross interest income (excluding interest on bonds underlying a self-deposited inverse floater trust that is attributed to the Fund over and above the net interest earned on the inverse floater itself) of the Fund.
The annual fund-level fee rate for the Target Fund, payable monthly, is calculated according to the following schedule:
Current Fund-Level Fee Schedule for the Target Fund
Average Total Daily Managed Assets* |
Fund-Level
Fee Rate |
|||
For the first $125 million |
0.4000 | % | ||
For the next $125 million |
0.3875 | % | ||
For the next $250 million |
0.3750 | % | ||
For the next $500 million |
0.3625 | % | ||
For the next $1 billion |
0.3500 | % | ||
For the next $3 billion |
0.3250 | % | ||
For managed assets over $5 billion |
0.3125 | % |
* |
For this purpose, managed assets means the total assets of the Fund, minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose of creating leverage). Total assets for this purpose shall include assets attributable to the Funds use of effective leverage (whether or not those assets are reflected in the Funds financial statements for purposes of U.S. generally accepted accounting principles), such as, but not limited to, the portion of assets in tender option bond trusts of which the Fund owns the residual interest certificates that have been effectively financed by the trusts issuance of floating rate certificates. |
10
The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. Each Fund pays all of its other costs and expenses of its operations, including compensation of its Board Members (other than those affiliated with the Adviser), custodian, transfer agency and dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses of issuing any preferred shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies, listing fees and taxes, if any.
Each Fund also pays a complex-level fee to Nuveen Fund Advisors, which is payable monthly and is in addition to the fund-level fee. The complex-level fee is based on the aggregate daily amount of eligible assets for all Nuveen-branded closed- and open-end registered investment companies organized in the U.S., as stated in the table below. As of February 29, 2020, the complex-level fee rate for each Fund was 0.1554%.
The annual complex-level fee for each Fund, payable monthly, is calculated by multiplying the current complex-wide fee rate, determined according to the following schedule by a Funds daily managed assets:
Complex-Level Fee Rates
Complex-Level Asset Breakpoint Level** |
Effective
Rate at Breakpoint Level |
|||
$55 billion |
0.2000 | % | ||
$56 billion |
0.1996 | % | ||
$57 billion |
0.1989 | % | ||
$60 billion |
0.1961 | % | ||
$63 billion |
0.1931 | % | ||
$66 billion |
0.1900 | % | ||
$71 billion |
0.1851 | % | ||
$76 billion |
0.1806 | % | ||
$80 billion |
0.1773 | % | ||
$91 billion |
0.1691 | % | ||
$125 billion |
0.1599 | % | ||
$200 billion |
0.1505 | % | ||
$250 billion |
0.1469 | % | ||
$300 billion |
0.1445 | % |
** |
For the complex-level fees, managed assets include closed-end fund assets managed by the Adviser that are attributable to certain types of leverage. For these purposes, leverage includes the funds use of preferred stock and borrowings and certain investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond (TOB) trusts, including the portion of assets held by a TOB trust that has been effectively financed by the trusts issuance of floating rate securities, subject to an agreement by the Adviser as to certain funds to limit the amount of such assets for determining managed assets in certain circumstances. The complex-level fee is calculated based upon the aggregate daily managed assets of all Nuveen open-end and closed-end funds that constitute eligible assets. Eligible assets do not include assets attributable to investments in other Nuveen funds or assets in excess of a determined amount (originally $2 billion) added to the Nuveen fund complex in connection with the Advisers assumption of the management of the former First American Funds effective January 1, 2011, but do include certain assets of certain Nuveen funds that were reorganized into funds advised by an affiliate of the Adviser during the 2019 calendar year. |
Sub-Adviser. Nuveen Fund Advisors has selected its wholly owned subsidiary, Nuveen Asset Management, LLC (Nuveen Asset Management or the Sub-Adviser), located at 333 West Wacker Drive, Chicago, Illinois 60606, to serve as the sub-adviser to each of the Funds pursuant to a sub-advisory agreement between Nuveen Fund Advisors and Nuveen Asset Management (the
11
Sub-Advisory Agreement). Nuveen Asset Management, a registered investment adviser, oversees day-to-day operations and manages the investment of the Funds assets on a discretionary basis, subject to the supervision of Nuveen Fund Advisors. Pursuant to each Sub-Advisory Agreement, Nuveen Asset Management is compensated for the services it provides to the Funds with a portion of the management fee Nuveen Fund Advisors receives from each Fund. Nuveen Fund Advisors and Nuveen Asset Management retain the right to reallocate investment advisory responsibilities and fees between themselves in the future.
For the services provided pursuant to the Acquiring Funds Sub-Advisory Agreement, Nuveen Fund Advisors pays Nuveen Asset Management a portfolio management fee, payable monthly, equal to 71.4286% of the asset-based portion of the management fee (net of applicable breakpoints, waivers and reimbursements) paid by the Fund to Nuveen Fund Advisors. For the services provided pursuant to the Target Funds Sub-Advisory Agreement, Nuveen Fund Advisors pays Nuveen Asset Management a portfolio management fee, payable monthly, equal to 41.6667% of the management fee (net of applicable breakpoints, waivers and reimbursements) paid by the Fund to Nuveen Fund Advisors.
A discussion of the basis for the applicable Boards most recent approval of each Funds current Investment Management Agreement and Sub-Advisory Agreement will be included in the Acquiring Funds and the Target Funds Semi-Annual Report for the semi-annual period ending August 31, 2020.
Portfolio Management. Subject to the supervision of Nuveen Fund Advisors, Nuveen Asset Management is responsible for execution of specific investment strategies and day-to-day investment operations for each Fund. Nuveen Asset Management manages the portfolios of the Funds using a team of analysts and a portfolio manager that focuses on a specific group of funds. Scott R. Romans, PhD is the portfolio manager of each Fund. Additional information regarding the portfolio managers compensation, other accounts managed and ownership of securities is contained in the Reorganization SAI. Mr. Romans assumed portfolio management responsibility for each Fund in 2011. Mr. Romans will manage the combined fund upon completion of the Reorganization.
Scott R. Romans, PhD, Managing Director of Nuveen Asset Management, joined Nuveen Investments in 2000 as a senior analyst in the education sector. In 2003, he was assigned management responsibility for several closed- and open-ended municipal bond funds. He is responsible for managing several state-specific, tax-exempt portfolios. He holds an undergraduate degree from the University of Pennsylvania and an MA and PhD from the University of Chicago.
Because the Funds have substantially similar investment strategies, the principal risks of each Fund are substantially similar. The principal risks of investing in the Acquiring Fund are described below. An investment in the Target Fund is also subject to each of these principal risks. The risks and special considerations listed below should be considered by shareholders of the Target Fund in their evaluation of the Reorganization.:
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Investment and Market Risks; Market Discount to Net Asset Value Risk. An investment in each Funds common shares is subject to investment risk, including the possible loss of the entire principal amount that you invest. Your investment in common shares represents an indirect investment in the municipal securities owned by the Funds, which generally trade in the over-the-counter (OTC) markets. Your common shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions. |
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Municipal Securities Risk. Special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of a Funds investments in municipal securities. These factors include economic conditions, political or legislative changes, regulatory developments or enforcement actions, uncertainties related to the tax status of municipal securities, or the rights of investors. Federal income tax law changes may affect the demand for and supply of municipal bonds, which may affect yields and other factors. |
The outbreak of the novel coronavirus, known as COVID-19, in December 2019, and the resulting pandemic, has adversely impacted global commercial activity and has contributed to significant volatility in certain financial markets, including the municipal securities market. Due to the COVID-19 pandemic, the risks of the municipal securities market have been magnified. These risks have had, and will continue to have, a material adverse impact on local economies and therefore on the governments in those localities. These risks may also adversely affect several sectors of the municipal bond market, such as retirement facilities, transportation facilities such as airports, hospitals and colleges, among many others. All this has adversely affected the municipal securities market, and may continue to do so for an extended period.
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Municipal Bond Market Liquidity Risk. Inventories of municipal bonds held by brokers and dealers have decreased in recent years, lessening their ability to make a market in these securities. This reduction in market making capacity has the potential to decrease a Funds ability to buy or sell bonds, and increase bond price volatility and trading costs, particularly during periods of economic or market stress such as that experienced in 2020 in connection with the COVID-19 pandemic. In addition, changes to federal banking regulations may cause certain dealers to reduce their inventories of municipal bonds, which may further decrease a Funds ability to buy or sell bonds. As a result, a Fund may be forced to accept a lower price to sell a security, to sell other securities to raise cash, or to give up an investment opportunity, any of which could have a negative effect on performance. If a Fund needed to sell large blocks of bonds, those sales could further reduce the bonds prices and hurt performance. |
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High Yield Securities Risk. High yield securities, which are rated below investment grade and commonly referred to as junk bonds, are speculative and high risk investments that may cause income and principal losses for a Fund. They generally have greater credit risk, involve greater risks of default, downgrade, or price declines, are less liquid and have more volatile prices than investment-grade securities. Issuers of high yield securities are less financially strong, are more likely to encounter financial difficulties, and are more vulnerable to adverse market events and negative sentiments than issuers with higher credit ratings. |
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Issuer Credit Risk. This is the risk that a security in a Funds portfolio will fail to make dividend or interest payments when due. Investments in lower rated securities are subject to higher risks than investments in higher rated securities. Because the Funds may invest in lower rated municipal securities, they are susceptible to issuer credit risk. |
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Interest Rate Risk. Fixed-income securities such as bonds, preferred, convertible and other debt securities will decline in value if market interest rates rise. |
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Reinvestment Risk. If market interest rates decline, income earned from a Funds portfolio may be reinvested at rates below that of the original bond that generated the income. A decline in income could negatively affect the market price of a Funds shares or a shareholders returns. |
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Call Risk or Prepayment Risk. Issuers may exercise their option to prepay principal earlier than scheduled, forcing a Fund to reinvest in lower yielding securities. |
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Tax Risk. The tax treatment of the Funds and their distributions may be affected by new Internal Revenue Service (IRS) interpretations of the Code and future changes in tax laws and regulations. In addition, because the interest income from the municipal securities held by the Funds is normally not subject to federal income tax, the attractiveness of municipal securities in relation to other investment alternatives is affected by changes in the tax-exempt status of interest income from municipal securities. Any proposed or actual changes in such exempt status, therefore, can significantly affect the demand for and supply, liquidity and marketability of municipal securities. This could in turn affect a Funds net asset value and ability to acquire and dispose of municipal securities at desirable yield and price levels. Additionally, neither Fund is a suitable investment for individual retirement accounts, other tax-exempt or tax-advantaged accounts or investors who are not sensitive to the federal income tax consequences of their investments. |
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Inverse Floater Risk. The Funds may invest in inverse floaters. Due to their leveraged nature, these investments can greatly increase a Funds exposure to interest rate risk and credit risk. In addition, investments in inverse floaters involve the risk that the Fund could lose more than its original principal amount. |
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Derivatives Risk. The Funds may use derivative instruments which involve a high degree of financial risk, including the risk that the loss on a derivative may be greater than the principal amount invested. |
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Single State Risk. The Funds concentrate their investment portfolio in New York state-specific municipal securities. Accordingly, the Funds are subject to single state risk, meaning they are susceptible to political, economic or regulatory factors affecting issuers of New York municipal bonds. See Appendix D to this Joint Proxy Statement/Prospectus for a further discussion of factors affecting municipal securities in New York. |
The principal risks of investing in the Acquiring Fund are described in more detail below.
Comparative Expense Information
The purpose of the Comparative Fee Table is to assist you in understanding the various costs and expenses of investing in common shares of the Funds. The information in the table reflects the fees and expenses for each Funds fiscal year ended February 29, 2020 and the pro forma expenses for the twelve months ended February 29, 2020 for the combined fund following the Reorganization. The assets of the Funds will vary based on market conditions and other factors and may vary significantly during volatile market conditions such as those experienced during the first half of 2020 arising from the public health crisis caused by the novel coronavirus known as COVID-19.
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The figures in the Example are not necessarily indicative of past or future expenses, and actual expenses may be greater or less than those shown. The Funds actual rates of return may be greater or less than the hypothetical 5% annual return shown in the Example.
Target
Fund |
Acquiring
Fund |
Nuveen New York
Municipal Value Fund, Inc. Pro Forma |
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Annual Expenses (as a percentage of net assets attributable
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Management Fees |
0.56 | % | 0.48 | % | 0.47 | % | ||||||
Interest and Related Expenses from Inverse Floaters(2) |
| % | 0.02 | % | 0.02 | % | ||||||
Other Expenses |
0.19 | % | 0.09 | % | 0.08 | %(3) | ||||||
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|
|
|
|
|
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Total Annual Expenses |
0.75 | % | 0.59 | % | 0.57 | % | ||||||
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(1) |
Annual Expenses (as a percentage of net assets attributable to common shares) for each Fund are based on the expenses of the Funds for the fiscal year ended February 29, 2020. Annual Expenses (as a percentage attributable to common shares) for the Nuveen New York Municipal Value Fund, Inc. Pro Forma are based on the expenses of the Funds for the twelve months ended February 29, 2020. |
(2) |
Interest and Related Expenses from Inverse Floaters include interest expense attributable to inverse floating rate securities created by selling a fixed-rate bond to a broker dealer for deposit into the special purpose trust and receiving in turn the residual interest in the trust (self-deposited inverse floating rate securities). To the extent each Fund creates self-deposited inverse floating rate securities, the Fund recognizes interest expense because accounting rules require the Fund to treat interest paid by such trusts as having been paid (indirectly) by the Fund. Because the Fund also recognizes a corresponding amount of additional interest earned (also indirectly), the Funds net asset value per share, net investment income and total return are not affected by the accounting treatment. The actual fees on interest and related expenses from inverse floaters incurred in the future may be higher or lower. If short-term market interest rates rise in the future, and if the Acquiring Fund continues to maintain leverage the cost of which is tied to short-term interest rates, the Funds interest expense can be expected to rise in tandem. |
(3) |
Other Expenses are estimated based on actual expenses from the prior fiscal year. |
Example: The following examples illustrate the expenses that a common shareholder would pay on a $1,000 investment that is held for the time periods provided in the table. The examples assume that all dividends and other distributions are reinvested and that Total Annual Expenses remain the same. The examples also assume a 5% annual return. The examples should not be considered a representation of future expenses. Actual expenses may be greater or lesser than those shown.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
Target Fund |
$ | 8 | $ | 24 | $ | 42 | $ | 93 | ||||||||
Acquiring Fund |
$ | 6 | $ | 19 | $ | 33 | $ | 74 | ||||||||
Nuveen New York Municipal Value Fund, Inc. Pro Forma |
$ | 6 | $ | 18 | $ | 32 | $ | 71 |
Comparative Performance Information
Comparative total return performance for the Funds for periods ended February 29, 2020:
Average Annual Total Return
on Net Asset Value |
Average Annual Total Return
on Market Value |
|||||||||||||||||||||||
One
Year |
Five
Years |
Ten
Years |
One
Year |
Five
Years |
Ten
Years |
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Acquiring Fund |
9.72 | % | 4.46 | % | 4.69 | % | 10.93 | % | 4.65 | % | 4.94 | % | ||||||||||||
Target Fund |
11.11 | % | 4.29 | % | 4.82 | % | 13.32 | % | 3.45 | % | 4.83 | % |
Average Annual Total Return on Net Asset Value is the combination of changes in common share net asset value, reinvested dividend income at net asset value and reinvested capital gains
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distributions at net asset value, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending net asset value. The actual reinvestment price for the last dividend declared in the period may often be based on the Funds market price (and not its net asset value), and therefore may be different from the price used in the calculation. Average Annual Total Return on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances it may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Past performance information is not necessarily indicative of future results.
An investment in the Acquiring Fund may not be appropriate for all investors. The Acquiring Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Acquiring Fund will achieve its investment objectives. Investors should consider their long-term investment goals and financial needs when making an investment decision with respect to shares of the Acquiring Fund. An investment in the Acquiring Fund is intended to be a long-term investment, and you should not view the Fund as a trading vehicle. Your shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions, if applicable.
Because the Funds have substantially similar investment strategies, the Funds principal risks are substantially similar. The principal risks of investing in the Acquiring Fund are described below. The risks and special considerations listed below should be considered by shareholders of each Fund in their evaluation of the Reorganization.
General Risks of Investing in the Acquiring Fund
Investment Risk. An investment in the Acquiring Funds shares is subject to investment risk, including the possible loss of the entire principal amount that you invest. Your investment in the shares of the Acquiring Fund represents an indirect investment in the municipal securities owned by the Fund. Your shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of dividends and distributions, if applicable. In addition, the ability of municipalities to collect revenue and service their obligations could be materially and adversely affected by an economic downturn or prolonged recession. Investors bear a risk of loss to the extent that the price at which they sell their shares is lower in relation to the Acquiring Funds net asset value than at the time of purchase, assuming a stable net asset value. The common shares are designed primarily for long-term investors, and you should not view the Acquiring Fund as a vehicle for trading purposes.
Credit and Below-Investment-Grade Risk. Credit risk is the risk that one or more municipal securities in the Acquiring Funds 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 Acquiring Funds net asset value or dividends. Credit risk is increased when a portfolio security is downgraded or the perceived creditworthiness of the issuer deteriorates. If a downgrade occurs, the Adviser and/or the
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Sub-Adviser will consider what action, including the sale of the security, is in the best interests of the Acquiring Fund and its shareholders. Municipal securities of below-investment-grade quality, commonly referred to as junk bonds, are regarded as having predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal when due, and they are more susceptible to default or decline in market value due to adverse economic and business developments than investment-grade municipal securities. Also, to the extent that the rating assigned to a municipal security in the Acquiring Funds portfolio is downgraded by any NRSRO, the market price and liquidity of such security may be adversely affected. 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 Acquiring Fund, compared with a portfolio consisting predominately or solely of investment-grade securities, may experience the following:
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increased price sensitivity resulting from a deteriorating economic environment and/or changing interest rates; |
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greater risk of loss due to default or declining credit quality; |
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adverse issuer-specific events that are more likely to render the issuer unable to make interest and/or principal payments; and |
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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 may severely affect the ability of highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. In the event of an economic downturn, with decreased tax and other revenue streams of municipal issuers, or in the event 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 would likely increase. Similarly, prolonged downturns 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 Acquiring Funds net asset value and the market value of its common shares. In addition, the Acquiring 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 Acquiring Fund may be required to foreclose on an issuers assets and take possession of its property or operations. In such circumstances, the Acquiring Fund would incur additional costs in disposing of such assets, potential liabilities from operating any business acquired and possibly a loss of its qualification as a regulated investment company for federal income tax purposes.
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 Acquiring Funds 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
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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, independent of any specific adverse changes in the condition of a particular issuer, and these instruments may become illiquid. As a result, the Acquiring 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 Acquiring Funds net asset value.
Issuers of such below-investment-grade securities are typically 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 issuers ability to service its debt obligations also may be adversely affected by specific developments, the issuers 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 Acquiring Funds 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.
Investments in lower rated or unrated securities may present special tax issues for the Acquiring Fund, including when the issuers of these securities default on their obligations pertaining thereto.
Municipal Securities Market Risk. Investing in the municipal securities market involves certain risks. The municipal securities market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and during periods of market turmoil these firms capital may be severely constrained. As a result, under such conditions, some firms may be unwilling to commit their capital to purchase and to serve as a dealer for municipal securities. The amount of public information available about the municipal securities in the Acquiring Funds portfolio is generally less than that for corporate equities or bonds, and the Acquiring Funds investment performance may therefore be more dependent on the analytical abilities of the Adviser and the Sub-Adviser than if the Fund were to invest in stocks or taxable bonds. The secondary market for municipal securities, particularly the below-investment-grade securities in which the Acquiring Fund may invest, also tends to be less well-developed or liquid than many other securities markets, which may adversely affect the Funds ability to sell its municipal securities at attractive prices or at prices approximating those at which the Fund values them from time to time. Municipal securities may contain redemption provisions, which may allow the securities to be called or redeemed prior to their stated maturity, potentially resulting in the distribution of principal and a reduction in subsequent interest distributions.
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
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among federal, state and local governments. In addition, laws enacted in the future by Congress or state legislatures or by referenda could extend the time for payment of principal and/or interest or impose other constraints on the enforcement of such obligations or on the ability of municipalities to levy taxes. Further, some state and local governments have been and in the future may be subject to direct ballot referenda that could limit their financial flexibility, or their ability to levy taxes or raise tax revenues, which may adversely affect the marketability of notes and bonds issued by those state and local governments. Issuers of municipal securities might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, the Acquiring 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 Acquiring Fund may take possession of and manage the assets securing the issuers obligations on such securities, which may increase the Funds operating expenses. Any income derived from the Acquiring Funds ownership or operation of such assets may not be tax-exempt and may not be of the type that would allow the Fund to continue to qualify as a regulated investment company for federal income tax purposes.
Revenue bonds issued by state or local agencies to finance the development of low-income, multi-family housing involve special risks in addition to those associated with municipal securities generally, including that the underlying properties may not generate sufficient income to pay expenses and interest costs. These bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties, may pay interest the amount of which changes based in part on the financial performance of the property, may be prepayable without penalty and may be used to finance the construction of housing developments that, until completed and rented, do not generate income to pay interest. Additionally, unusually high rates of default on the underlying mortgage loans may reduce revenues available for the payment of principal or interest on such mortgage revenue bonds.
U.S. federal income tax law changes may affect the demand for and supply of municipal bonds, which may affect yields and other factors.
The outbreak of the novel coronavirus, known as COVID-19, in December 2019, and the resulting pandemic, has adversely impacted global commercial activity and has contributed to significant volatility in certain financial markets, including the municipal bond market. Due to the COVID-19 pandemic, the risks of the municipal securities market have been magnified. These risks have had, and will continue to have, a material adverse impact on local economies and therefore on the governments in those localities. These risks may also adversely affect several sectors of the municipal bond market, such as retirement facilities, transportation facilities such as airports, hospitals and colleges, among many others. All this has adversely affected the municipal securities market, and may continue to do so for an extended period.
Although the detection of COVID-19 in China was made public in December 2019, U.S. securities markets did not start to fully acknowledge the risks and potential economic impact until the latter portion of February 2020, when outbreaks outside of China were first reported. Certain parts of the municipal bond markets experienced significant volatility and drops in values, particularly below-investment grade municipal bonds. It is possible that similar market dislocations will recur as the COVID-19 pandemic continues, which may adversely affect the value and liquidity of the Funds investments.
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The impact of the outbreak is rapidly evolving, and many countries, including the United States, have reacted by instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other public venues. Businesses are also implementing similar precautionary measures. Such measures, as well as the general uncertainty surrounding the dangers and impact of COVID-19, are creating significant disruption in supply chains and economic activity and are having a particularly adverse impact on transportation, hospitality, tourism, entertainment and other industries. As a result, the COVID-19 pandemic could adversely affect the bonds of municipalities that depend on tax or other revenues generated by tourist dollars. Additionally, the economic disruption caused by the COVID-19 pandemic may negatively impact state and local budgetary matters, as states and municipalities may be more likely to run budget deficits (or larger deficits) during the period of economic contraction stemming from the COVID-19 pandemic.
Special Risks Related to Certain Municipal Obligations. 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 that 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 Acquiring Funds 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 Acquiring Fund, although the Fund does not anticipate that such a remedy would normally be pursued. To the extent that the Acquiring 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 Acquiring 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.
The Acquiring Fund may invest in tobacco settlement bonds. Tobacco settlement bonds are municipal securities that are backed solely by expected revenues to be derived from lawsuits involving tobacco related deaths and illnesses which were settled between certain states and American tobacco companies. Tobacco settlement bonds are secured by an issuing states proportionate share in the Master Settlement Agreement (the MSA). The MSA is an agreement, reached out of court in November 1998 between 46 states and nearly all of the U.S. tobacco manufacturers. Under the terms of the MSA, the actual amount of future settlement payments by tobacco manufacturers is dependent on many factors, including, but not limited to, annual domestic cigarette shipments, reduced cigarette consumption, increased taxes on cigarettes, inflation, financial capability of tobacco companies, continuing litigation and the possibility of tobacco manufacturer bankruptcy. Payments made by
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tobacco manufacturers could be negatively impacted if the decrease in tobacco consumption is significantly greater than the forecasted decline.
Municipal Bond Market Liquidity Risk. Inventories of municipal bonds held by brokers and dealers have decreased in recent years, lessening their ability to make a market in these securities. This reduction in market making capacity has the potential to decrease the Acquiring Funds ability to buy or sell bonds, and increase bond price volatility and trading costs, particularly during periods of economic or market stress. In addition, recent changes to federal banking regulations may cause certain dealers to reduce their inventories of municipal bonds, which may further decrease the Acquiring Funds ability to buy or sell bonds. As a result, the Acquiring Fund may be forced to accept a lower price to sell a security, to sell other securities to raise cash, or to give up an investment opportunity, any of which could have a negative effect on performance. If the Acquiring Fund needed to sell large blocks of bonds, those sales could further reduce the bonds prices and hurt performance.
State Concentration Risk. The Acquiring Fund invests its net assets in a portfolio of municipal securities that are exempt from regular federal, New York State and New York City income taxes. The Acquiring Fund is therefore more susceptible to adverse political, economic or regulatory events affecting issuers of such securities. The information is intended to give a recent historical description and is not intended to indicate future or continuing trends in the financial or other positions of New York State.
It should be noted that the information recorded here primarily is based on the economic and budget forecasts found in certain recent publications issued by New York State. The accuracy and completeness of those publications have not been independently verified. There may be significant changes in circumstances altering the economic and budget predictions since the time of those publications or after the publication of this Joint Proxy Statement/Prospectus. Additionally, it should be noted that the creditworthiness of obligations issued by local New York issuers may be unrelated to the creditworthiness of obligations issued by New York State, and that there is no obligation on the part of New York State to make payment on such local obligations in the event of default.
New York State has a diverse economy with a large share of the nations financial activities and employment in the information, health services and education sectors. New York State has the fourth highest population in the nation, and its residents have a comparatively high level of personal wealth. The most significant sectors of the States economy differ from those of the national economy. While manufacturing and construction account for smaller shares of employment for the State than for the nation, service industries account for a larger share, especially financial services. As a result, the State is more likely to be affected during a recession that is concentrated in the services sector than the nation as a whole. New York City has the highest population of any city in the nation, is the center of the nations largest metropolitan area and accounts for a large percentage of the States residents and personal income.
New York State and especially New York City have been significantly impacted by the COVID-19 pandemic. Coronavirus fears, travel bans, and regulations that limit social gatherings have caused a wide range of business sectors to cease operations, especially retail trade and leisure and hospitality. The abrupt halt of economic activity in most industries continues to lead to layoffs and furloughs. The COVID-19 pandemic and weak global growth are contributing to increased market volatility and restraining equity prices growth over the near term. As the nations financial capital,
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both the volume of financial market activity and volatility in equity markets pose a particularly significant degree of risk for the New York State economy.
Most key measures of New York States economic output are expected to fall in comparison to fiscal year 2020, which began on April 1, 2019 and ended on March 31, 2020. The New York State Division of Budget (the DOB) forecasts that nonfarm employment will fall by 7 percent; total wages will fall by 7.2 percent, and personal income and wages (excluding bonuses) will fall by 2.2 percent. Financial and insurance sector bonuses, an important source of personal income tax collections, are expected to drop by 50 percent. The States unemployment rate is expected to average 11.4 percent.
As a result of the pandemics impact on economic activity, the DOB has reduced the fiscal year 2021 estimate for general fund receipts by $13.3 billion in comparison to its original estimates, with tax receipts estimated to decline by 8.9 percent from fiscal year 2020. The DOB anticipates a balanced budget in fiscal year 2021, followed by budget gaps of $1.9 billion in fiscal year 2022, $3.3 billion in fiscal year 2023, and $3.3 billion in fiscal year 2024.
To date, the Federal government has taken legislative, administrative, and Federal Reserve actions intended to stabilize financial markets, extend aid to large and small businesses, health care providers, and individuals, and reimburse governments for the direct costs of pandemic response. However, the State cannot count on additional Federal aid, and there can be no assurance that the State economy will not experience results worse than those predicted in the 2020 fiscal year or subsequent fiscal years.
As of March 31, 2020, the State had approximately $2.1 billion outstanding in general obligation debt, $1.5 billion in debt relating to lease-purchase and other service contract financing of State capital programs, $37.1 billion in State personal income tax revenue bonds, $1.7 billion in other revenue bonds and $11.5 billion in sales tax revenue bonds. The DOB anticipates debt issuances of $6.3 billion in fiscal year 2021 to finance new capital projects. Total State-supported debt outstanding is projected to increase from $54.2 billion in 2020 to $59.2 billion in 2021. The estimated debt service on State-related debt for the 2021 fiscal year is projected to be approximately $10.4 billion, an increase of $5.4 billion from fiscal year 2020.
The major rating agencies, Fitch, Kroll, Moodys, and S&P, assign the State general credit ratings of AA+, AA+, Aa1, and AA+, respectively. On April 1, 2020, Moodys changed the States credit outlook from stable to negative. On April 10, 2020, Fitch changed the States credit outlook from stable to negative. On April 16, 2020, Standard & Poors confirmed the States stable outlook.
The State is a defendant in certain court cases that could ultimately affect the ability of the State to maintain a balanced financial plan. Although the States financial plan includes reserves to offset the costs associated with any potential adverse rulings, it is possible that adverse decisions in legal proceedings against the State could exceed the amount of all potential resources set aside for judgments, and consequently could negatively affect the States ability to maintain a balanced financial plan.
In addition, the fiscal demands on the State may be affected by the fiscal condition of New York City. New York City relies in part on State aid to balance its budget and meet its cash requirements. It is also possible that the States finances may be affected by the ability of New York
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City, and certain entities issuing debt for the benefit of New York City, to market securities successfully in the public credit markets. The economy of New York City, which was the epicenter of the COVID-19 pandemic at its onset, has seen a greater impact of the pandemic than the nation thus far with New York City jobs declining faster than the nation through June.
While the fiscal condition of New York City and other local governments in the State is reliant, in part, on State aid to balance their annual budgets and meet their cash requirements, the State is not legally responsible for their financial condition and viability. The provision of State aid to localities, while one of the largest disbursement categories in the State budget, is not constitutionally obligated to be maintained at current levels or to be continued in future fiscal years and the State Legislature may amend or repeal statutes relating to the formulas for and the apportionment of State aid to localities.
This information and the information in Appendix D are derived from sources generally available to investors and have not been independently verified. See Appendix D to this Joint Proxy Statement/Prospectus for a further discussion of factors affecting municipal securities in New York.
Interest Rate Risk. Generally, when market interest rates rise, bond prices fall, and vice versa. Interest rate risk is the risk that the municipal securities in the Acquiring Funds portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal securities may prepay principal earlier than scheduled, forcing the Acquiring Fund to reinvest in lower yielding securities and potentially reducing the Funds income. As interest rates increase, slower-than-expected principal payments may extend the average life of securities, potentially locking-in a below-market interest rate and reducing the Acquiring Funds value. In typical market interest rate environments, the prices of longer-term municipal securities generally fluctuate more than prices of shorter-term municipal securities as interest rates change. Because the Acquiring Fund primarily invests in longer-term municipal securities, the common share net asset value and market price per share will fluctuate more in response to changes in market interest rates than if the Acquiring Fund invested primarily in shorter-term municipal securities. Because the values of lower-rated and comparable unrated debt securities are affected both by credit risk and interest rate risk, the price movements of such lower grade securities typically have not been highly correlated to the fluctuations of the prices of investment-grade-quality securities in response to changes in market interest rates. There may be less governmental intervention in the securities markets in the near future. The negative impact on fixed-income securities if interest rates increase as a result could negatively impact the Acquiring Funds net asset value.
Income Risk. The Acquiring Funds income is based primarily on the interest it earns from its investments, which can vary widely over the short-term and long-term. If interest rates drop, the Acquiring Funds income available over time to make dividend payments could drop as well if the Fund purchases securities with lower interest coupons.
Call Risk or Prepayment Risk. During periods of declining interest rates or for other purposes, issuers of callable bonds with higher interest coupons may exercise their option to call (or prepay) bonds before their maturity date, forcing the Acquiring Fund to reinvest in lower yielding securities.
Reinvestment Risk. Reinvestment risk is the risk that the income from the Acquiring Funds 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 current earnings rate of the Funds portfolio. A decline in income could affect the ability of the Acquiring Fund to pay dividends on its common shares, as well as the common shares market price or overall returns.
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Economic Sector Risk. The Acquiring Fund may invest a significant portion of its total assets in municipal securities in the same economic sector. This may make the Acquiring Fund more susceptible to adverse economic, political or regulatory occurrences affecting an economic sector. As concentration increases, so does the potential for fluctuation in the value of the Acquiring Funds assets. In addition, the Acquiring Fund may invest a significant portion of its net assets in certain sectors of the municipal securities market, such as hospitals and other health care facilities, charter schools and other private educational facilities, special taxing districts and start-up utility districts, as well as private activity bonds, including industrial development bonds on behalf of transportation companies such as airline companies, whose credit quality and performance may be more susceptible to economic, business, political, regulatory and other developments than other sectors of municipal issuers. If the Acquiring Fund invests a significant portion of its net assets in the sectors noted above, the Funds performance may be subject to additional risk and variability. To the extent that the Acquiring Fund focuses its net assets in the hospital and healthcare facilities sector, for example, 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. Charter schools and other private educational facilities are 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.
Inflation Risk. Inflation is the reduction in the purchasing power of money resulting from the increase in the price of goods and services. Inflation risk is the risk that the inflation-adjusted (or real) value of assets or income from investment will be worth less in the future. As inflation increases, the real value of common shares and distributions can decline. In addition, during any period of rising inflation, interest rates on borrowings would likely increase, which would tend to further reduce returns to common shareholders.
Deflation Risk. Deflation risk is the risk that prices throughout the economy decline over timethe opposite of inflation risk. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Acquiring Funds portfolio.
Tender Option Bond Regulatory Risk. The federal banking regulators, the SEC and the Commodity Futures Trading Commission (CFTC) in recent years have adopted rules and regulations that have impacted or may impact tender option bond trusts (referred to herein as TOB trusts) and securities issued by such trusts, including most notably the so-called Volcker Rule, added to the Bank Holding Company Act of 1956 with the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The Volcker Rule places certain restrictions on the ability of any banking entity to sponsor, acquire interests in and engage in certain activities with a
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TOB trust. As a result, certain activities to support the remarketing of floating rate certificates undertaken by banking entities, in their role as remarketing agents or liquidity providers to TOB trusts, before the compliance date for the Volcker Rule are no longer permitted under the standard TOB trust structure. To be compliant with the Volcker Rule, the standard TOB trust structure has been modified since the rules adoption (1) to shift certain rights and responsibilities from the remarketing agent and liquidity provider to the owners of the inverse floating rate securities such as the Acquiring Fund itself, and (2) to change the way in which liquidity is provided to support remarketing of the floating rate securities. Holders of inverse floating rate securities, including the Acquiring Fund, may delegate many of these responsibilities to a third-party administrator, which would generate additional costs relative to the standard TOB trust structure. The total impact of these modifications remains to be fully seen, but the operational and structural changes associated with these modifications may make early unwinds of TOB trusts in adverse market scenarios more likely, may make the use of TOB trusts more expensive and, overall, may make it more difficult to use TOB trusts to effectively leverage municipal investments to the extent that the Acquiring Fund may desire. In addition, these modifications have raised or may raise other regulatory issues that may require further refinement to the structure, may impede the future use of TOB trusts as a means of financing leverage, or may increase future costs of TOB-based leverage.
Inverse Floating Rate Securities Risk. Typically, inverse floating rate securities represent beneficial interests in TOB trusts that hold municipal bonds. In general, income on inverse floating rate securities will decrease when interest rates increase and increase when interest rates decrease. Investments in inverse floating rate securities may subject the Acquiring Fund to the risks of reduced or eliminated interest payments and losses of principal in respect of the underlying municipal bonds.
In the case of certain TOB trusts, neither the holders of the associated floating rate securities nor the TOB trust itself have recourse to the holder of the inverse floating rate securities for losses on the underlying municipal bonds. In that case, the risk of loss to the Acquiring Fund generally is limited to its investment in such securities. However, in certain circumstances and in the Sub-Advisers discretion, the Acquiring Fund may enter into a recourse arrangement with the liquidity provider to a TOB trust in the form of a separate shortfall and forbearance agreement by which the Acquiring Fund will agree to reimburse the liquidity provider for any amounts paid by it under the liquidity facility. The Acquiring Fund may enter into such recourse agreements: (1) when the liquidity provider to the TOB trust requires such an agreement because the level of leverage in the trust exceeds the level that the liquidity provider is willing to support absent such an agreement; and/or (2) to seek to prevent the liquidity provider from collapsing the trust in the event that the underlying municipal bond held in the trust has declined in value to the point where it may cease to exceed the face amount of outstanding short-term floaters. Such an agreement would require the Acquiring Fund to reimburse the liquidity provider, among other amounts, upon termination of the TOB trust for the shortfall of the liquidation value of the bonds held in the trust relative to the amount of principal and unpaid interest due to the holders of floating rate securities. In such instances, the Acquiring Fund may be at risk of loss that exceeds its investment in the inverse floating rate securities.
Inverse floating rate securities may increase or decrease in value at a greater rate than the underlying municipal bonds, which effectively leverages the Acquiring Funds investment. As a result, the market value of such securities generally will be more volatile than that of otherwise comparable municipal bonds held on an unleveraged basis outside a TOB trust.
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The Acquiring Fund may invest in inverse floating rate securities issued by TOB trusts in which the liquidity provider has recourse to the Fund (a recourse TOB trust) to the extent that the value of the bonds deposited in the TOB trust may fall in value below the principal amount of the short-term floating rate securities issued by that trust. The inverse floating rate securities issued by such recourse TOB trusts may be highly leveraged. The structure and degree to which the Acquiring Funds inverse floating rate securities are highly leveraged will vary based upon a number of factors, including the size of the trust itself and the terms of the underlying municipal bonds. An inverse floating rate security generally is considered highly leveraged if the ratio of (1) the principal amount of the short-term floating rate securities issued by the TOB trust to (2) the principal amount of that TOB trusts inverse floating rate securities equals or exceeds 3:1. In the event of a significant decline in the value of an underlying municipal bond held in a recourse TOB trust, the Acquiring Fund may suffer losses in excess of the amount of its investment in the inverse floating securities (typically up to an amount equal to the outstanding face amount of such municipal bonds) as a result of liquidating the trust.
The Acquiring Funds investment in inverse floating rate securities will create effective leverage, used in pursuit of increased common share net income and returns. But such effective leverage could reduce common share income (such as if the interest rate paid on the short-term floating rate securities were to exceed the interest rate being received on the municipal bonds underlying the TOB trust, net of trust expenses, for a meaningful period of time), and could also diminish common share long-term returns (such as if the value of the municipal bonds underlying the TOB trust were to decline in value by more than any positive differential between the income being earned on those underlying bonds, net of trust expenses, relative to the interest being paid to the holders of the short-term floating rate securities issued by that trust).
The amount of fees paid to the Adviser (which in turn pays a portion of its fees to the Sub-Adviser) for investment advisory services will be higher when the Acquiring Fund uses leverage because the advisory fees are calculated based on the Funds managed assets. This may create an incentive for the Adviser and/or the Sub-Adviser to leverage the Fund.
Inverse floating rate securities have varying degrees of liquidity based, among other things, upon the liquidity of the underlying municipal bonds deposited in the TOB trust.
The leverage attributable to inverse floating rate securities may be called away on relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances, the likelihood of an increase in the volatility of net asset value and market price of the common shares may be greater for a fund (like the Acquiring Fund) that relies primarily on inverse floating rate securities to achieve a desired effective leverage ratio. The Acquiring Fund may be required to sell its inverse floating rate securities at less than favorable prices or to liquidate other portfolio holdings in certain circumstances, including, but not limited to, the following:
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If the Acquiring Fund has a need to reduce leverage by reducing or eliminating the amount of short-term floating rate securities issued by a TOB trust and the municipal bonds in the TOB trust are not actively trading due to adverse market conditions; or |
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If the value of an underlying municipal bond declines significantly (to a level below the notional value of the floating rate securities issued by the TOB trust) and if additional collateral has not been posted by the Acquiring Fund. |
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There is no assurance that the Acquiring Funds strategy of investing in inverse floating rate securities will be successful.
Leverage Risk. Leverage risk is the risk associated with the use of borrowings, the issuance of preferred shares or the use of inverse floating rate securities to leverage the common shares. There can be no assurance that the Acquiring Funds leveraging strategy will be successful. Through the use of leverage, the Acquiring Fund seeks to enhance potential common share earnings over time by typically sourcing leverage with costs based upon short-term interest rates and investing at long-term municipal rates which are typically, although not always, higher. Because the long-term municipal securities in which the Acquiring Fund invests generally pay fixed rates of interest while the Funds costs of leverage generally fluctuate with short- to intermediate-term yields, the incremental earnings from leverage will vary over time. However, the Acquiring Fund may use derivatives, such as interest rate swaps, to fix the effective rate paid on all or a portion of the Funds leverage in an effort to lower leverage costs over an extended period. The income benefit from leverage will be reduced (increased) to the extent that the difference narrows (widens) between the net earnings on the Acquiring Funds portfolio securities and its cost of leverage. If short- or intermediate-term rates rise and the Acquiring Funds leverage costs fluctuate, the Funds cost of leverage could exceed the fixed rate of return on long-term bonds held by the Fund that were acquired during periods of lower interest rates, reducing returns to common shareholders. This could occur even if short- or intermediate-term and long-term municipal rates rise. Because of the costs of leverage, the Acquiring Fund may incur losses even if the Fund has positive returns if such returns are not sufficient to cover the costs of leverage. The Acquiring Funds cost of leverage includes the interest rate paid on its borrowings or dividends on preferred shares, the expenses relating to the issuance of preferred shares and ongoing maintenance of any borrowings and/or the interest attributable to tender option bonds, as well as any other ongoing fees and expenses associated with those borrowings or preferred shares. The Acquiring Fund also bears the one-time costs associated with establishing borrowing facilities, issuing preferred shares and refinancing such leverage. The Acquiring Fund may seek to refinance its leverage over time, in the ordinary course, as current forms of leverage mature or it is otherwise desirable to refinance. If a Fund is unable to replace existing leverage on comparable terms, its costs of leverage will increase. Accordingly, there is no assurance that the use of leverage may result in a higher yield or return to common shareholders.
The Acquiring Funds use of leverage also creates incremental common share net asset value risk because the full impact of price changes in the Funds investment portfolio, including assets attributable to leverage, is borne by common shareholders. This can lead to a greater increase in net asset values in rising markets than if the Acquiring Fund were not leveraged, but it also can result in a greater decrease in net asset values in declining markets. The Acquiring Funds use of leverage similarly can magnify the impact of changing market conditions on common share market prices.
The leverage effects of TOB inverse floater holdings are included in the Acquiring Funds effective leverage values. The Acquiring Fund will pay (and shareholders will bear) any costs and expenses relating to the Funds use of leverage, which will result in a reduction in the net asset value of the common shares. A Fund may in the future, based on its assessment of market conditions, increase or decrease its level of leverage or change the types of leverage employed. Such changes may impact net investment income and the market value of common shares. There can be no assurance that the Acquiring Fund will maintain the types or levels of leverage historically used by the Acquiring Fund prior to the Reorganization or that the Acquiring Funds leverage strategy will be successful.
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The Acquiring Fund may invest in the securities of other investment companies, which may themselves be leveraged and therefore present similar risks to those described above. See Other Investment Companies Risk. In addition, any investment by the Acquiring Fund in leveraged investment companies would magnify the Funds leverage risk.
As noted above, the amount of fees paid to the Adviser (which in turn pays a portion of its fees to the Sub-Adviser) for investment advisory services will be higher when the Acquiring Fund uses financial leverage because the advisory fees are calculated based on the Funds managed assetsthis may create an incentive for the Adviser and/or the Sub-Adviser to leverage the Fund.
Borrowing Risk. Borrowing may exaggerate changes in the net asset value of the Acquiring Funds common shares and may affect the Funds net income. When the Acquiring Fund borrows money, it must pay interest and other fees, which will reduce the Funds returns if such costs exceed the returns on the portfolio securities purchased or retained with such borrowings. Any such borrowings are intended to be temporary.
Insurance Risk. The Acquiring Fund may purchase municipal securities that are secured by insurance, bank credit agreements or escrow accounts. The credit quality of the companies that provide such credit enhancements will affect the value of those securities. During and following the 20072009 financial crisis, certain significant providers of insurance for municipal securities incurred significant losses as a result of exposure to sub-prime mortgages and other lower credit quality investments that experienced defaults or otherwise suffered extreme credit deterioration. Such losses reduced the insurers capital and called into question their continued ability to perform their obligations under such insurance should they be called upon to do so. While an insured municipal security will typically be deemed to have the rating of its insurer, if the insurer of a municipal security suffers a downgrade in its credit rating or the market discounts the value of the insurance provided by the insurer, the rating of the underlying municipal security will be more relevant and the value of the municipal security would more closely, if not entirely, reflect such rating. In such a case, the value of insurance associated with a municipal security would decline and may not add any value. The insurance feature of a municipal security does not guarantee the full payment of principal and interest through the life of an insured obligation, the market value of the insured obligation or the net asset value of the common shares represented by such insured obligation.
Tax Risk. To qualify for the favorable federal income tax treatment generally accorded to regulated investment companies, among other things, the Acquiring Fund must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification test on a quarterly basis. If the Acquiring Fund fails to satisfy the qualifying income or diversification requirements in any taxable year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures of the diversification requirements where the Acquiring Fund corrects the failure within a specified period. In order to be eligible for the relief provisions with respect to a failure to meet the diversification requirements, the Acquiring Fund may be required to dispose of certain assets. If these relief provisions are not available to the Acquiring Fund and it fails to qualify for treatment as a regulated investment company for a taxable year, all of its taxable income (including its net capital gains) for such taxable year would be subject to federal income tax at regular corporate rates without any deduction for distributions to shareholders, and all distributions from the Fund (including
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underlying distributions attributable to tax exempt interest income) would be taxable to shareholders as ordinary dividends to the extent of the Funds current and accumulated earnings and profits.
To qualify to pay exempt-interest dividends, which are treated as items of interest excludable from gross income for federal income tax purposes, at least 50% of the value of the total assets of the Acquiring Fund must consist of obligations exempt from regular federal income tax as of the close of each quarter of the Funds taxable year. If the proportion of taxable investments held by the Acquiring Fund exceeded 50% of the Funds total assets as of the close of any quarter of the Funds taxable year, the Fund would not satisfy the general eligibility test that would permit it to pay exempt-interest dividends for that taxable year.
The value of the Acquiring Funds investments and its net asset value may be adversely affected by changes in tax rates and policies. Because interest income from municipal securities held by the Acquiring Fund is normally not subject to regular federal income tax, 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 Acquiring Funds net asset value and ability to acquire and dispose of municipal securities at desirable yield and price levels. Additionally, the Acquiring Fund is not a suitable investment for individual retirement accounts, for other tax-exempt or tax-advantaged accounts or for investors who are not sensitive to the federal income tax consequences of their investments.
Taxability Risk. The Acquiring Fund will invest in municipal securities in reliance at the time of purchase on an opinion of bond counsel to the issuer (or on the basis of other authority believed by the Adviser and/or the Sub-Adviser to be reliable) that the interest paid on those securities will be excludable from gross income for regular federal income tax purposes, and neither the Adviser nor the Sub-Adviser will independently verify that opinion. However, subsequent to the Acquiring Funds acquisition of such a municipal security, the security may be determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by the Acquiring Fund as exempt-interest dividends could be adversely affected, subjecting the Funds shareholders to increased federal income tax liabilities.
Under highly unusual circumstances, the IRS may determine that a municipal bond issued as tax-exempt should in fact be taxable. If the Acquiring Fund held such a bond, it might have to distribute taxable ordinary income dividends or to reclassify as taxable amounts previously distributed as exempt-interest dividends. In addition, future legislation may change the tax treatment of municipal bond interest.
For federal income tax purposes, distributions of ordinary taxable income (including any net short-term capital gain) will be taxable to shareholders as ordinary income (and will not be eligible for favorable taxation as qualified dividend income), and capital gain dividends will be taxed at long-term capital gain rates.
Derivatives Risk, Including the Risk of Swaps. The Acquiring Funds use of derivatives involves risks different from, and possibly greater than, the risks associated with investing directly in the investments underlying the derivatives, including: the imperfect correlation between the value of such instruments and the underlying assets of the Fund, which creates the possibility that the loss on
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such instruments may be greater than the gain in the value of the underlying assets in the Funds portfolio; the loss of principal; the possible default of the other party to the transaction; and illiquidity of the derivative investments. If the Acquiring Fund enters into certain derivatives transactions, it could lose more than the principal amount invested. Whether the Acquiring Funds use of derivatives is successful will depend on, among other things, if the Adviser and/or the Sub-Adviser correctly forecast market values, interest rates and other applicable factors. If the Adviser and/or the Sub-Adviser incorrectly forecast these and other factors, the investment performance of the Acquiring Fund will be unfavorably affected.
The Acquiring Fund may enter into debt-related derivative instruments including credit default swap contracts and interest rate swaps. Like most derivative instruments, the use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. In addition, the use of swaps requires an understanding by the Adviser and/or the Sub-Adviser of not only the referenced asset, rate or index, but also of the swap itself. The derivatives markets are subject to a changing regulatory environment. It is possible that regulatory or other developments in the derivatives markets could adversely affect the Acquiring Funds ability to successfully use derivative instruments.
Furthermore, derivative investments may be illiquid. Although both OTC and exchange-traded derivatives markets may experience a lack of liquidity, OTC non-standardized derivatives transactions are generally less liquid than exchange-traded instruments. The illiquidity of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable supplies, the participation of speculators, government regulation and intervention, and technical and operational or system failures. In addition, the liquidity of a secondary market in an exchange-traded derivative contract may be adversely affected by daily price fluctuation limits established by the exchanges which limit the amount of fluctuation in an exchange-traded contract price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open positions. Prices have in the past moved beyond the daily limit on a number of consecutive trading days. If it is not possible to close an open derivative position entered into by the Acquiring Fund, the Fund would continue to be required to make cash payments of variation (or mark-to-market) margin in the event of adverse price movements. In such a situation, if the Acquiring Fund has insufficient cash, it may have to sell portfolio securities to meet variation margin requirements at a time when it may be disadvantageous to do so. The absence of liquidity may also make it more difficult for the Acquiring Fund to ascertain a market value for such instruments. The inability to close futures or derivatives positions also could have an adverse impact on the Acquiring Funds ability to effectively hedge its portfolio.
Derivatives Regulatory Risk. Future regulatory developments could impact the Acquiring Funds ability to invest in certain derivatives. It is possible that government regulation of various types of derivative instruments, including futures, options and swap agreements, may limit or prevent the Acquiring Fund from using such instruments as a part of its investment strategies, and could ultimately prevent the Fund from being able to achieve its investment objectives. It is impossible to fully predict the effects of past, present or future legislation and regulation in this area, but the effects could be substantial and adverse. There is a likelihood of future regulatory developments altering, perhaps to a material extent, the nature of an investment in the Acquiring Fund or the ability of the Fund to continue to implement its investment strategies. It is possible that legislative and regulatory activity could limit or restrict the ability of the Acquiring Fund to use certain instruments as a part of its investment
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strategies. Limits or restrictions applicable to the counterparties with which the Acquiring Fund engages in derivatives transactions (for example, the Volcker Rule) could also prevent the Fund from using certain instruments.
The Dodd-Frank Act sets forth a regulatory framework for OTC derivatives, including financial instruments, such as swaps, in which the Acquiring Fund may invest. The Dodd-Frank Act grants significant authority to the SEC and the CFTC to regulate OTC derivatives and market participants and requires clearing and exchange trading of many current OTC derivatives transactions. The implementation of the provisions of the Dodd-Frank Act by the SEC and the CFTC could adversely affect the Acquiring Funds ability to pursue its investment strategies. The Dodd-Frank Act and the rules promulgated thereunder could, among other things, adversely affect the value of the investments held by the Acquiring Fund, restrict the Funds ability to engage in derivatives transactions and/or increase the costs of such derivatives transactions.
Further, in February 2012, the CFTC issued a final rule rescinding and amending certain exemptions from registration requirements under the U.S. Commodity Exchange Act of 1936 (the CEA) previously available to investment advisers registered with the SEC under the 1940 Act, including the exemption available under CFTC Rule 4.5. In the event that the Acquiring Funds investments in derivative instruments regulated under the CEA, including futures, swaps and options, exceed a certain threshold, the Adviser and/or the Sub-Adviser may be required to register as a commodity pool operator and/or a commodity trading advisor with the CFTC. In the event the Adviser and/or the Sub-Adviser is required to register with the CFTC, it will become subject to additional recordkeeping and reporting requirements with respect to the Acquiring Fund, which may increase the Funds expenses.
Clearing Broker and Central Clearing Counterparty Risk. The CEA requires swaps and futures clearing brokers registered as futures commission merchants to segregate all funds received from customers with respect to any orders for the purchase or sale of U.S. domestic futures contracts and cleared swaps from the brokers proprietary assets. Similarly, the CEA requires each futures commission merchant to hold in a separate secure account all funds received from customers with respect to any orders for the purchase or sale of foreign futures contracts and segregate any such funds from the funds received with respect to domestic futures contracts. However, all funds and other property received by a clearing broker from its customers are held by the clearing broker on a commingled basis in an omnibus account and may be freely accessed by the clearing broker, which may also invest any such funds in certain instruments permitted under the applicable regulation. There is a risk that assets deposited by the Acquiring Fund with any swaps or futures clearing broker as margin for futures contracts or cleared swaps may, in certain circumstances, be used to satisfy losses of other clients of the Funds clearing broker. In addition, the assets of the Acquiring Fund might not be fully protected in the event of the bankruptcy of the Funds clearing broker because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing brokers combined domestic customer accounts.
Similarly, the CEA requires a clearing organization approved by the CFTC as a derivatives clearing organization to segregate all funds and other property received from a clearing members clients in connection with domestic cleared futures and derivative contracts from any funds held at the clearing organization to support the clearing members proprietary trading. Nevertheless, all customer funds held at a clearing organization in connection with any futures and derivative contracts are held in a commingled omnibus account and are not identified to the name of the clearing members individual
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customers. With respect to futures and options contracts, a clearing organization may use assets of a non-defaulting customer held in an omnibus account at the clearing organization to satisfy payment obligations of a defaulting customer of the clearing member to the clearing organization. As a result, in the event of a default of the clearing brokers other clients or the clearing brokers failure to extend its own funds in connection with any such default, the Acquiring Fund would not be able to recover the full amount of assets deposited by the clearing broker on behalf of the Fund with the clearing organization.
Hedging Risk. The Acquiring Funds use of derivatives or other transactions to reduce risk involves costs and will be subject to the Advisers and/or the Sub-Advisers ability to predict correctly changes in the relationships of such hedge instruments to the Funds portfolio holdings or other factors. No assurance can be given that the Advisers and/or the Sub-Advisers judgment in this respect will be correct, and no assurance can be given that the Acquiring Fund will enter into hedging or other transactions at times or under circumstances in which it may be advisable to do so. Hedging activities may reduce the Acquiring Funds opportunities for gain by offsetting the positive effects of favorable price movements and may result in net losses.
LIBOR Transition Risk. Certain instruments in which the Acquiring Fund may invest rely in some fashion upon the London Interbank Offered Rate (LIBOR). The United Kingdoms Financial Conduct Authority, which regulates LIBOR, has announced plans to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate, and any potential effects of the transition away from LIBOR on the Acquiring Fund or on certain instruments in which the Acquiring Fund invests are not known. The transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that currently rely on LIBOR. The transition may also result in a reduction in the value of certain instruments held by the Acquiring Fund or reduce the effectiveness of related Acquiring Fund transactions such as hedges. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to the Acquiring Fund.
Other Investment Companies Risk. An investment in the securities of another investment company will expose the Acquiring Fund to the risks of investing in the securities held in such other investment companys portfolio. In addition, Acquiring Fund shareholders will bear their proportionate share of the fees and expenses of such other investment company in addition to the fees and expenses of the Fund. The securities of other investment companies may also be leveraged. As a result, the Acquiring Fund may be indirectly exposed to leverage through an investment in such securities. Utilization of leverage is a speculative investment technique and involves certain risks. An investment in securities of other investment companies that are leveraged may expose the Acquiring Fund to higher volatility in the market value of such securities and the possibility that the Funds long-term returns on such securities will be diminished.
Counterparty Risk. Changes in the credit quality of the companies that serve as the Acquiring Funds counterparties with respect to derivatives, insured municipal securities or other transactions supported by another partys credit will affect the value of those instruments. Certain entities that have served as counterparties in the markets for these transactions have incurred or may incur in the future significant financial hardships including bankruptcy and losses as a result of exposure to sub-prime mortgages and other lower-quality credit investments that have experienced recent defaults or otherwise suffered extreme credit deterioration. As a result, such hardships have reduced these entities capital and called into question their continued ability to perform their obligations under such
32
transactions. By using such derivatives or other transactions, the Acquiring Fund assumes the risk that its counterparties could experience similar financial hardships. In the event of the insolvency of a counterparty, the Acquiring Fund may sustain losses or be unable to liquidate a derivatives position.
Illiquid Securities Risk. Illiquid securities are securities that are not readily marketable and may include restricted securities, which are securities that may not be resold unless they have been registered under the Securities Act or that can be sold in a private transaction pursuant to an available exemption from such registration. Illiquid securities involve the risk that the securities will not be able to be sold at the time desired by the Acquiring Fund or at prices approximating the value at which the Fund is carrying the securities on its books from time to time.
Market Disruption Risk. Certain events have a disruptive effect on the securities markets, such as terrorist attacks, war, pandemics and other geopolitical events. The Acquiring 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, meaning 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.
Market Discount to Net Asset Value. The market price of shares of closed-end investment companies may fluctuate and during certain periods trade at prices lower than net asset value. The Acquiring Fund cannot predict whether its common shares will trade at, above or below net asset value. This characteristic is a risk separate and distinct from the risk that the Acquiring Funds net asset value could decrease as a result of investment activities. Investors bear a risk of loss to the extent that the price at which they sell their shares is lower in relation to the Acquiring Funds net asset value than at the time of purchase, assuming a stable net asset value. The common shares are designed primarily for long-term investors, and you should not view the Acquiring Fund as a vehicle for trading purposes.
Cybersecurity Risk. Technology, such as the Internet, has become more prevalent in the course of business, and as such, the Acquiring Fund and its service providers are susceptible to operational and information security risk resulting from cyber incidents. Cyber incidents refer to both intentional attacks and unintentional events including: processing errors, human errors, technical errors including computer glitches and system malfunctions, inadequate or failed internal or external processes, market-wide technical-related disruptions, unauthorized access to digital systems (through hacking or malicious software coding), computer viruses, and cyber-attacks which shut down, disable, slow or otherwise disrupt operations, business processes or website access or functionality (including denial of service attacks). Cyber incidents could adversely impact the Acquiring Fund and cause the Acquiring Fund to incur financial loss and expense, as well as face exposure to regulatory penalties, reputational damage, and additional compliance costs associated with corrective measures. Cyber incidents may cause the Acquiring Fund or its service providers to lose proprietary information, suffer data corruption, lose operational capacity or fail to comply with applicable privacy and other laws. Among other potentially harmful effects, cyber incidents also may result in theft, unauthorized monitoring and failures in the physical infrastructure or operating systems that support the Acquiring Fund and its service providers. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While the Acquiring Funds service providers have established business continuity plans in the event of, and risk management systems to prevent, such cyber incidents, there are inherent limitations in such plans and systems including the possibility that certain risks have not been
33
identified. Furthermore, the Acquiring Fund cannot control the cybersecurity plans and systems put in place by its service providers or any other third parties whose operations may affect the Acquiring Fund.
Certain Affiliations. Certain broker-dealers may be considered to be affiliated persons of the Acquiring Fund, the Adviser, the Sub-Adviser, Nuveen and/or TIAA. Absent an exemption from the SEC or other regulatory relief, the Acquiring Fund generally is 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 Acquiring Funds ability to engage in securities transactions and take advantage of market opportunities.
Anti-Takeover Provisions. The Acquiring Funds organizational documents include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to open-end status.
C. INFORMATION ABOUT THE REORGANIZATION
Each Funds Board has determined that the Reorganization would be in the best interests of the Fund. As a result of the Reorganization, substantially all of the assets of the Target Fund will be exchanged for shares of the Acquiring Fund, and the shareholders of the Target Fund will become shareholders of the Acquiring Fund. Each Funds Board considered the Reorganization as part of an ongoing initiative to streamline Nuveens municipal closed-end fund line-up and eliminate overlapping products.
The Reorganization is intended to benefit Target Fund common shareholders in a number of ways, including, among other things:
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Target Fund shareholders will maintain exposure to state bonds where issuance remains diverse and robust; |
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The potential for higher common share net earnings due in part to operating economies from the combined funds greater scale; |
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Greater secondary market liquidity and improved secondary market trading for common shares as a result of the combined funds greater share volume, which may lead to narrower bid-ask spreads and smaller trade-to-trade price movements; |
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The potential for a narrower trading discount as a result of the Acquiring Funds shares trading at a discount that is historically lower than that of the Target Fund; and |
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Lower net operating expenses, as certain fixed costs are spread over a larger asset base and a lower effective management fee rate for shareholders of the combined fund due to the Acquiring Funds lower fund-level management fee rate. |
Based on information provided by Nuveen Fund Advisors, the Acquiring Funds Board considered that the Acquiring Fund may benefit in the near term from a modest increase in operating efficiencies and may also experience modest secondary market benefits due to increased scale.
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The closing of the Reorganization is subject to the satisfaction or waiver of certain closing conditions, which include customary closing conditions. In order for the Reorganization to occur, all requisite shareholder approvals must be obtained. Because the closing of the Reorganization is contingent upon each Fund obtaining such shareholder approvals and satisfying (or obtaining the waiver of) other closing conditions, it is possible that the Reorganization will not occur, even if shareholders of your Fund entitled to vote approve the Reorganization proposal and your Fund satisfies all of its closing conditions, if the other Fund does not obtain its requisite shareholder approvals or satisfy (or obtain the waiver of) its closing conditions. If the Reorganization is not consummated, each Funds Board may take such actions as it deems in the best interests of its Fund, including conducting additional solicitations with respect to the proposal or, with respect to the Target Funds Board, continuing to operate the Target Fund as a stand-alone fund.
General. The Agreement and Plan of Reorganization by and between the Acquiring Fund and the Target Fund (the Reorganization Agreement), in the form attached as Appendix A to this Joint Proxy Statement/Prospectus, provides for: (1) the Acquiring Funds acquisition of substantially all of the assets of the Target Fund in exchange for newly issued common shares of the Acquiring Fund, par value $0.01 per share, and the Acquiring Funds assumption of substantially all of the liabilities of the Target Fund; and (2) the pro rata distribution of the newly issued Acquiring Fund common shares received by the Target Fund to its common shareholders as part of the liquidation, dissolution and termination of the Target Fund in accordance with applicable law. No fractional Acquiring Fund common shares will be distributed to the Target Funds common shareholders in connection with the Reorganization and, in lieu of such fractional shares, the Target Funds common shareholders entitled to receive a fractional share will receive cash in an amount equal to a pro-rata share of the proceeds from the sale by the Acquiring Funds transfer agent of the aggregated fractional shares in the open market (as described further below), which may be higher or lower than net asset value. As a result of the Reorganization, the assets of the Acquiring Fund and the Target Fund would be combined, and the shareholders of the Target Fund would become shareholders of the Acquiring Fund.
The closing date is expected to be on or about January 11, 2021, or such other date as the parties may agree (the Closing Date). Following the Reorganization, the Target Fund would terminate its registration as an investment company under the 1940 Act. The Acquiring Fund will continue to operate after the Reorganization as a registered closed-end management investment company, with the investment objectives and policies described in this Joint Proxy Statement/Prospectus.
The aggregate net asset value, as of the Valuation Time (as defined below), of the Acquiring Fund common shares received by the Target Fund in connection with the Reorganization will equal the aggregate net asset value of the Target Fund common shares held by shareholders of the Target Fund as of the Valuation Time. See Description of Common Shares to Be Issued by the Acquiring Fund; Comparison to Target Fund for a description of the rights of Acquiring Fund common shareholders. However, no fractional Acquiring Fund common shares will be distributed to the Target Funds common shareholders in connection with the Reorganization. The Acquiring Funds transfer agent will aggregate all fractional Acquiring Fund common shares that may be due to Target Fund shareholders as of the closing and will sell the resulting whole shares for the account of holders of all such fractional interests at a value that may be higher or lower than net asset value, and each such holder will be entitled to a pro rata share of the proceeds from such sale. With respect to the aggregation and sale of fractional common
35
shares, the Acquiring Funds transfer agent will act directly on behalf of the shareholders entitled to receive fractional shares and will accumulate fractional shares, sell the shares and distribute the cash proceeds net of brokerage commissions, if any, directly to shareholders entitled to receive the fractional shares (without interest and subject to withholding taxes). For federal income tax purposes, shareholders will be treated as if they received fractional share interests and then sold such interests for cash. The holding period and the aggregate tax basis of the Acquiring Fund shares received by a shareholder, including fractional share interests deemed received by a shareholder, will be the same as the holding period and aggregate tax basis of the Target Fund common shares previously held by the shareholder and exchanged therefor, provided the Target Fund shares exchanged therefor were held as capital assets at the effective time of the Reorganization. As a result of the Reorganization, common shareholders of the Funds will hold a smaller percentage of the outstanding common shares of the combined fund as compared to their percentage holdings of their respective Fund prior to the Reorganization and thus, common shareholders will hold reduced percentages of ownership in the larger combined entity than they held in the Acquiring Fund or Target Fund individually.
Valuation of Assets and Liabilities. If the Reorganization is approved and the other closing conditions are satisfied or waived, the value of the net assets of the Target Fund will be the value of its assets, less its liabilities, computed as of the close of regular trading on the NYSE on the business day immediately prior to the Closing Date (such time and date being hereinafter called the Valuation Time). The value of the Target Funds assets will be determined by using the valuation procedures of the Nuveen closed-end funds adopted by the Board or such other valuation procedures as will be mutually agreed upon by the parties.
Distributions. Undistributed net investment income represents net earnings from a Funds investment portfolio that over time have not been distributed to shareholders. Under the terms of the Reorganization Agreement, if the Target Fund has undistributed net investment income or undistributed net capital gains, the Target Fund is required to declare a distribution, which, together with all previous dividends, has the effect of distributing to its shareholders all undistributed net investment income and undistributed realized net capital gains (after reduction by any available capital loss carryforwards and excluding any net capital gain on which the Target Fund paid federal income tax) for all taxable periods ending on or before the Closing Date. The Acquiring Fund is not subject to a similar distribution requirement; however, the Acquiring Fund may declare a distribution prior to the closing, which would result in the distribution of a portion of its undistributed net investment income to its shareholders. Consequently, Target Fund shareholders effectively will purchase a pro rata portion of the Acquiring Funds remaining undistributed net investment income and undistributed realized net capital gains, if any, which may be more or less than the Target Funds undistributed net investment income and undistributed realized net capital gains immediately preceding the distributions described above, if any. As a result, the Acquiring Funds existing shareholders will experience a corresponding reduction in their respective portion of undistributed net investment income and undistributed realized net capital gains per share, if any, such that the Acquiring Funds undistributed net investment income and undistributed realized net capital gains per share immediately following the Reorganization is expected to be less than the Acquiring Funds undistributed net investment income and undistributed realized net capital gains per share immediately preceding the Reorganization.
Amendments. Under the terms of the Reorganization Agreement, the Reorganization Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by each Fund as specifically authorized by each Funds Board; provided, however, that
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following the receipt of shareholder approval of the Reorganization Agreement, no such amendment, modification or supplement may have the effect of changing the provisions for determining the number of Acquiring Fund shares to be issued to the Target Funds shareholders under the Reorganization Agreement to the detriment of such shareholders without their further approval.
Conditions. Under the terms of the Reorganization Agreement, the closing of the Reorganization is subject to the satisfaction or waiver (if permissible) of the following closing conditions: (1) the requisite approval by the shareholders of each Fund, as applicable, of the proposal with respect to the Reorganization in this Joint Proxy Statement/Prospectus, (2) each Funds receipt of an opinion substantially to the effect that the Reorganization will qualify as a reorganization under the Code (see Material Federal Income Tax Consequences of the Reorganization), (3) the absence of legal proceedings challenging the Reorganization, and (4) the Funds receipt of certain customary certificates and legal opinions.
Termination. The Reorganization Agreement may be terminated by the mutual agreement of the parties and such termination may be effected by each Funds Chief Administrative Officer or a Vice President without further action by the Board. In addition, either Fund may at its option terminate the Reorganization Agreement at or before the closing due to: (1) a breach by any other party of any representation, warranty or agreement contained therein to be performed at or before the closing, if not cured within 30 days of the breach and prior to the closing; (2) a condition precedent to the obligations of the terminating party that has not been met and it reasonably appears it will not or cannot be met; or (3) a determination by its Board that the consummation of the transactions contemplated by the Reorganization Agreement is not in the best interests of the Fund.
Reasons for the Reorganization
Based on the considerations described below, the Board of Trustees of the Target Fund (the Target Board), all of whom are not interested persons, as defined in the 1940 Act, and the Board of Directors of the Acquiring Fund (the Acquiring Board), all of whom are not interested persons, as defined in the 1940 Act, have determined that the Reorganization would be in the best interests of the applicable Fund and that the interests of the existing shareholders of such Fund would not be diluted as a result of the Reorganization. At a meeting held on August 4-6, 2020 (the Meeting), each Board approved the Reorganization and recommended that shareholders of the applicable Fund approve the Reorganization.
At and prior to the Meeting, including at previous meetings, the Adviser made presentations and provided the Boards with information relating to the proposed Reorganization and alternatives to the proposed Reorganization. Prior to approving the Reorganization, each Board reviewed the foregoing information with its independent legal counsel and with management, reviewed with independent legal counsel applicable law and its duties in considering such matters and met with independent legal counsel in private sessions without management present. Based on the foregoing, the Boards considered the following factors (as applicable), among others, in approving the Reorganization and recommending that shareholders of the Funds approve the Reorganization:
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the compatibility of the Funds investment objectives, policies and related risks; |
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the consistency of portfolio management; |
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the larger asset base of the combined fund as a result of the Reorganization and the effect of the Reorganization on fees and expense ratios; |
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the potential for improved secondary market trading with respect to common shares; |
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the anticipated federal income tax-free nature of the Reorganization; |
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the expected costs of the Reorganization; |
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the terms of the Reorganization and whether the Reorganization would dilute the interests of the shareholders of the Funds; |
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the effect of the Reorganization on shareholder rights; |
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alternatives to the Reorganization; and |
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any potential benefits of the Reorganization to the Adviser and its affiliates as a result of the Reorganization. |
Compatibility of Investment Objectives, Policies and Related Risks. Based on the information presented, the Boards noted that the investment objectives, policies and risks of the Funds are substantially similar (although not identical). Each Fund invests primarily in investment grade municipal securities exempt from regular federal, New York State and New York City income taxes. The Boards considered that the portfolio compositions of the Funds are substantially similar and considered the impact of the Reorganization on each Funds portfolio, including any shifts in credit quality and yield. The Target Board noted that the Target Fund was launched in 2009 in order to take advantage of investment opportunities presented by the financial crisis of 2008, but that it had been unable to achieve sufficient scale. Through the Reorganization, however, Target Fund shareholders would be able to maintain exposure to state bonds where issuance remains diverse and robust. The Target Board also noted the potential for higher common share net earnings due to, among other things, operating economies from the combined funds greater scale. In addition, with respect to the Acquiring Fund, the Acquiring Board considered that based on information provided by the Adviser, the Acquiring Fund may benefit in the near term from a modest increase in operating efficiencies. With respect to principal investment risks, because the Funds have substantially similar investment strategies, the principal investment risks of each Fund are also substantially similar.
Consistency of Portfolio Management. Each Fund has the same investment adviser, sub-adviser, and portfolio manager. Through the Reorganization, the Boards recognized that shareholders will remain invested in a closed-end management investment company that will have greater net assets and the same investment adviser, sub-adviser and portfolio manager.
Larger Asset Base of the Combined Fund; Effect of the Reorganization on Fees and Expense Ratios. The Boards considered the fees and expense ratios of each of the Funds (including estimated expenses of the combined fund following the Reorganization). It is anticipated that the Funds will benefit from the larger asset size as fixed costs are shared over a larger asset base. In this regard, the Target Board noted that it was expected that, with respect to common shares, the effective management fee rate and net operating expenses of the combined fund would be lower than those of the Target Fund prior to the closing of the Reorganization. In addition, the Acquiring Board noted that, with respect to
38
common shares, the net operating expenses of the combined fund were expected to be modestly lower than those of the Acquiring Fund prior to the closing of the Reorganization.
Potential for Improved Secondary Market Trading. While it is not possible to predict trading levels following the Reorganization, the Target Board noted that the Reorganization is being proposed, in part, to seek to enhance the secondary trading market for the common shares with respect to the Target Fund. The Target Board considered that, relative to the Target Fund, the combined funds greater share volume may result in greater secondary market liquidity and improved secondary market trading for common shares after the Reorganization, which may lead to narrower bid-ask spreads and smaller trade-to-trade price movements. In addition, based on information provided by the Adviser, the Target Board considered the potential for a narrower trading discount, relative to the Target Fund, as a result of the Acquiring Funds shares trading at a discount that has been historically lower than that of the Target Fund; however, the Target Board recognized that the past trading record of the shares of the Acquiring Fund may not necessarily be indicative of how the shares of the combined fund will trade in the future and there is no guarantee that the shares of the combined fund would have a narrower trading discount than that of the Target Fund. Further, with respect to the Acquiring Fund, the Acquiring Board noted that such Fund may experience modest secondary market benefits due to increased scale.
Anticipated Tax-Free Reorganization; Capital Loss Carryforwards. The Reorganization will be structured with the intention that it qualifies as a tax-free reorganization for federal income tax purposes, and the Funds will obtain opinions of counsel substantially to this effect (based on certain factual representations and certain customary assumptions and exclusions). In addition, the Boards considered the impact of the Reorganization on any estimated capital loss carryforwards of the Funds and applicable limitations of federal income tax rules.
Expected Costs of the Reorganization. The Boards considered the terms and conditions of the Reorganization, including the estimated costs associated with the Reorganization and the allocation of such costs between the Funds.
Terms of the Reorganization and Impact on Shareholders. The terms of the Reorganization are intended to avoid dilution of the interests of the existing shareholders of the Funds. In this regard, the Target Board considered that each holder of common shares of the Target Fund will receive common shares of the Acquiring Fund (taking into account any fractional shares to which the shareholder would be entitled) equal in value as of the Valuation Time to the aggregate per share net asset value of that shareholders Target Fund common shares held as of the Valuation Time. However, no fractional common shares of the Acquiring Fund will be distributed to the Target Funds common shareholders in connection with the Reorganization. In lieu of such fractional shares, the Target Funds common shareholders will receive cash.
In conjunction with the issuance of additional shares of the Acquiring Fund as described above, the Acquiring Board considered that the Acquiring Fund would receive additional assets and liabilities as a result of the Reorganization.
Effect on Shareholder Rights. The Boards considered that the Acquiring Fund is organized as a Minnesota corporation and the Target Fund is organized as a Massachusetts business trust. In this regard, the Boards noted that, unlike a Massachusetts business trust, many aspects of the corporate governance of a Minnesota corporation are prescribed by state statutory law. Notwithstanding the foregoing, at the Meeting, the Acquiring Board approved the proposed Domicile Change for the
39
Acquiring Fund. If the Domicile Change is approved by shareholders of the Acquiring Fund, it is expected to occur before the Reorganization. Accordingly, shareholders of the combined fund would be shareholders of a Massachusetts business trust. The Reorganization, however, is not contingent upon the approval by Acquiring Fund shareholders of the Domicile Change.
Alternatives. The Target Board considered various alternatives to the Reorganization, including liquidating the Target Fund and merging the Target Fund into an open-end fund. In considering liquidation, the Target Board took into account, among other things, that such alternative would be a taxable event and could be potentially disruptive to long-term shareholders. In evaluating the Reorganization, the Target Board considered, among other things, the Advisers view that combining the Target Fund with a larger closed-end fund that provides exposure to municipal securities of the same state was an attractive alternative in light of certain potential benefits to Target Fund shareholders, as outlined above.
Potential Benefits to Nuveen Fund Advisors and Affiliates. The Boards recognized that the Reorganization may result in some benefits and economies of scale for the Adviser and its affiliates. These may include, for example, a reduction in the level of operational expenses incurred for administrative, compliance and portfolio management services as a result of the elimination of the Target Fund as a separate fund in the Nuveen complex.
Conclusion. Each Board approved the Reorganization, concluding that the Reorganization is in the best interests of its Fund and that the interests of existing shareholders of its Fund will not be diluted as a result of the Reorganization.
The following table sets forth the unaudited capitalization of the Funds as of February 29, 2020. The table reflects pro forma exchange ratios of approximately 1.54071686 common shares of the Acquiring Fund issued for each common share of the Target Fund. If the Reorganization is consummated, the actual exchange ratios may vary.
Target Fund | Acquiring Fund |
Pro Forma
Adjustments |
Nuveen New
York Municipal Value Fund, Inc. Pro Forma(1) |
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Common Shareholders Equity: |
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Common Shares, $0.01 par value per share; 2,349,612 shares outstanding for the Target Fund, 15,231,290 shares outstanding for the Acquiring Fund, and 18,851,376 for the Nuveen New York Municipal Value Fund, Inc. Pro Forma |
$ | 23,496 | $ | 152,313 | $ | 12,705 | (2) | $ | 188,514 | |||||||
Paid-in surplus |
33,599,476 | 145,386,454 | (457,705 | )(3) | 178,528,225 | |||||||||||
Total distributable earnings |
4,706,097 | 13,713,205 | (65,050 | )(4) | 18,354,252 | |||||||||||
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Net assets applicable to common shares |
$ | 38,329,069 | $ | 159,251,972 | $ | (510,050 | ) | $ | 197,070,991 | |||||||
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Net asset value per common share outstanding (net assets applicable to common shares, divided by common shares outstanding) |
$ | 16.31 | $ | 10.46 | $ | 10.45 | ||||||||||
Authorized shares: |
Unlimited | 250,000,000 | 250,000,000 |
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(1) |
The pro forma balances are presented as if the Reorganization were effective as of February 29, 2020, and are presented for informational purposes only. The actual Closing Date of the Reorganization is expected to be on or about January 11, 2021, or such other date as the parties may agree at which time the results would be reflective of the actual composition of shareholders equity as of that date. All pro forma adjustments are directly attributable to the Reorganization. If the Domicile Change is consummated, the Acquiring Fund will have an unlimited number of authorized shares. |
(2) |
Assumes the issuance of 3,620,086 Acquiring Fund common shares in exchange for the net assets of the Target Fund. These numbers are based on the net asset value of the Acquiring Fund and Target Fund as of February 29, 2020, adjusted for estimated Reorganization costs and the effect of distributions, where applicable. |
(3) |
Includes the impact of estimated total Reorganization costs of $445,000, which are currently expected to be allocated between the Target Fund and the Acquiring Fund in the amounts of $420,000 and $25,000, respectively. |
(4) |
Assumes that the Target Fund will make accumulated net realized gain distributions of $65,050 to its shareholders prior to the Reorganization. |
Expenses Associated with the Reorganization
The Funds and indirectly their common shareholders will bear the cost of the Reorganization, whether or not the Reorganization is consummated. The allocation of the costs of the Reorganization to the Funds is based on the projected relative benefits of the Reorganization, based on forecasted increases to net earnings, if any, to Fund shareholders following the Reorganization. The costs of the Reorganization are estimated to be $445,000. These costs represent the estimated nonrecurring expenses of the Funds in carrying out their obligations under the Reorganization Agreement and consist of managements estimate of professional service fees, printing costs and mailing charges related to the proposed Reorganization. Based on the projected relative benefits to each Fund, the Target Fund is expected to be allocated approximately $420,000 and the Acquiring Fund is expected to be allocated approximately $25,000 of expenses in connection with the Reorganization. If the Reorganization is not consummated for any reason, including because the requisite shareholder approvals are not obtained, the Funds and indirectly their common shareholders, will still bear the costs of the Reorganization.
The Funds have engaged Computershare Fund Services to assist in the solicitation of proxies at an estimated aggregate cost of $7,500 per Fund plus reasonable expenses, which is included in the foregoing estimate.
Dissenting Shareholders Rights of Appraisal
Under the charter documents of the Funds, shareholders do not have dissenters rights of appraisal with respect to the Reorganization.
Material Federal Income Tax Consequences of the Reorganization
As a non-waivable condition to each Funds obligation to consummate the Reorganization, each Fund will receive a tax opinion from Vedder Price P.C. (which opinion will be based on certain factual representations and certain customary assumptions and exclusions) with respect to the Reorganization substantially to the effect that, on the basis of the existing provisions of the Code, current administrative rules and court decisions, for federal income tax purposes:
1. |
The transfer by the Target Fund of substantially all its assets to the Acquiring Fund solely in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of substantially all the liabilities of the Target Fund, immediately followed by the pro rata distribution of all the Acquiring Fund shares so received by the Target Fund to the Target Funds shareholders of record in complete liquidation of the Target Fund and |
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the dissolution of the Target Fund as soon as practicable thereafter, will constitute a reorganization within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the Target Fund will each be a party to a reorganization, within the meaning of Section 368(b) of the Code, with respect to the Reorganization. |
2. |
No gain or loss will be recognized by the Acquiring Fund upon the receipt of substantially all the Target Funds assets solely in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of substantially all the liabilities of the Target Fund. |
3. |
No gain or loss will be recognized by the Target Fund upon the transfer of substantially all its assets to the Acquiring Fund solely in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of substantially all the liabilities of the Target Fund or upon the distribution (whether actual or constructive) of such Acquiring Fund shares to the Target Funds shareholders solely in exchange for such shareholders shares of the Target Fund in complete liquidation of the Target Fund. |
4. |
No gain or loss will be recognized by the Target Funds shareholders upon the exchange, pursuant to the Reorganization, of all their shares of the Target Fund solely for Acquiring Fund shares, except to the extent the Target Funds common shareholders receive cash in lieu of a fractional Acquiring Fund common share. |
5. |
The aggregate basis of the Acquiring Fund shares received by each Target Fund shareholder pursuant to the Reorganization (including any fractional Acquiring Fund common share to which a shareholder would be entitled) will be the same as the aggregate basis of the Target Fund shares exchanged therefor by such shareholder. |
6. |
The holding period of the Acquiring Fund shares received by a Target Fund shareholder in the Reorganization (including any fractional Acquiring Fund common share to which a shareholder would be entitled) will include the period during which the shares of the Target Fund exchanged therefor were held by such shareholder, provided such Target Fund shares are held as capital assets at the effective time of the Reorganization. |
7. |
The basis of the assets of the Target Fund received by the Acquiring Fund will be the same as the basis of such assets in the hands of the Target Fund immediately before the effective time of the Reorganization. |
8. |
The holding period of the assets of the Target Fund received by the Acquiring Fund will include the period during which those assets were held by the Target Fund. |
No opinion will be expressed as to (1) the effect of the Reorganization on the Target Fund, the Acquiring Fund or any Target Fund shareholder with respect to any asset (including, without limitation, any stock held in a passive foreign investment company as defined in Section 1297(a) of the Code) as to which any gain or loss is required to be recognized under federal income tax principles (a) at the end of a taxable year (or on the termination thereof) or (b) upon the transfer of such asset regardless of whether such transfer would otherwise be a non-taxable transaction under the Code, or (2) any other federal tax issues (except those set forth above) and all state, local or non-U.S. tax issues of any kind.
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Such opinion will be based on certain factual representations and customary assumptions. The opinion will rely on such representations and will assume the accuracy of such representations. If such representations and assumptions are incorrect, the Reorganization may not qualify as a tax-free reorganization for federal income tax purposes, and the Target Fund and Target Fund shareholders may recognize taxable gain or loss as a result of the Reorganization.
Opinions of counsel are not binding upon the IRS or the courts. If the Reorganization occurs but the IRS or the courts determine that the Reorganization does not qualify as a tax-free reorganization under the Code, and thus is taxable, the Target Fund would recognize gain or loss on the transfer of its assets to the Acquiring Fund and each shareholder of the Target Fund would recognize taxable gain or loss equal to the difference between its basis in its Target Fund shares and the fair market value of the shares of the Acquiring Fund it receives.
If a Target Fund common shareholder receives cash in lieu of a fractional Acquiring Fund share, the shareholder will be treated as having received the fractional Acquiring Fund share pursuant to the Reorganization and then as having sold that fractional Acquiring Fund share for cash. As a result, the Target Fund common shareholder generally will recognize gain or loss equal to the difference between the amount of cash received and the basis in the fractional Acquiring Fund share to which the shareholder is entitled. This gain or loss generally will be a capital gain or loss and generally will be long-term capital gain or loss if, as of the effective time of the Reorganization, the holding period for the shares (including the holding period of Target Fund shares surrendered therefor if the Target Fund shares were held as capital assets at the time of the Reorganization) is more than one year. The deductibility of capital losses is subject to limitations. Any cash received in lieu of a fractional share may be subject to backup withholding taxes.
Prior to the Valuation Time, the Target Fund will declare a distribution to its common shareholders, which, together with all other distributions to common shareholders made with respect to the taxable year in which the Reorganization occurs and all prior taxable years, will have the effect of distributing to shareholders all its net investment income and realized net capital gains (after reduction by any available capital loss carryforwards and excluding any net capital gain on which the Target Fund paid federal income tax), if any, through the Closing Date of the Reorganization. To the extent distributions are attributable to ordinary taxable income or capital gains, the distribution will be taxable to shareholders for federal income tax purposes. Additional distributions may be made if necessary. All dividends and distributions will be paid in cash unless a shareholder has made an election to reinvest dividends and distributions in additional shares under the Target Funds dividend reinvestment plan. Taxable dividends and distributions are subject to federal income tax whether received in cash or additional shares.
After the Reorganization, the combined funds ability to use the Target Funds or the Acquiring Funds realized and unrealized pre-Reorganization capital losses may be limited under certain federal income tax rules applicable to reorganizations of this type. Therefore, in certain circumstances, shareholders may pay federal income taxes sooner, or pay more federal income taxes, than they would have had the Reorganization not occurred. However, the effect of these potential limitations will depend on a number of factors including the amount of the losses, the amount of gains to be offset, the exact timing of the Reorganization and the amount of unrealized capital gains in the Funds at the time of the Reorganization.
As of February 29, 2020, the Funds had unused capital loss carryforwards available for federal income tax purposes to be applied against future capital gains, if any, per the table below.
Acquiring Fund | Target Fund | |||||||
Capital losses to be carried forward not subject to expiration |
$ | 1,070,031 | $ | |
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In addition, the shareholders of the Target Fund will receive a proportionate share of any taxable income and gains realized by the Acquiring Fund and not distributed to its shareholders prior to the closing of the Reorganization when such income and gains are eventually distributed by the Acquiring Fund. To the extent the Acquiring Fund sells portfolio investments after the Reorganization, the Acquiring Fund may recognize gains or losses, which also may result in taxable distributions to shareholders holding shares of the Acquiring Fund (including former Target Fund shareholders who hold shares of the Acquiring Fund following the Reorganization). As a result, shareholders of the Target Fund and the Acquiring Fund may receive a greater amount of taxable distributions than they would have had the Reorganization not occurred.
The foregoing is intended to be only a summary of the principal federal income tax consequences of the Reorganization and should not be considered to be tax advice. This description of the federal income tax consequences of the Reorganization is made without regard to the particular facts and circumstances of any shareholder. There can be no assurance that the IRS will concur on all or any of the issues discussed above. Shareholders are urged to consult their own tax advisers as to the specific consequences to them of the Reorganization, including, without limitation, the federal, state, local, and non-U.S. tax consequences with respect to the foregoing matters and any other considerations that may be applicable to them.
The Reorganization is required to be approved by the affirmative vote of the holders of a majority (more than 50%) of the Target Funds outstanding common shares entitled to vote on the matter. The Reorganization also is required to be approved by the affirmative vote of the holders of a majority (more than 50%) of the outstanding shares of the Acquiring Funds common stock entitled to vote on the matter.
Abstentions and broker non-votes, if any, will not be voted but will have the same effect as a vote against the approval of the Reorganization. Broker non-votes are shares held by brokers or nominees, typically in street name, as to which (1) instructions have not been received from the beneficial owners or persons entitled to vote and (2) the broker or nominee does not have discretionary voting power on a particular matter. Because the matters being presented at the Special Meetings are both non-routine matters for which a broker or nominee does not have discretionary voting power under NYSE rules, there are unlikely to be any broker non-votes at the Special Meetings.
The closing of the Reorganization is subject to the satisfaction or waiver of certain closing conditions, which include customary closing conditions. In order for the Reorganization to occur, all requisite shareholder approvals must be obtained at the Special Meetings. Because the closing of the Reorganization is contingent upon each of the Target Fund and the Acquiring Fund obtaining such shareholder approvals and satisfying (or obtaining the waiver of) other closing conditions, it is possible that the Reorganization will not occur, even if shareholders of your Fund entitled to vote on the Reorganization proposal approve such proposal and your Fund satisfies all of its closing conditions, if the other Fund does not obtain its requisite shareholder approval or satisfy (or obtain the waiver of) its closing conditions. If the Reorganization is not consummated, each Funds Board may take such actions as it deems in the best interests of its Fund including conducting additional solicitations with respect to the proposal or, with respect to the Target Funds Board, continuing to operate as a stand-alone fund.
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Description of Common Shares to Be Issued by the Acquiring Fund; Comparison to Target Fund
General
As a general matter, the common shares of the Acquiring Fund and the Target Fund have equal voting rights and equal rights with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of their Fund and have no preemptive, conversion or exchange rights, except as the Trustees may authorize, or rights to cumulative voting. Holders of whole common shares of each Fund are entitled to one vote per share on any matter on which the shares are entitled to vote, while each fractional share entitles its holder to a proportional fractional vote. Furthermore, the provisions set forth in the Acquiring Funds articles of incorporation are substantially similar to the provisions of the Target Funds declaration of trust and each contain, among other things, similar anti-takeover provisions requiring a super-majority vote, as described under Additional Information about the Acquiring FundCertain Provisions in the Acquiring Funds Articles of Incorporation. However, the by-laws of the Target Fund also contain anti-takeover provisions that have not been adopted by the Acquiring Fund. Similarly, if shareholders of the Acquiring Fund approve the Domicile Change proposal, the Acquiring Fund will have a declaration of trust and by-laws after the Domicile Change that will contain substantially the same provisions as the Target Funds declaration of trust and by-laws. The full text of the Acquiring Funds articles of incorporation and the Target Funds declaration of trust and by-laws are on file with the SEC and may be obtained as described on page iv.
The Acquiring Funds articles of incorporation authorize 250,000,000 common shares, par value $0.01 per share. If the Reorganization is consummated, the Acquiring Fund will issue additional common shares on the Closing Date to the Target Fund based on the relative per share net asset value of the Acquiring Fund and the aggregate net assets of the Target Fund that are transferred in connection with the Reorganization, in each case as of the Valuation Time. If the Domicile Change takes place, the Acquiring Funds declaration of trust will authorize an unlimited number of common shares.
The terms of the Acquiring Fund common shares to be issued pursuant to the Reorganization will be identical to the terms of the Acquiring Fund common shares that are then outstanding. Acquiring Fund common shares have equal rights with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund. The Acquiring Fund common shares, when issued, will be fully paid and non-assessable and have no preemptive, conversion or exchange rights or rights to cumulative voting. See also Comparison of Massachusetts Business Trusts and Minnesota Corporations.
Distributions
As a general matter, each Fund has a monthly distribution policy and each Fund seeks to maintain a stable level of distributions. Each Funds current policy, which may be changed by its Board, is to make regular monthly cash distributions to holders of its common shares at a level rate (stated in terms of a fixed cents per common share dividend rate) that reflects the past and projected performance of the Fund.
The Acquiring Funds ability to maintain a level dividend rate will depend on a number of factors. The net income of the Acquiring Fund generally consists of all interest income accrued on portfolio assets less all expenses of the Fund. Expenses of the Acquiring Fund are accrued each day. Over time, all the net investment income of the Acquiring Fund will be distributed. At least annually, the Acquiring Fund also intends to effectively distribute net capital gains and ordinary taxable income, if any.
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Although it does not now intend to do so, the Board may change the Acquiring Funds dividend policy and the amount or timing of the distributions based on a number of factors, including the amount of the Funds undistributed net investment income and historical and projected investment income.
As explained more fully below, at least annually, the Acquiring Fund may elect to retain rather than distribute all or a portion of any net capital gains (which are the excess of net long-term capital gains over net short-term capital losses) otherwise allocable to shareholders and pay federal income tax on the retained gain. As provided under federal income tax law, shareholders will include their share of the retained net capital gains in their income for the year as a long-term capital gain (regardless of their holding period in the shares) and will be entitled to a federal income tax credit or refund for the federal income tax deemed paid on their behalf by the Acquiring Fund. See Additional Information About the Acquiring FundFederal Income Tax Matters Associated with Investment in the Acquiring Fund below and Federal Income Tax Matters in the Reorganization SAI.
Dividend Reinvestment Plan
Generally, the terms of the dividend reinvestment plan (the Plan) for the Acquiring Fund and the Target Fund are identical; however, under the Acquiring Funds Plan, you may elect to have all dividends, including any capital gain distributions, on your common shares automatically reinvested by Computershare Trust Company, N.A. (the Plan Agent) in additional common shares under the Plan, whereas under the Target Funds Plan participation in the Plan is automatic unless otherwise requested. You may elect to participate in the Plan by contacting Nuveen Investor Services at (800) 257-8787. If you do not participate, you will receive all distributions in cash paid by check mailed directly to you or your brokerage firm by Computershare Inc. and the Plan Agent.
If you decide to participate in the Plan of the Acquiring Fund, the number of common shares you will receive will be determined as follows:
(1) If common shares are trading at or above net asset value, at the then-current market price; or
(2) If common shares are trading below net asset value at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase common shares in the open market, on the NYSE or elsewhere, for the participants accounts. It is possible that the market price for the common shares may increase before the Plan Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in common shares issued by the Acquiring Fund. The Plan Agent will use all dividends and distributions received in cash to purchase common shares in the open market within 30 days of the valuation date. Interest will not be paid on any uninvested cash payments; or
(3) If the Plan Agent begins purchasing Acquiring Fund shares on the open market while shares are trading below net asset value, but the Funds shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Acquiring Fund shares at a price equal to the greater of the shares net asset value or 95% of the shares market value.
You may withdraw from the Plan at any time by giving written notice to the Plan Agent. If you withdraw or the Plan is terminated, you will receive a cash payment for any fraction of a share in your account. If you wish, the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions and a $2.50 service fee.
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The Plan Agent maintains all shareholders accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Upon a sale of your shares, the Acquiring Fund (or its administrative agent) may be required to report to the IRS and furnish to you cost basis and holding period information for the Acquiring Funds shares purchased on or after January 1, 2012 (covered shares).
For shares of the Acquiring Fund held in the Plan, you are permitted to elect from among several permitted cost basis methods. In the absence of an election, the Plan will use first-in first-out methodology for tracking and reporting your cost basis on covered shares as its default cost basis method. The cost basis method you use may not be changed with respect to a sale of shares after the settlement date of the sale. You should consult with your tax advisors to determine the best permitted cost basis method for your tax situation and to obtain more information about how the cost basis reporting rules apply to you.
Common shares in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all common shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions in common shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due on such dividends and distributions.
If you hold your common shares with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above. Consult your financial advisor for more information.
The Fund reserves the right to amend or terminate the Plan if in the judgment of the Board the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained by writing to Computershare, P.O. Box 505000, Louisville, Kentucky 40233-5000, or by calling (800) 257-8787.
Common Share Price Data
The following tables show for the periods indicated: (1) the high and low sales prices for common shares reported as of the end of the day on the NYSE, (2) the high and low net asset values of the common shares, and (3) the high and low of the premium/(discount) to net asset value (expressed as a percentage) of the common shares.
Acquiring Fund | ||||||||||||||||||||||||
Market Price | Net Asset Value | Premium/(Discount) | ||||||||||||||||||||||
Fiscal Quarter Ended |
High | Low | High | Low | High | Low | ||||||||||||||||||
August 2020 |
$ | 10.52 | $ | 9.43 | $ | 10.19 | $ | 9.91 | 4.47 | % | (5.70 | )% | ||||||||||||
May 2020 |
$ | 10.50 | $ | 8.58 | $ | 10.46 | $ | 9.23 | 0.67 | % | (10.09 | )% | ||||||||||||
February 2020 |
$ | 10.75 | $ | 10.13 | $ | 10.46 | $ | 10.16 | 3.68 | % | (0.96 | )% | ||||||||||||
November 2019 |
$ | 10.55 | $ | 10.07 | $ | 10.31 | $ | 10.12 | 4.05 | % | (0.98 | )% | ||||||||||||
August 2019 |
$ | 10.43 | $ | 9.88 | $ | 10.31 | $ | 10.09 | 1.57 | % | (2.18 | )% | ||||||||||||
May 2019 |
$ | 10.16 | $ | 9.66 | $ | 10.11 | $ | 9.87 | 1.80 | % | (2.42 | )% |
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Acquiring Fund | ||||||||||||||||||||||||
Market Price | Net Asset Value | Premium/(Discount) | ||||||||||||||||||||||
Fiscal Quarter Ended |
High | Low | High | Low | High | Low | ||||||||||||||||||
February 2019 |
$ | 9.80 | $ | 9.21 | $ | 9.88 | $ | 9.74 | (0.20 | )% | (5.58 | )% | ||||||||||||
November 2018 |
$ | 9.50 | $ | 8.94 | $ | 9.87 | $ | 9.66 | (3.06 | )% | (7.93 | )% | ||||||||||||
August 2018 |
$ | 9.36 | $ | 9.11 | $ | 9.89 | $ | 9.81 | (4.98 | )% | (7.30 | )% | ||||||||||||
May 2018 |
$ | 9.35 | $ | 9.08 | $ | 9.85 | $ | 9.73 | (4.50 | )% | (7.16 | )% |
Target Fund | ||||||||||||||||||||||||
Market Price | Net Asset Value | Premium/(Discount) | ||||||||||||||||||||||
Fiscal Quarter Ended |
High | Low | High | Low | High | Low | ||||||||||||||||||
August 2020 |
$ | 15.35 | $ | 13.43 | $ | 16.14 | $ | 15.65 | (4.47 | )% | (14.89 | )% | ||||||||||||
May 2020 |
$ | 14.86 | $ | 11.02 | $ | 16.31 | $ | 14.29 | (8.50 | )% | (27.12 | )% | ||||||||||||
February 2020 |
$ | 14.80 | $ | 14.09 | $ | 16.31 | $ | 15.71 | (7.21 | )% | (10.58 | )% | ||||||||||||
November 2019 |
$ | 14.84 | $ | 14.15 | $ | 16.18 | $ | 15.84 | (8.21 | )% | (11.43 | )% | ||||||||||||
August 2019 |
$ | 14.83 | $ | 14.26 | $ | 16.17 | $ | 15.76 | (5.90 | )% | (10.39 | )% | ||||||||||||
May 2019 |
$ | 14.70 | $ | 13.85 | $ | 15.81 | $ | 15.33 | (6.43 | )% | (11.16 | )% | ||||||||||||
February 2019 |
$ | 14.30 | $ | 13.01 | $ | 15.36 | $ | 15.13 | (6.23 | )% | (14.46 | )% | ||||||||||||
November 2018 |
$ | 14.10 | $ | 13.13 | $ | 15.28 | $ | 14.97 | (6.93 | )% | (12.90 | )% | ||||||||||||
August 2018 |
$ | 13.78 | $ | 13.41 | $ | 15.29 | $ | 15.12 | (9.28 | )% | (11.97 | )% | ||||||||||||
May 2018 |
$ | 13.96 | $ | 13.26 | $ | 15.20 | $ | 14.98 | (7.68 | )% | (12.10 | )% |
On September 30, 2020, the closing sale prices of the Acquiring Fund and the Target Fund common shares were $10.10 and $14.80, respectively. These prices represent a premium to net asset value for the Acquiring Fund of 0.80% and a discount to net asset value for the Target Fund of -6.33%.
Common shares of each Fund have historically traded at a discount to net asset value. It is not possible to state whether Acquiring Fund common shares will trade at a premium or discount to net asset value following the Reorganization, or what the extent of any such premium or discount might be.
Affiliated Brokerage and Other Fees
Neither the Target Fund nor the Acquiring Fund paid brokerage commissions within the last fiscal year to (i) any broker that is an affiliated person of such Fund or an affiliated person of such person, or (ii) any broker an affiliated person of which is an affiliated person of such Fund, the Adviser or the Sub-Adviser of such Fund.
During the last fiscal year, neither the Target Fund nor the Acquiring Fund made any material payments to the Adviser or Sub-Adviser or any affiliated person of the Adviser or Sub-Adviser for services provided to the Fund (other than pursuant to the Funds Investment Management Agreement).
Comparison of Massachusetts Business Trusts and Minnesota Corporations
The Target Fund is organized as a Massachusetts business trust. The Acquiring Fund is organized as a Minnesota corporation. If the Domicile Change takes place, the Acquiring Fund will be organized as a Massachusetts business trust with governing documents substantially identical to those of the Target Fund.
The following description is based on relevant provisions of applicable Massachusetts law, the Minnesota Business Corporation Act (the MBCA) and each Funds governing documents (prior to
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the proposed Domicile Change). This summary does not purport to be complete, and we refer you to applicable Massachusetts law, the MBCA and each Funds governing documents. The Target Fund is a Massachusetts business trust. A fund organized as a Massachusetts business trust is governed by the trusts declaration of trust or similar instrument.
General
Massachusetts law allows the trustees of a business trust to set the terms of a funds governance in its declaration of trust. All power and authority to manage the fund and its affairs generally reside with the trustees, and shareholder voting and other rights are limited to those provided to the shareholders in the declaration of trust and related governing documents.
Because Massachusetts law governing business trusts provides more flexibility compared to typical state corporate statutes, the Massachusetts business trust is a common form of organization for closed-end funds. However, some consider it less desirable than other entities because it relies on the terms of the applicable declaration of trust and judicial interpretations rather than statutory provisions for substantive issues, such as the personal liability of shareholders and trustees, and does not provide the level of certitude that corporate laws such as those of Minnesota, or newer statutory trust laws such as those of Delaware, provide.
The Acquiring Fund is a Minnesota corporation. A fund organized as a Minnesota corporation is governed both by the MBCA and the Minnesota corporations articles of incorporation and by-laws. For a Minnesota corporation, unlike a Massachusetts business trust, the MBCA prescribes many aspects of corporate governance. However, as discussed above, if Acquiring Fund shareholders approve Proposal No. 2, the Acquiring Fund will become a Massachusetts business trust.
Shareholders of a Minnesota corporation generally are shielded from personal liability for the corporations debts or obligations. Shareholders of a Massachusetts business trust, on the other hand, are not afforded the statutory limitation of personal liability generally afforded to shareholders of a corporation from the trusts liabilities. Instead, the declaration of trust of a fund organized as a Massachusetts business trust typically provides that a shareholder will not be personally liable, and further provides for indemnification to the extent that a shareholder is found personally liable, for the funds acts or obligations. The declaration of trust for the Target Fund contains such provisions.
Similarly, the trustees of a Massachusetts business trust are not afforded statutory protection from personal liability for the obligations of the trust. The directors of a Minnesota corporation, on the other hand, generally are shielded from personal liability for the corporations acts or obligations by the MBCA. However, courts in Massachusetts have recognized limitations of a trustees personal liability in contract actions for the obligations of a trust contained in the trusts declaration of trust, and declarations of trust may also provide that trustees may be indemnified out of the assets of the trust to the extent held personally liable. The declaration of trust for the Target Fund contains such provisions.
On October 5, 2020, the Target Funds Board adopted amended and restated by-laws for the Fund, which had the effect of adding, among other things, (i) new deadlines for advance notice of shareholder proposals or nominations to be brought before a meeting of shareholders and amended procedural and informational requirements in connection with any such advance notice of shareholder proposals or nominations; (ii) control share acquisition provisions that require the Funds other shareholders to determine whether shares acquired in a control share acquisition have voting rights; (iii) higher voting standards for the election of trustees in a contested election; and (iv) exclusive forum provisions for derivative and certain direct actions.
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Additional detail about each of these provisions in the Target Funds by-laws is set forth below under Massachusetts Business Trusts. The current by-laws of the Acquiring Fund do not contain similar provisions; however, Minnesota corporate law has a control share acquisition statute that functions in a manner similar to the new control share acquisition provision in the Target Funds by-laws. See Additional Information About the Acquiring FundCertain Provisions in the Acquiring Funds Articles of IncorporationMinnesota Anti-Takeover Laws. If the Domicile Change takes place, the Acquiring Fund will be organized as a Massachusetts business trust with by-laws that contain each of the foregoing provisions.
Massachusetts Business Trusts
The Target Fund is governed by its declaration of trust and by-laws. If the Domicile Change takes place, the Acquiring Fund will be organized as a Massachusetts business trust with governing documents substantially identical to those of the Target Fund.
Under the Target Funds declaration of trust, any determination as to what is in the interests of the Fund made by the trustees in good faith is conclusive, and in construing the provisions of the declaration of trust, there is a presumption in favor of a grant of power to the trustees. Further, the declaration of trust provides that certain determinations made in good faith by the trustees are binding upon the Fund and all shareholders, and shares are issued and sold on the condition and understanding, evidenced by the purchase of shares, that any and all such determinations will be so binding. The by-laws of the Target Fund provide that each shareholder of the Fund, by virtue of having become a shareholder, shall be held to have expressly assented and agreed to be bound by the terms of the Funds governing documents. The following is a summary of some of the key provisions of the governing documents of the Target Fund.
Shareholder Voting. The declaration of trust of the Target Fund requires a shareholder vote on a number of matters, including certain amendments to the declaration of trust, the election of trustees, the merger or reorganization of the Fund (under certain circumstances) or sales of assets in certain circumstances and matters required to be voted on by the 1940 Act. The declaration of trust of the Target Fund provides that each whole share of the Fund is entitled to one vote on any matter on which it is entitled to vote and each fractional share is entitled to a proportional fractional vote.
The by-laws of the Target Fund provide that the holders of a majority (more than 50%) of the shares of the Fund entitled to vote at a meeting will constitute a quorum for the transaction of business. The declaration of trust of the Target Fund provides that the affirmative vote of the holders of a majority (more than 50%) of the shares present in person or by proxy and entitled to vote at a meeting of shareholders at which a quorum is present is required to approve a matter, except for the election of trustees and as otherwise required by the 1940 Act, the declaration of trust or the by-laws. With respect to the election of trustees, the Target Funds by-laws provide that the affirmative vote of a majority (more than 50%) of the shares outstanding and entitled to vote is required to elect trustees in a contested election (i.e., an election in which the number of trustees nominated exceeds the number of trustees to be elected), but that a plurality vote applies in an uncontested election.
The by-laws of the Target Fund provide that a shareholder who obtains beneficial ownership of common shares in a Control Share Acquisition shall have the same voting rights as other common shares only to the extent authorized by shareholders. Such authorization shall require the affirmative vote of the holders of a majority (more than 50%) of the shares of the Target Fund entitled to vote in
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the election of trustees excluding Interested Shares. Interested Shares include shares held by Target Fund officers and any person who has acquired common shares in a Control Share Acquisition (the Control Share Provisions). The by-laws define a Control Share Acquisition, subject to various conditions and exceptions, generally to mean an acquisition of common shares that would give the beneficial owner, upon the acquisition of such shares, the ability to exercise voting power, but for the Control Share Provisions, in the election of trustees in any one of the following ranges: (i) one-tenth or more, but less than one-fifth of all voting power; (ii) one-fifth or more, but less than one-third of all voting power; (iii) one-third or more, but less than a majority of all voting power; or (iv) a majority or more of all voting power. For this purpose, all common shares acquired by a person within ninety days before or after the date on which such person acquires shares that result in a Control Share Acquisition, and all common shares acquired by such person pursuant to a plan to make a Control Share Acquisition, shall be deemed to have been acquired in the same Control Share Acquisition. Subject to various conditions and procedural requirements, including the delivery of a Control Share Acquisition Statement to the Target Fund setting forth certain required information, a shareholder who obtains or proposes to obtain beneficial ownership of common shares in a Control Share Acquisition generally may request a vote of shareholders to approve the authorization of voting rights of such shareholder with respect to such shares.
Shareholder Meetings. Meetings of shareholders of the Target Fund may be called by the trustees and must be called upon the written request of shareholders entitled to cast at least 10% of all votes entitled to be cast at the meeting. Shareholder requests for special meetings are subject to various requirements under the Target Funds by-laws, including as to the specific form of, and information required in, a shareholders request to call such a meeting. A shareholder may request a special meeting only to act on a matter upon which such shareholder is entitled to vote, and shareholders may not request special meetings for the purpose of electing trustees.
The by-laws of the Target Fund authorize the trustees or the chair of a shareholder meeting to adopt rules, regulations and procedures appropriate for the proper conduct of the meeting, which may include (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on by the shareholders present or represented at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at and participation in the meeting by shareholders, their duly authorized and constituted proxies or such other persons as the chair of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; (vi) limitations on the time allotted to questions or comments by shareholders; and (vii) the extent to which, if any, other participants are permitted to speak.
The by-laws of the Target Fund establish qualification criteria applicable to prospective trustees and generally require that advance notice be given to the Fund in the event a shareholder desires to nominate a person for election to the Board or to transact any other business at a meeting of shareholders. Any notice by a shareholder must be accompanied by certain information as required by the by-laws. No shareholder proposal will be considered at any meeting of shareholders of the Target Fund if such proposal is submitted by a shareholder who does not satisfy all applicable requirements set forth in the by-laws.
Election and Removal of Trustees. The declaration of trust of the Target Fund provides that the trustees determine the size of the Board, subject to a minimum and a maximum number. Subject to the provisions of the 1940 Act, the declaration of trust also provides that vacancies on the Board may be
51
filled by the remaining trustees. A trustee may be removed only for cause and only by action of at least two-thirds of the remaining trustees or by action of at least two-thirds of the outstanding shares of the class or classes that elected such trustee. The by-laws of the Target Fund establish qualification requirements applicable to any person who is recommended, nominated, elected, appointed, qualified or seated as a trustee.
Pursuant to the Target Funds by-laws, the Funds Board is divided into three classes (Class I, Class II and Class III) with staggered multi-year terms, such that only the members of one of the three classes stand for election each year. The staggered board structure could delay for up to two years the election of a majority of the Board of the Target Fund.
Issuance of Shares. Under the declaration of trust of the Target Fund, the trustees are permitted to issue an unlimited number of shares for such consideration and on such terms as the trustees may determine. Shareholders are not entitled to any preemptive rights or other rights to subscribe to additional shares, except as the trustees may determine. Shares are subject to such other preferences, conversion, exchange or similar rights, as the trustees may determine.
Classes. The declaration of trust of the Target Fund gives broad authority to the trustees to establish classes or series in addition to those currently established and to determine the rights and preferences, conversion rights, voting powers, restrictions, limitations, qualifications or terms or conditions of redemptions of the shares of the classes or series. The trustees are also authorized to terminate a class or series without a vote of shareholders under certain circumstances.
Amendments to Governing Documents. Amendments to the declaration of trust generally require the consent of shareholders owning more than 50% of shares entitled to vote, voting in the aggregate. Certain amendments may be made by the trustees without a shareholder vote, and any amendment to the voting requirements contained in the declaration of trust requires the approval of two-thirds of the outstanding common shares entitled to vote, voting in the aggregate and not by class except to the extent that applicable law or the declaration of trust may require voting by class. The Target Funds by-laws may be amended or repealed, or new by-laws may be adopted, by a vote of a majority of the trustees. The by-laws of the Target Fund may not be amended by shareholders.
Shareholder, Trustee and Officer Liability. The declaration of trust of the Target Fund provides that shareholders have no personal liability for the acts or obligations of the Fund and requires the Fund to indemnify a shareholder from any loss or expense arising solely by reason of his or her being or having been a shareholder and not because of his or her acts or omissions or for some other reason. In addition, the declaration of trust provides that the Fund will assume the defense of any claim against a shareholder for personal liability at the request of the shareholder. Similarly, the declaration of trust provides that any person who is a trustee, officer or employee of the Fund is not personally liable to any person in connection with the affairs of the Fund, other than to the Fund and its shareholders arising from such trustees officers or employees bad faith, willful misfeasance, gross negligence or reckless disregard for his or her duties involved in the conduct of his or her office. The declaration of trust further provides for indemnification of such persons and advancement of the expenses of defending any such actions for which indemnification might be sought. The declaration of trust provides that the trustees may rely in good faith on expert advice.
Forum Selection. The Target Funds by-laws provide that, unless the Fund consents in writing to the selection of an alternative forum, the sole and exclusive forum for any shareholder or group of
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shareholders to bring (i) any derivative action or proceeding brought on behalf of the Fund, (ii) any action asserting a claim for breach of any duty owed by a trustee or officer or other employee of the Fund to the Fund or to the Funds shareholders, (iii) any action asserting a claim arising pursuant to Massachusetts business trust law or the Funds governing documents, and (iv) any other action asserting a claim governed by the internal affairs doctrine, shall be within the United States District Court for the District of Massachusetts (Boston Division) or, to the extent such court does not have jurisdiction, the Business Litigation Session of the Massachusetts Superior Court in Suffolk County.
Derivative and Direct Claims of Shareholders. The Target Funds by-laws contain provisions regarding derivative and direct claims of shareholders. Massachusetts has what is commonly referred to as a universal demand statute, which requires that a shareholder make a written demand on the board, requesting the trustees to bring an action, before the shareholder is entitled to bring or maintain a derivative action in the right of or name of or on behalf of the trust. Under the Massachusetts statute, a shareholder whose demand has been refused by the trustees may bring the claim only if the shareholder demonstrates to a court that the trustees decision not to pursue the requested action was not a good faith exercise of their business judgment on behalf of the Target Fund. The by-laws of the Target Fund largely incorporate the substantive elements of the Massachusetts statute and establish procedures for shareholders to bring derivative actions and for the Board to consider shareholder demands that the Fund commence a suit. In addition, the by-laws of the Target Fund distinguish direct actions from derivative claims and prohibit the latter from being brought directly by a shareholder.
Minnesota Corporations
A Minnesota corporation is governed by the MBCA, its articles of incorporation and by-laws. Some of the key provisions of the MBCA and the articles of incorporation and by-laws of the Acquiring Fund are summarized below.
Shareholder Voting. Under the MBCA, a Minnesota corporation generally cannot dissolve, amend its articles of incorporation, sell or otherwise transfer all or substantially all of its property and assets outside the ordinary course of business or engage in a statutory share exchange, merger or consolidation unless approved by a vote of shareholders. Depending on the circumstances and the articles of incorporation of the corporation, there may be various exceptions to these votes.
Shareholders of Minnesota corporations are generally entitled to one vote per share and fractional votes for fractional shares held. The articles of incorporation of the Acquiring Fund contain such provisions regarding fractional shares.
The by-laws provide that a special meeting of shareholders may be called at the written request of shareholders entitled to cast at least 10% of all the votes entitled to be cast at the meeting, which request must state the purpose or purposes of the meeting.
Election and Removal of Directors. Shareholders of a Minnesota corporation generally are entitled to elect and remove directors. The by-laws of the Acquiring Fund provide that directors are elected by a plurality of votes validly cast at such election. The MBCA does not require a corporation to hold an annual meeting unless required by the articles of incorporation or by-laws. The by-laws of the Acquiring Fund provide that regular meetings of the shareholders for the election of directors and the transaction of such other business as may properly come before the meeting will be held on an annual or other less frequent periodic basis at such date and time as the board of directors designates by resolution, except as otherwise required by the MBCA or by other applicable law. The articles of
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incorporation provide that a director may be removed from office only for cause and only by action of at least two-thirds of the outstanding shares of the class or classes of capital stock that elected such director. For purposes of the foregoing, cause requires willful misconduct, dishonesty, fraud or a felony conviction.
Pursuant to the Acquiring Funds by-laws, the Funds Board is divided into three classes (Class I, Class II and Class III) with staggered multi-year terms, such that only the members of one of the three classes stand for election each year. The staggered board structure could delay for up to two years the election of a majority of the Board of the Acquiring Fund. The board structure of the Acquiring Fund will remain in place following the closing of the Reorganization and the Domicile Change.
Issuance of Shares. The board of directors of a Minnesota corporation has the power to authorize the issuance of shares. If so provided in the articles of incorporation (and the articles of incorporation of the Acquiring Fund do so provide), the board of directors may authorize the issuance of shares in more than one class or series, and prior to issuance of shares of each class or series, the board of directors must set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series.
Amendments to the Articles of Incorporation. Under the MBCA, shareholders of corporations generally are entitled to vote on amendments to the articles of incorporation.
Shareholder, Director and Officer Liability. Under Minnesota law, shareholders generally are not personally liable for debts or obligations of a corporation. Minnesota law provides that a directors personal liability to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director may be eliminated or limited in the articles of incorporation, except for a directors breach of the duty of loyalty, for acts or omissions not in good faith or involving an intentional or knowing violation of law or for any transaction from which the director derived an improper personal benefit. The articles of incorporation of the Acquiring Fund provide such a limitation on director liability. Minnesota law provides that, unless prohibited by a corporations articles of incorporation or by-laws, a corporation must indemnify and advance expenses to its directors for acts and omissions in their official capacity, subject to certain exceptions, and the articles of incorporation of the Acquiring Fund do not prohibit such indemnification or advances. The indemnification provisions and the limitation on liability are both subject to any limitations of the 1940 Act, which generally provides that no director or officer will be protected from liability to a fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The provisions governing the advance of expenses are subject to applicable requirements of the 1940 Act or rules thereunder.
Preemptive Rights. Pursuant to the articles of incorporation of the Acquiring Fund, shareholders have no preemptive rights.
Dissenters Right of Appraisal. Under Minnesota law, shareholders generally are entitled to assert dissenters rights in connection with certain amendments to the articles of incorporation, asset sales and reorganizations and obtain payment of the fair value of their shares, provided that they comply with the requirements of Minnesota law. However, these rights are subject to certain exceptions under the MBCA, including, in the case of asset sales and reorganizations, if the shares to which the dissenters rights relate and the shares, if any, that a shareholder is to receive are traded on an exchange.
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Derivative Actions. Under Minnesota law, applicable case law at the time of a particular derivative action will establish any requirements or limitations with respect to shareholder derivative actions.
The foregoing is only a summary of certain rights of shareholders under the governing documents of the Funds and under applicable state law and is not a complete description of provisions contained in those sources. Shareholders should refer to the provisions of those documents and state law directly for a more thorough description.
D. ADDITIONAL INFORMATION ABOUT THE INVESTMENT POLICIES
Comparison of the Investment Objectives and Policies of the Acquiring Fund and the Target Fund
General
The Funds have substantially similar investment objectives and policies. The Acquiring Funds primary investment objective is to provide, through investment in a professionally managed portfolio of tax-exempt New York municipal obligations, current interest income exempt from both federal and New York State and New York City personal income taxes. The Acquiring Funds secondary investment objective is to achieve enhancement of portfolio value through investments in tax-exempt New York municipal obligations that, in the opinion of the Adviser and/or Sub-Adviser, are underrated or represent municipal market sectors that are undervalued. The Target Funds primary investment objective is to provide current income exempt from regular federal, New York State and New York City income taxes, and its secondary investment objective is to enhance portfolio value and total return.
Under normal circumstances, each Fund will invest at least 80% of its net assets in municipal securities, the income from which is exempt from regular federal, New York State and New York City income taxes. In addition, under normal circumstances, each Fund will invest at least 80% of its net assets in municipal securities that, at the time of investment, are investment grade quality.
Note that (1) each Funds investment objectives; (2) the Acquiring Funds policy to invest, under normal circumstances, at least 80% of its net assets, including assets attributable to any principal amount of any borrowings (including the issuance of commercial paper or notes) or any preferred shares outstanding, in municipal securities and other related investments, the income from which is exempt from regular federal, New York State and New York City income taxes; and (3) the Target Funds policy to invest, under normal circumstances, at least 80% of its net assets in municipal securities, the income from which is exempt from regular federal, New York State and New York City income taxes may not be changed without the approval of the holders of a majority of the outstanding common shares. The term majority of the outstanding shares means (1) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares are present in person (including virtually) or represented by proxy, or (2) more than 50% of the shares, whichever is less.
Investment Policies
The Funds have substantially similar investment policies. Under normal circumstances, each Fund will invest at least 80% of its net assets in municipal securities, the income from which is exempt from regular federal, New York State and New York City income taxes. In addition, under normal
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circumstances, each Fund will invest at least 80% of its net assets in municipal securities that, at the time of investment, are investment grade quality. Each Fund defines investment grade securities as those that are rated within the four highest grades by a NRSRO or that are unrated but judged to be of comparable quality by the Adviser and/or Sub-Adviser.
Each Fund may invest up to 20% of its net assets in municipal securities that at the time of investment are rated below investment grade or are unrated but judged to be of comparable quality by the Adviser and/or Sub-Adviser, and may invest up to 10% of its net assets in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by the Adviser and/or Sub-Adviser. Each Fund may invest up to 20% of its net assets in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals. In addition, the Target Fund generally will invest in municipal securities with intermediate or long-term maturities.
Each Fund may invest in certain derivative instruments in pursuit of its investment objectives. Such instruments include financial futures contracts, swap contracts (including interest rate and credit default swaps), options on financial futures, options on swap contracts, or other derivative instruments. The Adviser and/or Sub-Adviser use derivatives to seek to enhance return, to hedge some of the risks of the Funds investments in municipal securities or as a substitute for a position in the underlying asset.
Each Fund may not invest in the securities of an issuer which, at the time of investment, is in default on its obligations to pay principal or interest thereon when due or that is involved in a bankruptcy proceeding (i.e. rated below C-, at the time of investment); provided, however, that the Adviser and/or Sub-Adviser may determine that it is in the best interest of shareholders in pursuing a workout arrangement with issuers of defaulted securities to make loans to the defaulted issuer or another party, or purchase a debt, equity or other interest from the defaulted issuer or another party, or take other related or similar steps involving the investment of additional monies, but only if that issuers securities are already held by the Fund. The Target Fund may not invest more than 10% of its net assets in distressed securities. The Acquiring Fund does not have a stated limit on investments in distressed securities separate from its other credit quality policies.
Neither Fund will invest more than 25% of its net assets in municipal securities in any one industry.
The Target Fund has adopted a policy to invest up to 10% of its net assets in securities of other open- or closed-end investment companies (including ETFs) that invest primarily in municipal securities of the types in which the Fund may invest directly. The Acquiring Fund has not adopted a corresponding policy.
As a fundamental policy, the Acquiring Fund may not issue senior securities, as defined in the 1940 Act, except in connection with bank borrowing and derivatives transactions. As a fundamental policy, the Target Fund will not leverage its capital structure by issuing senior securities such as preferred shares or debt instruments. However, each Fund may borrow for temporary, emergency or other purposes as permitted by the 1940 Act, and invest in certain instruments, including inverse floating rate securities, that have the economic effect of financial leverage. The Target Fund may invest up to 15% of its net assets in inverse floating rate securities. The Acquiring Fund has no stated limitation on investments in inverse floating rate securities.
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Each Fund may temporarily depart from its normal investment policies and strategiesfor instance by allocating up to 100% of its assets to cash equivalents, short-term investments or municipal bonds that do not comply with the Funds name policyin response to adverse or unusual market, economic political or other conditions. Such conditions could include a temporary decline in the availability of municipal bonds that comply with the Funds name policy. During these periods, the weighted average maturity of the Acquiring Funds investment portfolio may fall below its normal range and the weighted average maturity of the Target Funds investment portfolio may fall below the defined range described above and the Fund may not achieve its investment objective to distribute income that is exempt from regular federal, New York State and New York City income taxes.
Municipal Securities
General. The Acquiring Fund may invest in various municipal securities, including municipal bonds and notes, other securities issued to finance and refinance public projects, and other related securities and derivative instruments creating exposure to municipal bonds, notes and securities that provide for the payment of interest income that is exempt from regular federal income tax. Municipal securities are generally debt obligations issued by state and local governmental entities and may be issued by U.S. territories and possessions to finance or refinance public projects such as roads, schools, and water supply systems. Municipal securities may also be issued on behalf of private entities or for private activities, such as housing, medical and educational facility construction, or for privately owned transportation, electric utility and pollution control projects. Municipal securities may be issued on a long-term basis to provide permanent financing. The repayment of such debt may be secured generally by a pledge of the full faith and credit taxing power of the issuer, a limited or special tax, or any other revenue source including project revenues, which may include tolls, fees and other user charges, lease payments, and mortgage payments. Municipal securities may also be issued to finance projects on a short-term interim basis, anticipating repayment with the proceeds of the later issuance of long-term debt. Municipal securities may be issued and purchased in the form of bonds, notes, leases or certificates of participation; structured as callable or non-callable; with payment forms including fixed coupon, variable rate, zero coupon, capital appreciation bonds, tender option bonds and residual interest bonds or inverse floating rate securities; or acquired through investments in pooled vehicles, partnerships or other investment companies. Inverse floating rate securities are securities that pay interest at rates that vary inversely with changes in prevailing short-term tax-exempt interest rates and represent a leveraged investment in an underlying municipal security, which may increase the effective leverage of the Acquiring Fund.
The Acquiring Fund may invest in municipal bonds issued by U.S. territories and possessions (such as Puerto Rico or Guam) the income from which is exempt from regular federal income 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.
Municipal Leases and Certificates of Participation. The Acquiring 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
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annually to make payments under the lease. A municipal lease is an obligation in the form of a lease or installment purchase that is issued by a state or local government to acquire equipment and facilities. Income from such obligations generally is 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 Acquiring Funds original investment. To the extent that the Acquiring 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 Acquiring Fund will purchase municipal securities representing lease obligations only where the Adviser and/or the Sub-Adviser 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 typically are 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 Acquiring Fund with the right to a pro rata undivided interest in the underlying municipal securities. In addition, such participations generally provide the Acquiring Fund with the right to demand payment, on not more than seven days notice, of all or any part of the Funds 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 issuers 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. However, an investment in such instruments presents a risk that the anticipated
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revenues will not be received or that such revenues will be insufficient to satisfy the issuers 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. Interest paid on a municipal bond issued after December 31, 2017 to advance refund another municipal bond is generally subject to federal income tax.
Private Activity Bonds. Private activity 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.
Inverse Floating Rate Securities. The Acquiring Fund may invest in inverse floating rate securities. Inverse floating rate securities are securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Generally, inverse floating rate securities represent beneficial interests in a special purpose trust, commonly referred to as a tender option bond trust (TOB trust), that holds municipal bonds. The TOB trust typically sells two classes of beneficial interests or securities: floating rate securities (sometimes referred to as short-term floaters or tender option bonds (TOBs)), and inverse floating rate securities (sometimes referred to as inverse floaters). Both classes of beneficial interests are represented by certificates or receipts. The floating rate securities have first priority on the cash flow from the municipal bonds held by the TOB trust. In this structure, the floating rate security holders have the option, at periodic short-term intervals, to tender their securities to the trust for purchase and to receive the face value thereof plus accrued interest. The obligation of the trust to repurchase tendered securities is supported by a remarketing agent and by a liquidity provider. As consideration for providing this support, the remarketing agent and the liquidity provider receive periodic fees. The holder of the short-term floater effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. However, the trust is not obligated to purchase tendered short-term floaters in the event of certain defaults with respect to the underlying municipal bonds or a significant downgrade in the credit rating assigned to the bond issuer.
As the holder of an inverse floating rate investment, the Acquiring Fund receives the residual cash flow from the TOB trust. Because the holder of the short-term floater is generally assured liquidity at the face value of the security plus accrued interest, the holder of the inverse floater assumes the interest rate cash flow risk and the market value risk associated with the municipal bond deposited
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into the TOB trust. The volatility of the interest cash flow and the residual market value will vary with the degree to which the trust is leveraged. This is expressed in the ratio of the total face value of the short-term floaters to the value of the inverse floaters that are issued by the TOB trust, and can exceed three times for more highly leveraged trusts. All voting rights and decisions to be made with respect to any other rights relating to the municipal bonds held in the TOB trust are passed through, pro rata, to the holders of the short-term floaters and to the Acquiring Fund as the holder of the associated inverse floaters.
Because any increases in the interest rate on the short-term floaters issued by a TOB trust would reduce the residual interest paid on the associated inverse floaters, and because fluctuations in the value of the municipal bond deposited in the TOB trust would affect only the value of the inverse floater and not the value of the short-term floater issued by the trust so long as the value of the municipal bond held by the trust exceeded the face amount of short-term floaters outstanding, the value of inverse floaters is generally more volatile than that of an otherwise comparable municipal bond held on an unleveraged basis outside a TOB trust. Inverse floaters generally will underperform the market of fixed-rate bonds in a rising interest rate environment (i.e., when bond values are falling), but will tend to outperform the market of fixed-rate bonds when interest rates decline or remain relatively stable. Although volatile in value and return, inverse floaters typically offer the potential for yields higher than those available on fixed-rate bonds with comparable credit quality, coupon, call provisions and maturity. Inverse floaters have varying degrees of liquidity or illiquidity based primarily upon the inverse floater holders ability to sell the underlying bonds deposited in the TOB trust at an attractive price.
The Acquiring Fund may invest in inverse floating rate securities issued by TOB trusts in which the liquidity providers have recourse to the Fund pursuant to a separate shortfall and forbearance agreement. Such an agreement would require the Acquiring Fund to reimburse the liquidity provider, among other circumstances, upon termination of the TOB trust for the difference between the liquidation value of the bonds held in the trust and the principal amount and accrued interest due to the holders of floating rate securities issued by the trust. The Acquiring Fund will enter into such a recourse agreement (1) when the liquidity provider requires such a recourse agreement because the level of leverage in the TOB trust exceeds the level that the liquidity provider is willing to support absent such an agreement; and/or (2) to seek to prevent the liquidity provider from collapsing the trust in the event the municipal bond held in the trust has declined in value to the point where it may cease to exceed the face amount of outstanding short-term floaters. In an instance where the Acquiring Fund has entered such a recourse agreement, the Fund may suffer a loss that exceeds the amount of its original investment in the inverse floating rate securities; such loss could be as great as that original investment amount plus the face amount of the floating rate securities issued by the trust plus accrued interest thereon.
The Acquiring Fund will segregate or earmark liquid assets with its custodian in accordance with the 1940 Act to cover its obligations with respect to its investments in TOB trusts.
The Acquiring Fund may invest in both inverse floating rate securities and floating rate securities (as discussed below) issued by the same TOB trust.
Floating Rate Securities. The Acquiring Fund may also invest in short-term floating rate securities, as described above, issued by TOB trusts. Generally, the interest rate earned will be based upon the market rates for municipal securities with maturities or remarketing provisions that are
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comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to other periods of up to one year. Since the tender option feature provides a shorter term than the final maturity or first call date of the underlying municipal bond deposited in the trust, the Acquiring Fund, as the holder of the floating rate securities, relies upon the terms of the remarketing and liquidity agreements with the financial institution that acts as remarketing agent and/or liquidity provider as well as the credit strength of that institution. As further assurance of liquidity, the terms of the TOB trust provide for a liquidation of the municipal bond deposited in the trust and the application of the proceeds to pay off the floating rate securities. The TOB trusts that are organized to issue both short-term floating rate securities and inverse floaters generally include liquidation triggers to protect the investor in the floating rate securities.
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, generally are 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 generally are 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.
Illiquid Securities
The Acquiring 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 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 Acquiring 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 Acquiring Fund might obtain a less favorable price than that which prevailed when it decided to sell. Illiquid securities will be priced at a fair value as determined in good faith by the Board or its delegatee.
When-Issued and Delayed-Delivery Transactions
The Acquiring 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. On such transactions, the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment. Income generated by any liquid assets held to cover commitments to purchase securities on a when-issued and delayed-delivery basis which provide taxable income for
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federal income tax purposes is includable in the taxable income of the Acquiring Fund and, to the extent distributed, will be taxable to shareholders. The Acquiring 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 60 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.
Derivatives
General. The Acquiring Fund may invest in certain derivative instruments in pursuit of its investment objectives. Such instruments include financial futures contracts, swap contracts (including interest rate and credit default swaps), options on financial futures, options on swap contracts or other derivative instruments. The Acquiring Fund may also use credit default swaps and interest rate swaps. Credit default swaps may require initial premium (discount) payments as well as periodic payments (receipts) related to the interest leg of the swap or to the default of a reference obligation. If the Acquiring Fund is a seller of a contract, the Fund would be required to pay the par (or other agreed upon) value of a referenced debt obligation to the counterparty in the event of a default or other credit event by the reference issuer, such as a U.S. or foreign corporate issuer, with respect to such debt obligations. In return, the Acquiring Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Acquiring Fund would keep the stream of payments and would have no payment obligations. As the seller, the Acquiring Fund would be subject to investment exposure on the notional amount of the swap. If the Acquiring Fund is a buyer of a contract, the Fund would have the right to deliver a referenced debt obligation and receive the par (or other agreed-upon) value of such debt obligation from the counterparty in the event of a default or other credit event (such as a credit downgrade) by the reference issuer, such as a U.S. or foreign corporation, with respect to its debt obligations. In return, the Acquiring Fund would pay the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the counterparty would keep the stream of payments and would have no further obligations to the Acquiring Fund. Interest rate swaps involve the exchange by the Acquiring Fund with a counterparty of their respective commitments to pay or receive interest, such as an exchange of fixed-rate payments for floating rate payments. The Acquiring Fund will usually enter into interest rate swaps on a net basis; that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments.
The Adviser and/or the Sub-Adviser may use derivative instruments to seek to enhance return, to hedge some of the risks of the Acquiring Funds investments in municipal securities or as a substitute for a position in the underlying asset. These types of strategies may generate taxable income.
There is no assurance that these derivative strategies will be available at any time or that the Adviser and/or the Sub-Adviser will determine to use them for the Acquiring Fund or, if used, that the strategies will be successful.
Limitations on the Use of Futures, Options on Futures and Swaps. The Adviser has claimed, with respect to the Acquiring Fund, the exclusion from the definition of commodity pool operator
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under the CEA provided by CFTC Regulation 4.5 and is therefore not currently subject to registration or regulation as such under the CEA with respect to the Fund. In addition, the Sub-Adviser has claimed the exemption from registration as a commodity trading advisor provided by CFTC Regulation 4.14(a)(8) and is therefore not currently subject to registration or regulation as such under the CEA with respect to the Acquiring Fund. In February 2012, the CFTC announced substantial amendments to certain exemptions, and to the conditions for reliance on those exemptions, from registration as a commodity pool operator. Under amendments to the exemption provided under CFTC Regulation 4.5, if the Acquiring Fund uses futures, options on futures, or swaps other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums on these positions (after taking into account unrealized profits and unrealized losses on any such positions and excluding the amount by which options that are in-the-money at the time of purchase are in-the-money) may not exceed 5% of the Funds net asset value, or alternatively, the aggregate net notional value of those positions may not exceed 100% of the Funds net asset value (after taking into account unrealized profits and unrealized losses on any such positions). The CFTC amendments to Regulation 4.5 took effect on December 31, 2012, and the Acquiring Fund intends to comply with amended Regulation 4.5s requirements such that the Adviser will not be required to register as a commodity pool operator with the CFTC with respect to the Fund. The Acquiring Fund reserves the right to employ futures, options on futures and swaps to the extent allowed by CFTC regulations in effect from time to time and in accordance with the Funds policies. However, the requirements for qualification as a regulated investment company under Subchapter M of the Code may limit the extent to which the Acquiring Fund may employ futures, options on futures or swaps.
Structured Notes
The Acquiring 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 Acquiring Fund may invest in securities of other open- or closed-end investment companies (including ETFs) that invest primarily in municipal securities of the types in which the Fund may invest directly, to the extent permitted by the 1940 Act, the rules and regulations issued thereunder and applicable exemptive orders issued by the SEC. In addition, the Acquiring 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 Acquiring Fund generally expects that it may invest in other investment companies and/or other pooled
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investment vehicles either during periods when it has large amounts of uninvested cash or during periods when there is a shortage of attractive, high yielding municipal securities available in the market. The Acquiring Fund may invest in investment companies that are advised by the Adviser and/ or the Sub-Adviser or their affiliates to the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC. The Acquiring Fund has not applied for and currently does not intend to apply for such relief. As a shareholder in an investment company, the Acquiring Fund will bear its ratable share of that investment companys expenses and would remain subject to payment of its own management fees with respect to assets so invested. Common shareholders would therefore be subject to duplicative expenses to the extent the Acquiring Fund invests in other investment companies.
The Adviser and/or the Sub-Adviser 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. 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.
Portfolio Turnover
The Acquiring Fund may buy and sell municipal securities to accomplish its investment objectives in relation to actual and anticipated changes in interest rates. The Acquiring Fund also may sell one municipal security and buy another of comparable quality at about the same time to take advantage of what the Adviser and/or Sub-Adviser believes to be a temporary price disparity between the two bonds that may result from imbalanced supply and demand. The Acquiring Fund also may engage in a limited amount of short-term trading, consistent with its investment objectives. The Acquiring Fund may sell securities in anticipation of a market decline (a rise in interest rates) or buy securities in anticipation of a market rise (a decline in interest rates) and later sell them, but the Acquiring Fund will not engage in trading solely to recognize a gain. The Acquiring Fund will attempt to achieve its investment objectives by prudently selecting New York municipal securities with a view to holding them for investment. Although the Acquiring Fund cannot accurately predict its annual portfolio turnover rate, the Acquiring Fund expects, though it cannot guarantee, that its annual portfolio turnover rate generally will not exceed 25% under normal circumstances. For the fiscal year ended February 29, 2020, the Acquiring Funds portfolio turnover rate was 7%. However, there are no limits on the Acquiring Funds rate of portfolio turnover, and investments may be sold without regard to length of time held when, in the opinion of the Adviser and/or Sub-Adviser, investment considerations warrant such action. A higher portfolio turnover rate would result in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Acquiring Fund. Although these commissions and expenses are not reflected in the Acquiring Funds Total Annual Expenses disclosed in this Joint Proxy Statement/Prospectus, they will be reflected in the Acquiring Funds total return. In addition, high portfolio turnover may result in the realization of net short-term capital gains by the Acquiring Fund which, when distributed to shareholders, will be taxable as ordinary income for federal income tax purposes or may result in greater amounts of net capital gain distributions. See Additional Information About the Acquiring FundFederal Income Tax Matters Associated with Investment in the Acquiring Fund below and Federal Income Tax Matters in the Reorganization SAI.
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Zero Coupon Bonds
The Acquiring Fund may invest in zero coupon bonds. A zero coupon bond is a bond that typically does not pay interest for the entire life of the obligation or for an initial period after the issuance of the obligation. The market prices of zero coupon bonds are affected to a greater extent by changes in prevailing levels of interest rates and therefore tend to be more volatile in price than securities that pay interest periodically. In addition, because the Acquiring 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.
Hedging Strategies
The Acquiring Fund may use various investment strategies designed to limit the risk of bond price fluctuations and to preserve capital. These hedging strategies include using 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 the Adviser and/or the Sub-Adviser, correlate with the prices of the Acquiring Funds investments. These hedging strategies may generate taxable income.
Each Board recommends that shareholders vote FOR the approval of the Reorganization.
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PROPOSAL NO. 2DOMICILE CHANGE
(ACQUIRING FUND SHAREHOLDERS ONLY)
Nuveen New York Municipal Value Fund, Inc. (the Predecessor Fund) is governed by the 1940 Act as well as by the law of the state of its organization. The Predecessor Fund is currently organized as a Minnesota corporation. Nuveen New York Municipal Value Fund (the Successor Fund) will be a newly-organized Massachusetts business trust formed to facilitate the change of domicile of the Predecessor Fund from a Minnesota corporation to a Massachusetts business trust (the Domicile Change). The Agreement and Plan of Reorganization relating to the Domicile Change (the Domicile Agreement), in the form attached as Appendix B to this Joint Proxy Statement/Prospectus, sets forth the terms and conditions of the Domicile Change reorganization. Material provisions of the Domicile Agreement are summarized below.
If the Domicile Change takes place, the Successor Fund will be formed under a declaration of trust substantially similar to the declarations of trust in effect for other funds in the Nuveen family of funds that are organized as Massachusetts business trusts, including the Target Fund. The Board of the Predecessor Fund believes that the Domicile Change will achieve savings and operating efficiencies by simplifying the legal administration of the Fund through the increased standardization of charter documents among the Nuveen family of funds, most of which are organized as Massachusetts business trusts. Among such potential efficiencies are lower expenses, particularly legal expenses, associated with compliance by the Nuveen family of funds with Massachusetts law only, rather than both Minnesota and Massachusetts law.
As more fully described below, although the Domicile Change is structured as a reorganization, the proposed Domicile Change is not intended to change any investment policies or restrictions, the manner in which the Predecessor Fund is managed, the portfolio manager of the Predecessor Fund, the Predecessor Funds Board Members or officers or the Predecessor Funds service providers.
A Massachusetts business trust is established by trustees (who serve the same role as directors of a Minnesota corporation) under a declaration of trust, which sets forth various provisions relating primarily to the authority of the trust to conduct business and the specific rules governing the trust.
The Board considered all material issues associated with the proposed Domicile Change and determined that the Domicile Change is in the best interests of the Predecessor Fund and that the interests of the existing shareholders of the Predecessor Fund would not be diluted as a result of the Domicile Change.
If approved by shareholders, the Domicile Change is expected to take effect before the closing of the Reorganization on January 11, 2021, or on such other date as the Predecessor Fund and the Successor Fund may agree. If shareholders of the Predecessor Fund do not approve the Domicile Change, the Fund will continue to operate as a Minnesota corporation.
The Domicile Change is not contingent on the approval of Proposal No. 1 relating to the Reorganization of the Target Fund into the Acquiring Fund. If Acquiring Fund shareholders approve the Domicile Change, but shareholders of either the Acquiring Fund or the Target Fund do not approve the Reorganization, the Domicile Change will occur but the Target Fund will not be reorganized into the Acquiring Fund.
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If the Domicile Change is approved by shareholders and the other conditions are satisfied or waived, the Predecessor Fund will, as of the closing of the Domicile Change, transfer all of its assets to the Successor Fund. In exchange, the Successor Fund would assume all debts, liabilities, obligations and duties of the Predecessor Fund, and the Successor Fund would issue to the Predecessor Fund common shares of beneficial interest of the Successor Fund. The number of Successor Fund common shares to be issued would be equal in number and value to the Predecessor Fund common shares outstanding as of the close of business on the business day immediately preceding the closing of the Domicile Change. Immediately thereafter, the Predecessor Fund will liquidate and distribute, pro rata, to its common shareholders of record the Successor Fund common shares it receives and will then dissolve under applicable state law. Each common shareholder of the Predecessor Fund will receive Successor Fund common shares equal in number and value to the Predecessor Fund common shares held by such common shareholder as of the close of business on the business day immediately preceding the closing of the Domicile Change.
If and to the extent the Predecessor Funds Board deems it advisable for federal income tax purposes, the Fund will make a distribution of investment income, if any, and net capital gain, if any, immediately prior to the close of business on the business day immediately preceding the closing of the Domicile Change. All or a portion of such a distribution may be taxable to the Predecessor Funds shareholders for federal income tax purposes.
Prior to the closing of the Domicile Change, the Successor Fund will issue one common share of beneficial interest to the Predecessor Fund (the Initial Shareholder) for the sole purpose of taking the following actions:
(1) |
approve the Investment Management Agreement for the Successor Fund on substantially similar terms as the Predecessor Funds current Investment Management Agreement; |
(2) |
approve the Investment Sub-Advisory Agreement for the Successor Fund on substantially similar terms as the Predecessor Funds current Sub-Advisory Agreement; |
(3) |
approve the assignment and assumption, as of the closing of the Domicile Change, of the Reorganization Agreement with respect to the Predecessor Fund; |
(4) |
elect as Board Members of the Successor Fund the same persons who are Board Members of the Predecessor Fund prior to the closing of the Domicile Change; and |
(5) |
approve any other matters for which shareholder approval is required. |
A vote in favor of the Domicile Change will be deemed to ratify the Initial Shareholders approval of the Successor Funds Investment Management and Sub-Advisory Agreements, the assignment and assumption of the Reorganization Agreement, as of the closing of the Domicile Change, with respect to the Predecessor Fund and the election of the Board Members.
Following the Domicile Change, common shareholders of the Predecessor Fund will own common shares of the Successor Fund equal in number and value to the Predecessor Fund common shares held as of the close of business on the business day immediately preceding the closing of the Domicile Change. A common shareholder will therefore acquire the same pro rata interest in the Successor Fund as of the closing of the Domicile Change as that common shareholder had in the Predecessor Fund immediately prior to the Domicile Change.
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Under the terms of the Domicile Agreement, the closing of the Domicile Change is conditioned upon (a) the requisite approval by the Predecessor Funds shareholders, (b) receipt of an opinion substantially to the effect that the Domicile Change will qualify as a reorganization under the Code, (c) the absence of legal proceedings challenging the Domicile Change and (d) receipt of certain customary certificates, legal opinions, consents, confirmations and/or waivers from various third parties.
The Domicile Agreement may be terminated by the mutual agreement of the parties and such termination may be effected by each partys Chief Administrative Officer or any Vice President without further action by the Board. In addition, either party may at its option terminate the Domicile Agreement at or before the closing of the Domicile Change due to (a) a breach by the other party of any representation, warranty, or agreement contained therein to be performed at or before the closing of the Domicile Change, if not cured within 30 days; (b) a condition precedent to the obligations of the terminating party that has not been met and it reasonably appears it will not or cannot be met; or (c) a determination by its Board that the consummation of the transaction contemplated by the Domicile Agreement is not in the best interests of the party.
Certain Comparative Information about the Successor Fund and the Predecessor Fund
As a Massachusetts business trust, the Successor Funds operations will be governed by its declaration of trust, by-laws and applicable Massachusetts law and will be subject to the provisions of the 1940 Act and the rules and regulations thereunder and applicable state securities laws. As a Minnesota corporation, the Predecessor Funds operations are governed by its articles of incorporation, by-laws and applicable Minnesota law and are subject to the provisions of the 1940 Act and the rules and regulations thereunder and applicable state securities laws. Set forth below is a discussion of the major similarities and differences between the Successor Fund and the Predecessor Fund.
Investment Objectives, Policies and General Portfolio Characteristics. The investment objectives, policies and general portfolio characteristics of the Successor Fund will not change as a result of the Domicile Change.
Board Members and Officers. The Board Members and officers of the Predecessor Fund serving immediately prior to the Domicile Change will serve in the same capacity for the Successor Fund immediately after the Domicile Change. The Successor Fund will have the same board structure as the Predecessor Fund in which the board is divided into three classes (Class I, Class II and Class III) with staggered multi-year terms, such that only the members of one of the three classes stands for election each year.
Common Shares. Notwithstanding that the Successor Fund will be organized as a Massachusetts business trust and the Predecessor Fund is organized as a Minnesota corporation, the common shares of the Successor Fund will have the same rights as the common shares of the Predecessor Fund with respect to the payment of dividends and as to distribution of assets upon liquidation and, like the common shares of the Predecessor Fund, will have no preemptive, conversion or exchange rights or rights to cumulative voting. In addition, the voting rights of the common shares of the Successor Fund generally will be similar to those of the common shares of the Predecessor Fund, although there will be certain differences as described below under Comparison of Massachusetts Business Trusts and Minnesota Corporations as a result of recent amendments to the by-laws of the Nuveen-sponsored closed-end funds organized as Massachusetts business trusts, which by-laws will be
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adopted by the Successor Fund. Common shareholders of the Successor Fund, like common shareholders of the Predecessor Fund, will not have dissenters rights of appraisal. The terms of the Successor Funds Dividend Reinvestment Plan will be identical to the terms of the Predecessor Funds Dividend Reinvestment Plan immediately prior to the Domicile Change.
Investment Management and Sub-Advisory Agreements. The Investment Management and Sub-Advisory Agreements for the Successor Fund will be substantially the same as those for the Predecessor Fund, except for their dates and initial terms.
Comparison of Massachusetts Business Trusts and Minnesota Corporations
Set forth below is a discussion of the major similarities and differences between the Successor Fund and the Predecessor Fund. The summary is based on relevant provisions of applicable Massachusetts law and the Minnesota Business Corporation Act (the MBCA) and the governing documents of the Successor Fund and the Predecessor Fund, and does not purport to be complete.
General
The Successor Fund will be a Massachusetts business trust. A fund organized as a Massachusetts business trust is governed by the trusts declaration of trust or similar instrument.
Massachusetts law allows the trustees of a business trust to set the terms of a funds governance in its declaration of trust. All power and authority to manage the fund and its affairs generally reside with the trustees, and shareholder voting and other rights are limited to those provided to the shareholders in the declaration of trust and related governing documents.
Because Massachusetts law governing business trusts provides more flexibility compared to typical state corporate statutes, the Massachusetts business trust is a common form of organization for closed-end funds. However, some consider it less desirable than other entities because it relies on the terms of the applicable declaration of trust and judicial interpretations rather than statutory provisions for substantive issues, such as the personal liability of shareholders and trustees, and does not provide the level of certitude that corporate laws like those of Minnesota, or newer statutory trust laws such as those of Delaware, provide.
The Predecessor Fund is a Minnesota corporation. A fund organized as a Minnesota corporation is governed both by the MBCA and the Minnesota corporations articles of incorporation and by-laws. For a Minnesota corporation, unlike a Massachusetts business trust, the MBCA prescribes many aspects of corporate governance.
Shareholders of a Minnesota corporation generally are shielded from personal liability for the corporations debts or obligations. Shareholders of a Massachusetts business trust, on the other hand, are not afforded the statutory limitation of personal liability generally afforded to shareholders of a corporation from the trusts liabilities. Instead, the declaration of trust of a fund organized as a Massachusetts business trust typically provides that a shareholder will not be personally liable, and further provides for indemnification to the extent that a shareholder is found personally liable, for the funds acts or obligations. The declaration of trust for the Successor Fund will contain such provisions.
Similarly, the trustees of a Massachusetts business trust are not afforded statutory protection from personal liability for the obligations of the trust. The directors of a Minnesota corporation, on the
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other hand, generally are shielded from personal liability for the corporations acts or obligations by the MBCA. However, courts in Massachusetts have recognized limitations of a trustees personal liability in contract actions for the obligations of a trust contained in the trusts declaration of trust, and declarations of trust may also provide that trustees may be indemnified out of the assets of the trust to the extent held personally liable. The declaration of trust for the Successor Fund will contain such provisions.
On October 5, 2020, the boards of trustees of the Nuveen-sponsored closed-end funds organized as Massachusetts business trusts adopted amended and restated by-laws for each such fund, which had the effect of adding, among other things, (i) new deadlines for advance notice of shareholder proposals or nominations to be brought before a meeting of shareholders and amended procedural and informational requirements in connection with any such advance notice of shareholder proposals or nominations; (ii) control share acquisition provisions that require the Funds other shareholders to determine whether shares acquired in a control share acquisition have voting rights; (iii) higher voting standards for the election of trustees in a contested election; and (iv) exclusive forum provisions for derivative and certain direct actions.
The by-laws of the Successor Fund will be in the same form as the amended and restated by-laws adopted by the other Nuveen-sponsored closed-end funds organized as Massachusetts business trusts and will contain these provisions. Additional detail about each of these provisions is set forth below under Massachusetts Business Trusts. The current by-laws of the Predecessor Fund do not contain similar provisions; however, Minnesota corporate law has a control share acquisition statute that functions in a manner similar to the control share acquisition provision that will appear in the Successor Funds by-laws. See Additional Information About the Acquiring FundCertain Provisions in the Acquiring Funds Articles of IncorporationMinnesota Anti-Takeover Laws.
Massachusetts Business Trusts
The Successor Fund will be governed by its declaration of trust and by-laws. Under the declaration of trust to be adopted by the Successor Fund, any determination as to what is in the interests of the Fund made by the trustees in good faith is conclusive, and in construing the provisions of the declaration of trust, there is a presumption in favor of a grant of power to the trustees. Further, the declaration of trust will provide that certain determinations made in good faith by the trustees are binding upon the Fund and all shareholders, and shares are issued and sold on the condition and understanding, evidenced by the purchase of shares, that any and all such determinations will be so binding. The by-laws of the Successor Fund will provide that each shareholder of the Fund, by virtue of having become a shareholder, shall be held to have expressly assented and agreed to be bound by the terms of the Funds governing documents. The following is a summary of some of the key provisions of the governing documents of the Successor Fund.
Shareholder Voting. The declaration of trust of the Successor Fund will require a shareholder vote on a number of matters, including certain amendments to the declaration of trust, the election of trustees, the merger or reorganization of the Fund (under certain circumstances) or sales of assets in certain circumstances and matters required to be voted by the 1940 Act. The declaration of trust of the Successor Fund will provide that each whole share of the Fund is entitled to one vote on any matter on which it is entitled to vote and each fractional share is entitled to a proportional fractional vote.
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The by-laws of the Successor Fund will provide that the holders of a majority of the voting power of the shares of beneficial interest of the Fund entitled to vote at a meeting will constitute a quorum for the transaction of business. The declaration of trust of the Successor Fund will provide that the affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at a meeting of shareholders at which a quorum is present is required to approve a matter, except for the election of trustees and as otherwise required by the 1940 Act, the declaration of trust or the by-laws. With respect to the election of trustees, the Successor Funds by-laws will provide that the affirmative vote of a majority (more than 50%) of the shares outstanding and entitled to vote is required to elect trustees in a contested election (i.e., an election in which the number of trustees nominated exceeds the number of trustees to be elected), but that a plurality vote will apply in an uncontested election.
The by-laws of the Successor Fund will provide that a shareholder who obtains beneficial ownership of common shares in a Control Share Acquisition shall have the same voting rights as other common shares only to the extent authorized by shareholders. Such authorization shall require the affirmative vote of the holders of a majority (more than 50%) of the shares of the Successor Fund entitled to vote in the election of trustees excluding Interested Shares. Interested Shares include shares held by Successor Fund officers and any person who has acquired common shares in a Control Share Acquisition (the Control Share Provisions). The by-laws will define a Control Share Acquisition, subject to various conditions and exceptions, generally to mean an acquisition of common shares that would give the beneficial owner, upon the acquisition of such shares, the ability to exercise voting power, but for the Control Share Provisions, in the election of trustees in any one of the following ranges: (i) one-tenth or more, but less than one-fifth of all voting power; (ii) one-fifth or more, but less than one-third of all voting power; (iii) one-third or more, but less than a majority of all voting power; or (iv) a majority or more of all voting power. For this purpose, all common shares acquired by a person within ninety days before or after the date on which such person acquires shares that result in a Control Share Acquisition, and all common shares acquired by such person pursuant to a plan to make a Control Share Acquisition, shall be deemed to have been acquired in the same Control Share Acquisition. Subject to various conditions and procedural requirements, including the delivery of a Control Share Acquisition Statement to the Successor Fund setting forth certain required information, a shareholder who obtains or proposes to obtain beneficial ownership of shares in a Control Share Acquisition generally may request a vote of shareholders to approve the authorization of voting rights of such shareholder with respect to such shares.
Shareholder Meetings. Meetings of shareholders of the Successor Fund may be called by the trustees and must be called upon the written request of shareholders entitled to cast at least 10% of all votes entitled to be cast at the meeting. Shareholder requests for special meetings will be subject to various requirements under the Successor Funds by-laws, including as to the specific form of, and information required in, a shareholders request to call such a meeting. A shareholder may request a special meeting only to act on a matter upon which such shareholder is entitled to vote, and shareholders may not request special meetings for the purpose of electing trustees.
The by-laws of the Successor Fund will authorize the trustees or the chair of a shareholder meeting to adopt rules, regulations and procedures appropriate for the proper conduct of the meeting, which may include (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on by the shareholders present or represented at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at and participation in the
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meeting by shareholders, their duly authorized and constituted proxies or such other persons as the chair of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; (vi) limitations on the time allotted to questions or comments by shareholders; and (vii) the extent to which, if any, other participants are permitted to speak.
The by-laws of the Successor Fund will establish qualification criteria applicable to prospective trustees and generally require that advance notice be given to the Fund in the event a shareholder desires to nominate a person for election to the Board or to transact any other business at a meeting of shareholders. Any notice by a shareholder must be accompanied by certain information as required by the by-laws. No shareholder proposal will be considered at any meeting of shareholders of the Successor Fund if such proposal is submitted by a shareholder who does not satisfy all applicable requirements set forth in the by-laws.
Election and Removal of Trustees. The declaration of trust of the Successor Fund will provide that the trustees determine the size of the Board, subject to a minimum and a maximum number. Subject to the provisions of the 1940 Act, the declaration of trust also will provide that vacancies on the Board may be filled by the remaining trustees. A trustee may be removed only for cause and only by action of at least two-thirds of the remaining trustees or by action of at least two-thirds of the outstanding shares of the class or classes that elected such trustee. The by-laws of the Successor Fund will establish qualification requirements applicable to any person who is recommended, nominated, elected, appointed, qualified or seated as a trustee.
Issuance of Shares. Under the declaration of trust of the Successor Fund, the trustees will be permitted to issue an unlimited number of shares for such consideration and on such terms as the trustees may determine. Shareholders will not be entitled to any preemptive rights or other rights to subscribe to additional shares, except as the trustees may determine. Shares will be subject to such other preferences, conversion, exchange or similar rights, as the trustees may determine.
Classes. The declaration of trust of the Successor Fund will give broad authority to the trustees to establish classes or series in addition to those currently established and to determine the rights and preferences, conversion rights, voting powers, restrictions, limitations, qualifications or terms or conditions of redemptions of the shares of the classes or series. The trustees will be authorized to terminate a class or series without a vote of shareholders under certain circumstances.
Amendments to Governing Documents. Amendments to the declaration of trust generally will require the consent of shareholders owning more than 50% of shares entitled to vote, voting in the aggregate. Certain amendments may be made by the trustees without a shareholder vote, and any amendment to the voting requirements contained in the declaration of trust will require the approval of two-thirds of the outstanding common shares, voting in the aggregate and not by class except to the extent that applicable law or the declaration of trust may require voting by class. The Successor Funds by-laws may be amended or repealed, or new by-laws may be adopted, by a vote of a majority of the trustees. The by-laws of the Successor Fund may not be amended by shareholders.
Shareholder, Trustee and Officer Liability. The declaration of trust of the Successor Fund will provide that shareholders have no personal liability for the acts or obligations of the Fund and will require the Fund to indemnify a shareholder from any loss or expense arising solely by reason of his or her being or having been a shareholder and not because of his or her acts or omissions or for some other reasons. In addition, the Fund will assume the defense of any claim against a shareholder for
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personal liability at the request of the shareholder. Similarly, the declaration of trust will provide that any person who is a trustee, officer or employee of the Fund is not personally liable to any person in connection with the affairs of the Fund, other than to the Fund and its shareholders arising from such trustees officers or employees bad faith, willful misfeasance, gross negligence or reckless disregard for his or her duties involved in the conduct of his or her office. The declaration of trust further will provide for indemnification of such persons and advancement of the expenses of defending any such actions for which indemnification might be sought. The declaration of trust will provide that the trustees may rely in good faith on expert advice.
Forum Selection. The Successor Funds by-laws will provide that, unless the Fund consents in writing to the selection of an alternative forum, the sole and exclusive forum for any shareholder or group of shareholders to bring (i) any derivative action or proceeding brought on behalf of the Fund, (ii) any action asserting a claim for breach of any duty owed by a trustee or officer or other employee of the Fund to the Fund or to the Funds shareholders, (iii) any action asserting a claim arising pursuant to Massachusetts business trust law or the Funds governing documents, and (iv) any other action asserting a claim governed by the internal affairs doctrine, shall be within the United States District Court for the District of Massachusetts (Boston Division) or, to the extent such court does not have jurisdiction, the Business Litigation Session of the Massachusetts Superior Court in Suffolk County.
Derivative and Direct Claims of Shareholders. The Successor Funds by-laws will contain provisions regarding derivative and direct claims of shareholders. Massachusetts has what is commonly referred to as a universal demand statute, which requires that a shareholder make a written demand on the board, requesting the trustees to bring an action, before the shareholder is entitled to bring or maintain a derivative action in the right of or name of or on behalf of the trust. Under the Massachusetts statute, a shareholder whose demand has been refused by the trustees may bring the claim only if the shareholder demonstrates to a court that the trustees decision not to pursue the requested action was not a good faith exercise of their business judgment on behalf of the Successor Fund. The by-laws of the Successor Fund largely will incorporate the substantive elements of the Massachusetts statute and establish procedures for shareholders to bring derivative actions and for the Board to consider shareholder demands that the Fund commence a suit. In addition, the by-laws of the Successor Fund will distinguish direct actions from derivative claims and prohibit the latter from being brought directly by a shareholder.
Minnesota Corporations
A Minnesota corporation is governed by the MBCA, its articles of incorporation and by-laws. Some of the key provisions of the MBCA and the articles of incorporation and by-laws of the Predecessor Fund are summarized below.
Shareholder Voting. Under the MBCA, a Minnesota corporation generally cannot dissolve, amend its articles of incorporation, sell or otherwise transfer all or substantially all of its property and assets outside the ordinary course of business or engage in a statutory share exchange, merger or consolidation unless approved by a vote of shareholders. Depending on the circumstances and the articles of incorporation of the corporation, there may be various exceptions to these votes.
Shareholders of Minnesota corporations are generally entitled to one vote per share and fractional votes for fractional shares held. The articles of incorporation of the Predecessor Fund contain such provisions regarding fractional shares.
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The by-laws provide that a special meeting of shareholders may be called at the written request of shareholders entitled to cast at least 10% of all the votes entitled to be cast at the meeting, which request must state the purpose or purposes of the meeting.
Election and Removal of Directors. Shareholders of a Minnesota corporation generally are entitled to elect and remove directors. The by-laws of the Predecessor Fund provide that directors are elected by a plurality of votes validly cast at such election. The MBCA does not require a corporation to hold an annual meeting unless required by the articles of incorporation or by-laws. The by-laws of the Predecessor Fund provide that regular meetings of the shareholders for the election of directors and the transaction of such other business as may properly come before the meeting will be held on an annual or other less frequent periodic basis at such date and time as the board of directors designates by resolution, except as otherwise required by the MBCA or by other applicable law. The articles of incorporation provide that a director may be removed from office only for cause and only by action of at least two-thirds of the outstanding shares of the class or classes of capital stock that elected such director. For purposes of the foregoing, cause requires willful misconduct, dishonesty, fraud or a felony conviction.
Issuance of Shares. The board of directors of a Minnesota corporation has the power to authorize the issuance of shares. If so provided in the articles of incorporation (and the articles of incorporation of the Predecessor Fund do so provide), the board of directors may authorize the issuance of shares in more than one class or series, and prior to issuance of shares of each class or series, the board of directors must set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series.
Amendments to the Articles of Incorporation. Under the MBCA, shareholders of corporations generally are entitled to vote on amendments to the articles of incorporation.
Shareholder, Director and Officer Liability. Under Minnesota law, shareholders generally are not personally liable for debts or obligations of a corporation. Minnesota law provides that a directors personal liability to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director may be eliminated or limited in the articles of incorporation, except for a directors breach of the duty of loyalty, for acts or omissions not in good faith or involving an intentional or knowing violation of law or for any transaction from which the director derived an improper personal benefit. The articles of incorporation of the Predecessor Fund provide such a limitation on director liability. Minnesota law provides that, unless prohibited by a corporations articles of incorporation or by-laws, a corporation must indemnify and advance expenses to its directors for acts and omissions in their official capacity, subject to certain exceptions, and the articles of incorporation of the Predecessor Fund do not prohibit such indemnification or advances. The indemnification provisions and the limitation on liability are both subject to any limitations of the 1940 Act, which generally provides that no director or officer will be protected from liability to a fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The provisions governing the advance of expenses are subject to applicable requirements of the 1940 Act or rules thereunder.
Preemptive Rights. Pursuant to the articles of incorporation of the Predecessor Fund, shareholders have no preemptive rights.
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Dissenters Right of Appraisal. Under Minnesota law, shareholders generally are entitled to assert dissenters rights in connection with certain amendments to the articles of incorporation, asset sales and reorganizations and obtain payment of the fair value of their shares, provided that they comply with the requirements of Minnesota law. However, these rights are subject to certain exceptions under the MBCA, including, in the case of asset sales and reorganizations, if the shares to which the dissenters rights relate and the shares, if any, that a shareholder is to receive are traded on an exchange.
Under Minnesota law, common shareholders of the Predecessor Fund do not have dissenters rights of appraisal in connection with the Domicile Change because the Funds common shares are listed and trade on an exchange.
Derivative Actions. Under Minnesota law, applicable case law at the time of a particular derivative action will establish any requirements or limitations with respect to shareholder derivative actions.
The foregoing is only a summary of certain rights of shareholders under the governing documents of the Funds and under applicable state law and is not a complete description of provisions contained in those sources. Shareholders should refer to the provisions of those documents and state law directly for a more thorough description.
Material Federal Income Tax Consequences
As a non-waivable condition to the closing to the Domicile Change, the Predecessor Fund and the Successor Fund will receive a tax opinion from Vedder Price P.C. (which opinion will be based on certain factual representations and certain customary assumptions) with respect to the Domicile Change substantially to the effect that, on the basis of the existing provisions of the Code, current administrative rules and court decisions, for federal income tax purposes:
1. |
The transfer by the Predecessor Fund of all of its assets to the Successor Fund solely in exchange for Successor Fund shares and the assumption by the Successor Fund of all of the liabilities of the Predecessor Fund, immediately followed by the pro rata distribution of all the Successor Fund shares so received by the Predecessor Fund to the Predecessor Funds shareholders of record in complete liquidation of the Predecessor Fund and the dissolution of the Predecessor Fund under applicable state law promptly thereafter, will constitute a reorganization within the meaning of Section 368(a)(1) of the Code, and the Successor Fund and the Predecessor Fund will each be a party to a reorganization, within the meaning of Section 368(b) of the Code, with respect to the Reorganization. |
2. |
No gain or loss will be recognized by the Successor Fund upon the receipt of all the Predecessor Funds assets solely in exchange for Successor Fund shares and the assumption by the Successor Fund of all the liabilities of the Predecessor Fund. |
3. |
No gain or loss will be recognized by the Predecessor Fund upon the transfer of all of its assets to the Successor Fund solely in exchange for Successor Fund shares and the assumption by the Successor Fund of all of the liabilities of the Predecessor Fund or upon the distribution (whether actual or constructive) of all such Successor Fund shares to the Predecessor Funds shareholders solely in exchange for such shareholders shares of the Predecessor Fund in complete liquidation of the Predecessor Fund. |
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4. |
No gain or loss will be recognized by the Predecessor Funds shareholders upon the exchange, pursuant to the Domicile Agreement, of all their shares of the Predecessor Fund solely for Successor Fund shares. |
5. |
The aggregate basis of the Successor Fund shares received by each Predecessor Fund shareholder pursuant to the Domicile Agreement will be the same as the aggregate basis of the Predecessor Fund shares exchanged therefor by such shareholder. |
6. |
The holding period of the Successor Fund shares received by a Predecessor Fund shareholder in the Domicile Change will include the period during which the shares of the Predecessor Fund exchanged therefor were held by such shareholder, provided such Predecessor Fund shares are held as capital assets at the effective time of the Domicile Change. |
7. |
The basis of the assets of the Predecessor Fund received by the Successor Fund will be the same as the basis of such assets in the hands of the Predecessor Fund immediately before the effective time of the Domicile Change. |
8. |
The holding period of the assets of the Predecessor Fund received by the Successor Fund will include the period during which those assets were held by the Predecessor Fund. |
No opinion will be expressed as to (1) the effect of the Domicile Change on the Predecessor Fund, the Successor Fund or any Predecessor Fund shareholder with respect to any asset (including without limitation, any stock held in a passive foreign investment company as defined in Section 1297(a) of the Code) as to which any gain or loss is required to be recognized under federal income tax principles (a) at the end of a taxable year (or on the termination thereof) or (b) upon the transfer of such asset regardless of whether such transfer would otherwise be a non-taxable transaction under the Code or (2) any other federal income tax issues (except those set forth above) and all state, local or foreign tax issues of any kind.
Such opinion will be based on certain factual representations and customary assumptions. The opinion will rely on such representations and will assume the accuracy of such representations. If such representations and assumptions are incorrect, the Domicile Change may not qualify as a tax-free reorganization for federal income tax purposes, and the Predecessor Fund and Predecessor Fund shareholders may recognize taxable gain or loss as a result of the Domicile Change.
Opinions of counsel are not binding upon the IRS or the courts. If the Domicile Change occurs but the IRS or the courts determine that the Domicile Change does not qualify as a tax-free transaction under the Code, and thus is taxable, the Predecessor Fund would recognize gain or loss on the transfer of its assets to the Successor Fund and each shareholder of the Predecessor Fund would recognize taxable gain or loss equal to the difference between its basis in its Predecessor Fund shares and the fair market value of the shares of the Successor Fund it receives.
The Domicile Change is required to be approved by the affirmative vote of the holders of a majority (more than 50%) of the outstanding shares of the Predecessor Funds common stock entitled to vote on the matter.
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Abstentions and broker non-votes, if any, will have the same effect as a vote against the approval of the Domicile Change. Broker non-votes are shares held by brokers or nominees, typically in street name, as to which (1) instructions have not been received from the beneficial owners or persons entitled to vote and (2) the broker or nominee does not have discretionary voting power on a particular matter. Because the matters being presented at the Predecessor Funds Special Meeting are both non-routine matters for which a broker or nominee does not have discretionary voting power under NYSE rules, there are unlikely to be any broker non-votes at the Special Meeting.
If the requisite shareholder approvals are not obtained, the Board of the Predecessor Fund may take such actions as it deems to be in the best interests of the Fund, including conducting additional solicitations with respect to the proposal or continuing to operate the Fund as a Minnesota corporation.
The Predecessor Funds Board recommends that shareholders of the Fund vote FOR the approval of the Domicile Change.
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ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
Certain Provisions in the Acquiring Funds Articles of Incorporation
The Acquiring Fund articles of incorporation may limit the ability of other companies or persons to acquire control of the Fund. The provisions discussed below will be inapplicable if the Domicile Change proposal is approved.
Anti-Takeover Provisions. The Acquiring Funds articles of incorporation include 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. The holders of at least two-thirds of the shares of common stock, except as described below, must vote 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 other corporation or a reorganization or recapitalization of the Fund, (3) a sale, lease or transfer of all or substantially all of the Funds assets (other than in the regular course of the Funds investment activities), (4) a liquidation or termination of the Fund, or a series or class of the Fund or (5) a removal of directors 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 directors fixed in accordance with the Acquiring Fund articles of incorporation or the by-laws, in which case the affirmative vote of the holders of at least a majority of the Funds shares of common stock outstanding at the time, is required; provided, however, that where only a particular class or series is affected (or, in the case of removing a director, when the director 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. None of the foregoing provisions may be amended except by the vote of at least two-thirds of the shares of common stock. The votes required to approve the conversion of the Fund from a closed-end to an open-end investment company are higher than those required by the 1940 Act. The Board of the Acquiring Fund believes that the provisions of the Acquiring Fund articles of incorporation relating to such higher votes are in the best interest of the Fund and its shareholders.
Minnesota Anti-Takeover Laws. The Fund, as a Minnesota corporation, is subject to Sections 302A.671, 302A.673 and 302A.675 of the Minnesota Business Corporation Act, which may have the effect of discouraging a negotiated acquisition or unsolicited takeover. The following summaries are qualified in their entirety by reference to the statutory sections cited.
In general, Section 302A.671 provides that a public Minnesota corporations shares acquired in a control share acquisition have no voting rights unless voting rights are approved by the corporations other shareholders. A control share acquisition is a direct or indirect acquisition of beneficial ownership of shares that would, when added to all other shares beneficially owned by the acquiring person, entitle the acquiring person to have voting power of 20% or more in the election of directors.
In general, Section 302A.673 prohibits a public Minnesota corporation from engaging in a business combination with an interested shareholder for a period of four years after the date of the transaction in which the person became an interested shareholder, unless either the business combination or the acquisition by which such person becomes an interested shareholder is approved by
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a committee composed solely of disinterested directors. The term business combination includes mergers, asset sales and other transactions resulting in the receipt of a financial benefit by the interested shareholder. An interested shareholder is a person who is the beneficial owner, directly or indirectly, of 10% or more of a corporations voting shares, or who is an affiliate or associate of the corporation and who, at any time within four years before the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the corporations voting shares.
If a tender offer is made for shares of a public Minnesota corporation, Section 302A.675 precludes the offeror from acquiring additional shares (including in acquisitions pursuant to mergers, consolidations or statutory share exchanges) within two years following the completion of the tender offer, unless shareholders selling their shares in the later acquisition are given the opportunity to sell their shares on terms that are substantially equivalent to those provided in the earlier tender offer. Section 302A.675 does not apply if a committee composed solely of disinterested directors approved the earlier tender offer before any shares were acquired pursuant to it.
Reference should be made to the Acquiring Funds articles of incorporation on file with the SEC for the full text of these provisions, as well as the statutory sections of the Minnesota Business Corporation Act cited above.
Repurchase of Common Shares; Conversion to Open-End Fund
The Acquiring Fund is a closed-end management investment company, and as such its shareholders do not have the right to cause the Acquiring Fund to redeem their common shares. Instead, the common shares of the Acquiring Fund trade in the open market at a price that is 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 common shares of closed-end management investment companies may frequently trade at prices lower than net asset value, the Acquiring Funds Board has 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 Acquiring Fund to an open-end investment company. There is no assurance that the Acquiring Funds Board will decide to take any of these actions, or that share repurchases or tender offers will actually reduce market discount.
If the Acquiring Fund converted to an open-end investment company, the common shares would no longer be listed on an exchange. In contrast to a closed-end management investment company, shareholders of an open-end management 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 Certain Provisions in the Acquiring Funds Articles of Incorporation above for a discussion of the voting requirements applicable to the conversion of the Acquiring Fund to an open-end management investment company.
Before deciding whether to take any action if the common shares trade below net asset value, the Board will consider all relevant factors, including the extent and duration of the discount, the liquidity of the Acquiring Funds portfolio, the impact of any action that might be taken on the
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Acquiring Fund or its shareholders and market considerations. Based on these considerations, even if the Acquiring Funds common shares should trade at a discount, the Board may determine that, in the interest of the Acquiring Fund, no action should be taken. See the Reorganization SAI under Repurchase of Common Shares; Conversion to Open-End Fund for a further discussion of possible action to reduce or eliminate such discount to net asset value.
Custodian, Transfer Agent and Dividend Disbursing Agent
The custodian of the assets of each Fund is State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111. The custodian performs custodial, fund accounting and portfolio accounting services. Each Funds transfer, shareholder services and dividend disbursing agent is Computershare Inc. and Computershare Trust Company, N.A., 150 Royall Street, Canton, Massachusetts 02021.
Federal Income Tax Matters Associated with Investment in the Acquiring Fund
The following information is meant as a general summary of certain federal income tax matters for U.S. shareholders. Please see the Reorganization SAI for additional information. Investors should rely on their own tax adviser for advice about the particular federal, foreign, state and local tax consequences to them of investing in the Acquiring Fund.
The Acquiring Fund has elected to be treated and intends to qualify each year (including the taxable year in which the Domicile Change and Reorganization occur) as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). In order to qualify as a RIC, the Acquiring Fund must satisfy certain requirements regarding the sources of its income, the diversification of its assets and the distribution of its income. As a RIC, the Acquiring Fund is not expected to be subject to federal income tax on the income and gains it distributes to its shareholders. The Acquiring Fund invests primarily in municipal securities. Thus, substantially all of the Acquiring Funds dividends paid 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 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 taxpayers alternative minimum taxable income. To the extent that the Acquiring Fund receives income from such municipal obligations, a portion of the dividends paid by the Acquiring 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.
Future legislation could limit the exclusion from gross income of tax-exempt interest (which includes exempt-interest dividends received from the Acquiring Fund). Such legislation could affect the value of the municipal securities owned by the Acquiring Fund. The likelihood of such legislation being enacted cannot be predicted. Shareholders should consult their own tax advisers regarding the potential consequences of future legislation on their investment in the Acquiring Fund.
In addition to exempt-interest dividends, the Acquiring Fund may also distribute to its shareholders amounts that are treated as long-term capital gain or ordinary income (which may include short-term capital gains). These distributions may be subject to federal, state and local taxation, depending on a shareholders situation. If so, they are taxable whether or not such distributions are
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reinvested. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses) are generally taxable at rates applicable to long-term capital gains regardless of how long a shareholder has held its shares. Long-term capital gains are currently taxable to noncorporate shareholders at a maximum federal income tax rate of 20%. In addition, certain individuals, estates and trusts are subject to a 3.8% Medicare tax on net investment income, including net capital gains and other taxable dividends. Corporate shareholders are taxed on capital gain at the same rates as apply to ordinary income. The Acquiring Fund does not expect that any part of its distributions to shareholders from its investments will qualify for the dividends-received deduction available to corporate shareholders or as qualified dividend income to noncorporate shareholders.
As a RIC, the Acquiring Fund will not be subject to federal income tax in any taxable year provided that it meets certain distribution requirements. The Acquiring Fund may retain for investment some (or all) of its net capital gains. If the Acquiring Fund retains any net capital gains or its investment company taxable income, it will be subject to tax at regular corporate rates on the amount retained. If the Acquiring Fund retains any net capital gains, it may designate the retained amount as undistributed capital gains in a notice to its shareholders who, if subject to federal income tax on long-term capital gains, (1) will be required to include in income for federal income tax purposes, as long-term capital gain, their share of such undistributed amount; (2) will be entitled to credit their proportionate shares of the federal income tax paid by the Acquiring Fund on such undistributed amount against their federal income tax liabilities, if any; and (3) may claim refunds to the extent the credit exceeds such liabilities. For federal income tax purposes, the basis of shares owned by a shareholder of the Acquiring Fund will be increased by an amount equal to the difference between the amount of undistributed capital gains included in the shareholders gross income and the tax deemed paid by the shareholder under clause (2) of the preceding sentence.
Dividends declared by the Acquiring Fund in October, November or December to shareholders of record in one of those months and paid during the following January will be treated as having been paid by the Acquiring Fund and received by shareholders on December 31 of the year the distributions were declared.
Each shareholder will receive an annual statement summarizing the shareholders dividend and capital gains distributions.
The redemption, sale or exchange of shares normally will result in capital gain or loss to shareholders who hold their shares as capital assets. Generally, a shareholders gain or loss will be long-term capital gain or loss if the shares have been held for more than one year even though the increase in value in such shares is attributable to tax-exempt interest income. The gain or loss on shares held for one year or less will generally be treated as short-term capital gain or loss. Current federal income tax law taxes both long-term and short-term capital gains of corporations at the same rates applicable to ordinary income. However, for noncorporate taxpayers, long-term capital gains are currently taxed at a maximum federal income tax rate of 20%, while short-term capital gains are currently taxed at ordinary income rates. An additional 3.8% Medicare tax may also apply to certain individual, estate or trust shareholders capital gain from the sale or other disposition of their shares. Any loss on the sale of shares that have been held for six months or less will be disallowed to the extent of any distribution of exempt-interest dividends received with respect to such shares, unless the shares are of a RIC that declares exempt-interest dividends on a daily basis in an amount equal to at least 90% of its net tax-exempt interest and distributes such dividends on a monthly or more frequent basis. Any remaining loss on the sale or disposition of shares held for six months or less will be treated
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as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder on such shares. Any loss realized on a sale or exchange of shares of the Acquiring Fund will be disallowed to the extent those shares of the Acquiring Fund are replaced by other substantially identical shares of the Acquiring Fund or other substantially identical stock or securities (including through reinvestment of dividends) 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 will be adjusted to reflect the disallowed loss. The deductibility of capital losses is subject to limitations.
Any interest on indebtedness incurred or continued to purchase or carry the Acquiring Funds shares to which exempt-interest dividends are allocated is not deductible. Under certain applicable rules, 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 the shares. In addition, if you receive Social Security or certain railroad retirement benefits, you may be subject to U.S. federal income tax on a portion of such benefits as a result of receiving investment income, including exempt-interest dividends and other distributions paid by the Acquiring Fund.
If the Acquiring Fund invests in certain pay-in-kind securities, zero coupon securities, deferred interest securities or, in general, any other securities with original issue discount (or with market discount if the Acquiring Fund elects to include market discount in income currently), the Acquiring Fund must accrue income on such investments for each taxable year, which generally will be prior to the receipt of the corresponding cash payments. However, the Acquiring Fund must distribute to shareholders, at least annually, all or substantially all of its investment company taxable income (determined without regard to the deduction for dividends paid) and its net tax-exempt income, including such income it is required to accrue, to qualify as a RIC and (with respect to its ordinary income and capital gain) to avoid federal income and excise taxes. Therefore, the Acquiring Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy these distribution requirements.
The Acquiring Fund may hold or acquire municipal obligations that are market discount bonds. A market discount bond is a security acquired in the secondary market at a price below its redemption value (or its adjusted issue price if it is also an original issue discount bond). If the Acquiring Fund invests in a market discount bond, it will be required to treat any gain recognized on the disposition of such market discount bond as ordinary taxable income to the extent of the accrued market discount.
The Acquiring Funds investment in lower rated or unrated debt securities may present issues for the Acquiring Fund if the issuers of these securities default on their obligations because the federal income tax consequences to a holder of such securities are not certain.
The Acquiring Fund may be required to withhold U.S. federal income tax at a rate of 24% from all distributions (including exempt-interest dividends) and redemption proceeds payable to a shareholder if the shareholder fails to provide the Acquiring Fund with his, her or its correct taxpayer identification number or to make required certifications, or if the shareholder has been notified by the Internal Revenue Service (the IRS) (or the IRS notifies the Acquiring Fund) that he, she or it is subject to backup withholding. Backup withholding is not an additional tax; rather, it is a way in which the IRS ensures it will collect taxes otherwise due. Any amounts withheld may be credited against a shareholders U.S. federal income tax liability.
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The Foreign Account Tax Compliance Act (FATCA) generally requires the Acquiring Fund to obtain information sufficient to identify the status of each of its shareholders. If a shareholder fails to provide this information or otherwise fails to comply with FATCA, the Acquiring Fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on Acquiring Fund dividends and distributions and redemption proceeds. The Acquiring Fund may disclose the information that it receives from (or concerning) its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA, related intergovernmental agreements or other applicable law or regulation. Investors are urged to consult their own tax advisers regarding the applicability of FATCA and any other reporting requirements with respect to the investors own situation, including investments through an intermediary.
Pursuant to recently proposed regulations, the Treasury Department has indicated its intent to eliminate the requirements under FATCA of withholding on gross proceeds from the sale, exchange, maturity or other disposition of relevant financial instruments (including redemption of stock). The Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization.
The following is based on the assumption that the Acquiring Fund will qualify under Subchapter M of the Code as a RIC, that the Acquiring Fund will satisfy all the conditions which will cause the Acquiring Funds distributions to qualify as exempt-interest dividends to shareholders for federal and New York income tax purposes, and that the Acquiring Fund will make such distributions of income and gains as are necessary to be taxed as a RIC for federal income tax purposes. Assuming compliance with these provisions, the Acquiring Funds dividends will not be subject to New York personal income tax to the extent they are paid out of interest income earned on New York municipal bonds. Other dividends and distributions from other municipal securities, certain U.S. government obligations, taxable income and capital gains will not be exempt from New York personal income tax. Gains recognized by shareholders upon the sale or exchange of Fund shares also will be subject to New York personal income tax. The treatment of shareholders subject to the New York corporation business tax differs from that described above. Corporate shareholders are urged to consult their tax advisors.
Shareholders are advised to consult with their own tax advisors for more detailed information concerning New York tax matters.
The Acquiring Funds net asset value per common share is determined as of the close of regular session trading (normally 4:00 p.m. Eastern time) on each day the NYSE is open for business. Net asset value is calculated by taking the Acquiring Funds total assets, including interest or dividends accrued but not yet collected, less all liabilities, and dividing by the total number of common shares outstanding. The result, rounded to the nearest cent, is the net asset value per share. All valuations are subject to review by the Acquiring Funds Board or its delegate, Nuveen Asset Management.
In determining net asset value, securities and other assets for which market quotations are available are valued daily at market value and expenses are accrued and applied daily. The prices of fixed income securities are provided by a pricing service and are based on the mean between the bid
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and asked price. When price quotes are not readily available, which is typically the case for municipal bonds, the pricing service establishes a securitys fair value based on various factors, including prices of comparable fixed income securities utilizing a matrix pricing system. Due to the subjective and variable nature of fair value pricing, it is possible that the fair value determined for a particular security may be different from the value realized upon the sale of the security.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board or its delegate at fair value. These securities generally include but are not limited to, restricted securities (securities that may not be publicly sold without registration under the 1933 Act) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; debt securities that have gone into default and for which there is no current market quotation; a security whose market price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of net asset value; a security with respect to which an event has occurred that is likely to make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the securitys fair value. As a general principle, the current fair value of a security would be the amount that the owner might reasonably expect to receive for it upon its current sale. A variety of factors may be considered in determining the fair value of such securities.
Certain legal matters in connection with the issuance of common shares pursuant to the Reorganization Agreement will be passed upon by Dorsey & Whitney LLP, 50 South Sixth Street, Minneapolis, Minnesota 55402.
The financial statements of the Acquiring Fund and the Target Fund appearing in the Funds Annual Reports for each Funds fiscal year ended February 29, 2020 are incorporated by reference herein. The financial statements of the Acquiring Fund and the Target Fund have been audited by KPMG LLP (KPMG), independent registered public accounting firm, as set forth in their reports thereon. Such financial statements are incorporated by reference herein in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. KPMG provides auditing services to the Acquiring Fund and the Target Fund. The principal business address of KPMG is 200 East Randolph Street, Chicago, Illinois 60601.
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Outstanding Shares of the Acquiring Fund and the Target Fund
The following table sets forth the number of outstanding common shares and certain other share information as of September 30, 2020.
(1)
|
(2)
Shares Authorized |
(3)
Shares Held by Fund for Its Own Account |
(4)
Shares Outstanding Exclusive of Shares Shown under (3) |
|||||||||
Acquiring Fund |
||||||||||||
Common shares |
250,000,000 | | 15,235,167 | |||||||||
Target Fund |
||||||||||||
Common shares |
Unlimited | | 2,349,612 |
The common shares of the Acquiring Fund and Target Fund are listed and trade on the NYSE under the ticker symbols NNY and NYV, respectively. Upon the closing of the Reorganization, it is expected that the common shares of the Acquiring Fund will continue to be listed on the NYSE.
Shareholders of the Acquiring Fund and the Target Fund
As of September 30, 2020, the members of the Board and officers of each Fund as a group owned less than 1% of the total outstanding common shares of each Fund.
Information regarding shareholders or groups of shareholders who beneficially own more than 5% of a class of shares of a Fund is provided below. Information in the table below regarding the number and percentage of shares owned is based on a review of Schedule 13D and 13G filings and amendments made on or before September 30, 2020. The estimated pro forma information presented is calculated assuming that outstanding common shares were as of September 30, 2020 for each Fund.
Fund and Class |
Shareholder
Name and Address |
Number of Shares
Owned |
Percentage
Owned |
Estimated Pro
Forma for Combined Fund |
||||||||||||
Acquiring Fund |
||||||||||||||||
Common Shares |
|
First Trust Portfolios L.P.*
First Trust Advisors L.P. The Charger Corporation 120 East Liberty Drive, Suite 400 Wheaton, Illinois 60187 |
|
892,620 | 5.86% | 4.71% | ||||||||||
Target Fund |
||||||||||||||||
Common Shares |
|
Karpus Management, Inc.
d/b/a Karpus Investment Management 183 Sullys Trail Pittsford, New York 14534 |
|
159,988 | 6.8% | 1.33% |
* |
First Trust Portfolios L.P., First Trust Advisors L.P. and The Charger Corporation filed their Schedule 13G jointly and each owns an equal amount of the number of shares listed above. |
Neither Fund is aware of any person who, as of September 30, 2020, controls (within the meaning of the 1940 Act) the Fund. Under the 1940 Act, a person who beneficially owns, directly or indirectly, more than 25% of the voting securities of a fund is presumed to control the fund.
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Expenses of Proxy Solicitation
The cost of preparing, printing and mailing the enclosed proxy, accompanying notice and proxy statement and all other costs in connection with the solicitation of proxies will be borne indirectly by common shareholders of the Funds. Additional solicitation may be made by letter or telephone by officers or employees of Nuveen or Computershare Fund Services, or by dealers and their representatives.
The Funds and indirectly their common shareholders will bear the cost of the Reorganization, whether or not the Reorganization is consummated. The allocation of the costs of the Reorganization to the Funds is based on the projected relative benefits of the Reorganization, based on forecasted increases to net earnings, if any, to Fund shareholders following the Reorganization. The costs of the Reorganization are estimated to be $445,000. These costs represent the estimated nonrecurring expenses of the Funds in carrying out their obligations under the Reorganization Agreement and consist of managements estimate of professional service fees, printing costs and mailing charges related to the proposed Reorganization. Based on the projected relative benefits to each Fund, the Target Fund is expected to be allocated approximately $420,000 and the Acquiring Fund is expected to be allocated approximately $25,000 of expenses in connection with the Reorganization. If the Reorganization is not consummated for any reason, including because the requisite shareholder approvals are not obtained, the Funds and indirectly their common shareholders, will still bear the costs of the Reorganization.
The Funds have engaged Computershare Fund Services to assist in the solicitation of proxies at an estimated aggregate cost of $7,500 per Fund plus reasonable expenses, which is included in the foregoing estimate.
The Acquiring Fund and Target Fund held their 2020 annual meetings of shareholders on August 5, 2020. If the proposal is approved and the Reorganization is consummated, the Target Fund will cease to exist and will not hold its 2021 annual meeting. If the Reorganization is not approved or is not consummated, the Target Fund will hold its 2021 annual meeting of shareholders, expected to be held in August 2021.
To be considered for presentation at the 2021 annual meeting of shareholders of the Acquiring Fund, a shareholder proposal (including the nomination of an individual for election as a Board Member) submitted pursuant to Rule 14a-8 under the Exchange Act must have been received at the offices of the Fund, 333 West Wacker Drive, Chicago, Illinois 60606, not later than March 2, 2021. A shareholder wishing to provide notice in the manner prescribed by Rule 14a-4(c)(1) under the Exchange Act of a proposal (including the nomination of an individual for election as a Board Member) submitted outside of the process of Rule 14a-8 must, pursuant to the Acquiring Funds by-laws, submit such written notice to the Fund no earlier than May 1, 2020 and no later than May 16, 2021 (or no earlier than April 1, 2021 and no later than April 16, 2021 if the Domicile Change takes place). Timely submission of a proposal does not mean that such proposal will be included in a proxy statement.
To be considered for presentation at the 2021 annual meeting of shareholders for the Target Fund, a shareholder proposal (including the nomination of an individual for election as a Board Member) submitted pursuant to Rule 14a-8 under the Exchange Act must have been received at the offices of the Fund, 333 West Wacker Drive, Chicago, Illinois 60606, not later than March 2, 2021. A shareholder wishing to provide notice in the manner prescribed by Rule 14a-4(c)(1) under the
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Exchange Act of a proposal (including the nomination of an individual for election as a Board Member) submitted outside of the process of Rule 14a-8 must, pursuant to the Target Funds by-laws, submit such written notice to the Fund not later than April 16, 2021 or prior to April 1, 2021. Timely submission of a proposal does not mean that such proposal will be included in a proxy statement.
Proposals may be presented by shareholders only if advance notice is duly submitted in accordance with applicable law and the applicable Funds governing documents, and the subject matter of such proposal is a matter upon which the proposing shareholder is entitled to vote. The Target Funds by-laws require, and if the Domicile Change takes place the by-laws that the Acquiring Fund will adopt as a Massachusetts business trust will require, shareholders submitting advance notices of proposals of business or nominations for election as Board Members to provide the Fund with certain information and representations about the proponent shareholder and the nominees or business being proposed. A shareholder wishing to present a proposal of business or nomination is encouraged to carefully review the applicable Funds by-laws.
Copies of the by-laws of each Fund are available on the EDGAR Database on the SECs website at www.sec.gov.
Fund shareholders who want to communicate with the Board or any individual Board Member should write to the attention of William Siffermann, Manager of Fund Board Relations, Nuveen Investments, 333 West Wacker Drive, Chicago, Illinois 60606. The letter should indicate that you are a Fund shareholder and note the Fund or Funds that you own. If the communication is intended for a specific Board Member and so indicates, it will be sent only to that Board Member. If a communication does not indicate a specific Board Member it will be sent to the Independent Chairman and the outside counsel to the Independent Board Members for further distribution as deemed appropriate by such persons.
The fiscal year end for each Fund is February 28 (or February 29).
Shareholder reports will be made available to shareholders of record of each Fund following each Funds fiscal year end. Each Fund will furnish, without charge, a copy of its annual report and/or semi-annual report as available upon request. Such written or oral requests should be directed to a Fund at 333 West Wacker Drive, Chicago, Illinois 60606 or by calling (800) 257-8787.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on December 7, 2020:
The Proxy Statement/Prospectus is available at http://www.nuveenproxy.com/Closed-End-Fund-Proxy-Information/. For more information, shareholders may also contact the applicable Fund at the address and phone number set forth above.
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Please note that only one annual report or proxy statement may be delivered to two or more shareholders of a Fund who share an address, unless the Fund has received instructions to the contrary. To request a separate copy of an annual report or proxy statement, or for instructions as to how to request a separate copy of such documents or as to how to request a single copy if multiple copies of such documents are received, shareholders should contact the applicable Fund at the address and phone number set forth above.
Management of the Funds does not intend to present and does not have reason to believe that others will present any items of business at the Special Meetings, except as described in this Joint Proxy Statement/Prospectus. However, if other matters are properly presented at the meetings for a vote, the proxies will be voted upon such matters in accordance with the judgment of the persons acting under the proxies.
A list of shareholders entitled to be present and to vote at each Special Meetings will be available beginning ten days prior to the date of the Special Meetings for inspection by any shareholder for any legally valid purpose related to the Special Meetings. Shareholders interested in inspecting the list of shareholders for their respective Fund(s) should contact (800) 257-8787 for additional information. To email the Fund(s), please visit www.nuveen.com/contact-us.
In the absence of a quorum for a particular matter, business may proceed on any other matter or matters that may properly come before the Special Meetings if there is present, in person (including virtually) or by proxy, a quorum of shareholders in respect of such other matters. The chair of the Acquiring Funds Special Meeting may, whether or not a quorum is present, propose one or more adjournments with respect to one or more matters to be considered at the Special Meeting on behalf of the Fund without further notice to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of the holders of a majority of the shares of the Acquiring Fund present in person (including virtually) or by proxy and entitled to vote at the session of the Special Meeting to be adjourned. Under the Target Funds by-laws, the Target Funds Special Meeting, whether or not a quorum is present, may, by announcement of the person appointed to serve as chair of the meeting, be adjourned with respect to one or more or all matters to be considered at the meeting from time to time to a designated time and place. The appointed chair may adjourn the Special Meeting to permit further solicitation of proxies.
By returning the enclosed form of proxy, you are authorizing the persons named on the proxy to vote in their discretion on any matter that properly comes before the Special Meeting. Therefore, whether you instruct a vote for or against the Reorganization or the Domicile Change, as applicable, or instruct the proxy to abstain from voting on the Reorganization or the Domicile Change, as applicable, those persons will be authorized to vote in favor of an adjournment if sufficient votes in favor of the Reorganization or the Domicile Change, as applicable, are not received by the time scheduled for the Special Meeting. In determining whether to adjourn a Meeting, the following factors may be considered by the proxies, among others: the nature of the proposals; the percentage of votes actually cast; the percentage of negative votes actually cast; the nature of any further solicitation; and the information to be provided to shareholders with respect to the reasons for the further solicitation.
Broker-dealer firms holding shares in street name for the benefit of their customers and clients are generally required to request the instruction of such customers and clients on how to vote
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their shares on the proposals. A broker-dealer firm that is subject to the rules of the NYSE and that has not received instructions from a customer prior to the date specified in its request for voting instructions may not vote such customers shares on the proposals described in this Joint Proxy Statement/Prospectus. A signed proxy card or other authorization by a beneficial owner of shares of a Fund that does not specify how the beneficial owners shares are to be voted on a proposal may be deemed to be an instruction to vote such shares in favor of the proposal.
IF YOU CANNOT BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO FILL IN, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
Gifford R. Zimmerman
Vice President and Secretary
The Nuveen Closed-End Funds
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FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of this [] day of [], 2020, between Nuveen New York Municipal Value Fund, Inc. (the Acquiring Fund), a Minnesota corporation, and Nuveen New York Municipal Value Fund 2 (the Target Fund), a Massachusetts business trust. The Acquiring Fund and Target Fund may be referred to herein each as a Fund and, collectively, as the Funds.
This Agreement is intended to be, and is adopted as, a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code), and the Treasury Regulations promulgated thereunder. The reorganization of the Target Fund into the Acquiring Fund will consist of: (i) the transfer of substantially all of the assets of the Target Fund to the Acquiring Fund in exchange solely for newly issued shares of common stock, par value $.01 per share, of the Acquiring Fund (the Acquiring Fund Common Shares), and the assumption by the Acquiring Fund of substantially all of the liabilities of the Target Fund; and (ii) the pro rata distribution of all of the Acquiring Fund Common Shares received by the Target Fund to the holders of common shares of the Target Fund as part of the complete liquidation, dissolution and termination of the Target Fund as provided herein, all upon the terms and conditions set forth in this Agreement (the Reorganization).
WHEREAS, each Fund is a closed-end, management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), and the Target Fund owns securities that generally are assets of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Acquiring Fund is authorized to issue the Acquiring Fund Common Shares; and
WHEREAS, the Board of Directors of the Acquiring Fund (the Acquiring Fund Board) has determined that the Reorganization is in the best interests of the Acquiring Fund and that the interests of the existing shareholders of the Acquiring Fund will not be diluted as a result of the Reorganization, and the Board of Trustees of the Target Fund (the Target Fund Board) has determined that the Reorganization is in the best interests of the Target Fund and that the interests of the existing shareholders of the Target Fund will not be diluted as a result of the Reorganization.
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:
ARTICLE I
TRANSFER OF ASSETS OF THE TARGET FUND IN EXCHANGE FOR ACQUIRING FUND COMMON SHARES AND THE ASSUMPTION OF THE LIABILITIES OF THE TARGET FUND AND TERMINATION AND LIQUIDATION OF THE TARGET FUND
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein and on the basis of the representations and warranties contained herein, the Target Fund agrees to transfer substantially all of its assets, as set forth in Section 1.2, to the Acquiring Fund. In consideration therefor, the Acquiring Fund agrees to (i) issue and deliver to the Target Fund the number of Acquiring Fund Common Shares computed in the manner set forth in Section 2.3, and (ii) assume substantially all of the liabilities of the Target Fund, if any, as set forth in Section 1.3. Such transactions shall take place at the closing provided for in Section 3.1 (the Closing).
1.2 ASSETS TO BE TRANSFERRED. The Target Fund shall transfer all of its assets to the Acquiring Fund, including, without limitation, cash, securities, commodities, interests in futures, dividends or interest
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receivables owned by the Target Fund and any deferred or prepaid expenses shown as an asset on the books of the Target Fund as of the Closing, except that the dividend(s) set forth in Section 8.5 shall be paid as set forth in such section.
The Target Fund will, within a reasonable period of time before the Closing Date (as defined in Section 3.1), furnish the Acquiring Fund with a list of the Target Funds portfolio securities and other investments. The Acquiring Fund will, within a reasonable period of time before the Closing Date, identify the securities, if any, on the Target Funds list referred to in the foregoing sentence that do not conform to the Acquiring Funds investment objectives, policies or restrictions, as set forth in the Acquiring Funds Registration Statement (as defined in Section 5.7), and will notify the Target Fund accordingly. The Target Fund, if requested by the Acquiring Fund, will dispose of such non-conforming securities identified by the Acquiring Fund before the Closing Date. In addition, if it is determined that the portfolios of the Target Fund and the Acquiring Fund, when aggregated, would contain investments exceeding certain percentage limitations applicable to the Acquiring Fund with respect to such investments, the Target Fund, if requested by the Acquiring Fund, will dispose of a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Closing Date. Notwithstanding the foregoing, nothing herein will require the Target Fund to dispose of any investments or securities if, in the reasonable judgment of the Target Fund Board or Nuveen Fund Advisors, LLC, the investment adviser to the Funds, such disposition would adversely affect the status of the Reorganization as a reorganization, as such term is used in Section 368(a) of the Code, or would otherwise not be in the best interests of the Target Fund.
1.3 LIABILITIES TO BE ASSUMED. The Target Fund will endeavor to discharge all of its known liabilities and obligations to the extent possible before the Closing Date, except that the dividend(s) set forth in Section 8.5 shall be paid as set forth in that section. Notwithstanding the foregoing, the liabilities not so discharged will be assumed by the Acquiring Fund, which assumed liabilities will include all of the Target Funds liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable at the Closing, and whether or not specifically referred to in this Agreement, provided that the Acquiring Fund shall not assume any liabilities with respect to the dividend(s) set forth in Section 8.5.
1.4 LIQUIDATION AND DISTRIBUTION.
(a) As soon as practicable after the Closing, the Target Fund will distribute in complete liquidation of the Target Fund, pro rata to its common shareholders of record (the Target Fund Common Shareholders), as of the time of such distribution, all of the Acquiring Fund Common Shares received by the Target Fund pursuant to Section 1.1 (together with any dividends declared with respect to the Acquiring Fund Common Shares to holders of record as of a time after the Valuation Time and payable prior to such distribution (Interim Dividends)). Such distributions will be accomplished by the transfer of the Acquiring Fund Common Shares then credited to the account of the Target Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of Target Fund Common Shareholders and representing, in the case of a Target Fund Common Shareholder, such shareholders pro rata share of the Acquiring Fund Common Shares received by the Target Fund, and by paying to Target Fund Common Shareholders any Interim Dividends. All of the issued and outstanding common shares of the Target Fund simultaneously will be canceled on the books of the Target Fund. The Acquiring Fund will not issue certificates representing Acquiring Fund Common Shares in connection with such transfers, except for any global certificate or certificates required by a securities depository in connection with the establishment of book-entry ownership of the shares.
(b) On or promptly after the Closing Date, but in no event later than 12 months after the Closing Date, the Target Fund will thereupon proceed to dissolve and terminate as set forth in Section 1.7 below.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Common Shares will be shown on the books of the Acquiring Funds transfer agent.
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1.6 TRANSFER TAXES. Any transfer taxes payable upon the issuance of Acquiring Fund Common Shares in a name other than the registered holder of the Target Funds common shares on the books of the Target Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Common Shares are to be issued and transferred.
1.7 TERMINATION. The Target Fund will completely liquidate and be dissolved, terminated and have its affairs wound up in accordance with the Target Funds governing documents, the laws of the Commonwealth of Massachusetts, and the federal securities laws promptly following the Closing and the distribution pursuant to Section 1.4.
1.8 REPORTING. Any reporting responsibility of the Target Fund, including, without limitation, the responsibility for filing of regulatory reports, tax returns or other documents with the Securities and Exchange Commission (the Commission) or other regulatory authority, the exchange on which the Target Funds common shares are listed or any state securities commission and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Target Fund.
1.9 BOOKS AND RECORDS. All books and records of the Target Fund, including all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder, will be available to the Acquiring Fund from and after the Closing and will be turned over to the Acquiring Fund as soon as practicable following the Closing.
ARTICLE II
VALUATION
2.1 VALUATION OF TARGET FUND ASSETS. The value of the net assets of the Target Fund will be the value of its assets, less its liabilities, computed as of the close of regular trading on the New York Stock Exchange on the business day immediately prior to the Closing Date (such time and date being hereinafter called the Valuation Time), using the valuation procedures of the Nuveen closed-end funds adopted by the Target Fund Board or such other valuation procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF ACQUIRING FUND COMMON SHARES. The net asset value per Acquiring Fund Common Share will be computed as of the Valuation Time, using the valuation procedures of the Nuveen closed-end funds adopted by the Acquiring Fund Board or such other valuation procedures as may be mutually agreed upon by the parties.
2.3 COMMON SHARES TO BE ISSUED. The number of Acquiring Fund Common Shares to be issued in exchange for the Target Funds assets transferred to the Acquiring Fund will be determined by dividing the value of such assets transferred to the Acquiring Fund (net of the liabilities of the Target Fund that are assumed by the Acquiring Fund), determined in accordance with Section 2.1, by the net asset value of an Acquiring Fund Common Share, determined in accordance with Section 2.2. The aggregate net asset value of Acquiring Fund Common Shares received by the Target Fund in the Reorganization will equal, as of the Valuation Time, the aggregate net asset value of the Target Funds common shares held by Target Fund Common Shareholders as of such time. In the event there are fractional Acquiring Fund Common Shares due Target Fund Common Shareholders after the Target Funds assets have been exchanged for Acquiring Fund Common Shares, the Acquiring Funds transfer agent will aggregate all such fractional common shares and sell the resulting whole shares on the exchange on which such shares are listed for the account of all such Target Fund Common Shareholders, and each such Target Fund Common Shareholder will be entitled to a pro rata share of the proceeds from such sale. With respect to the aggregation and sale of fractional common shares, the Acquiring Funds transfer agent will act directly on behalf of the Target Fund Common Shareholders entitled to receive fractional shares and will accumulate such fractional shares, sell the shares and distribute the cash proceeds net of
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brokerage commissions, if any, directly to the Target Fund Common Shareholders entitled to receive the fractional shares (without interest and subject to withholding taxes).
2.4 EFFECT OF SUSPENSION IN TRADING. In the event that at the Valuation Time an accurate appraisal of the value of the net assets of the Acquiring Fund or the Target Fund is impracticable due to either: (a) the closure of, or the imposition of a trading restriction on, the exchange on which shares of a Fund are listed or another exchange on which the portfolio securities of the Acquiring Fund or the Target Fund are purchased or sold; or (b) a disruption in trading or the reporting of trading on the exchange on which shares of a Fund are listed or elsewhere, the Closing Date shall be postponed until at least the first business day after the day on which trading is fully resumed and/or reporting is restored or such later time as the parties may agree pursuant to Section 3.1.
2.5 COMPUTATIONS OF NET ASSETS. Subject to Sections 2.1 and 2.2 above, all computations of net asset value in this Article II shall be made by or under the direction of State Street Bank and Trust Company (State Street) in accordance with its regular practice as custodian of the Funds.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The conditions precedent set forth in Articles VI-VIII herein must be satisfied or waived with respect to both Funds in order for the closing of the Reorganization to take place. The Closing shall occur on January 11, 2021 or such other date as the parties may agree (the Closing Date). Unless otherwise provided, all acts taking place at the Closing shall be deemed to take place as of 7:59 a.m., Central time, on the Closing Date. The Closing will be held as of 7:59 a.m., Central time, at the offices of Vedder Price P.C. in Chicago, Illinois, or at such other time and/or place as the parties may agree.
3.2 CUSTODIANS CERTIFICATE. The Target Fund shall cause the custodian for the Target Fund to deliver to the Acquiring Fund at the Closing a certificate of an authorized officer stating that the Target Funds portfolio securities, cash and any other assets have been delivered in proper form to the Acquiring Fund as of the Closing.
3.3 CERTIFICATES OF TRANSFER AGENT.
(a) With respect to its common shares, the Target Fund shall issue and deliver, or cause its transfer agent to issue and deliver, to the Acquiring Fund at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of all holders of common shares of the Target Fund and the number and percentage ownership of outstanding common shares held by each such Target Fund Common Shareholder immediately prior to the Closing.
(b) The Acquiring Fund shall issue and deliver, or cause its transfer agent to issue and deliver, to the Target Fund a confirmation evidencing the Acquiring Fund Common Shares to be credited at the Closing to the Target Fund or provide evidence satisfactory to the Target Fund that such Acquiring Fund Common Shares have been credited to the Target Funds account on the books of the Acquiring Fund.
3.4 DELIVERY OF ADDITIONAL ITEMS. At the Closing, each party shall deliver to the other party such bills of sale, checks, assignments, assumptions of liability, share certificates, opinions, receipts and other documents or instruments, if any, as such other party or its counsel may reasonably request to effect the transactions contemplated by this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE TARGET FUND. The Target Fund represents and warrants to the Acquiring Fund as follows:
(a) The Target Fund is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts.
(b) The Target Fund is registered as a closed-end management investment company under the 1940 Act, and such registration is in full force and effect.
(c) The Target Fund is not, and the execution, delivery and performance of this Agreement (subject to shareholder approval and compliance with the other provisions hereof) will not result, in violation of any provision of the Target Funds Declaration of Trust or By-Laws, or of any material agreement, indenture, instrument, contract, lease or other undertaking to which the Target Fund is a party or by which it is bound.
(d) Except as otherwise disclosed in writing to and accepted by the Acquiring Fund, the Target Fund has no material contracts or other commitments that will be terminated with liability to it on or before the Closing.
(e) No litigation, administrative proceeding or investigation of or before any court or governmental body presently is pending or to its knowledge threatened against the Target Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect its financial condition, the conduct of its business or the ability of the Target Fund to carry out the transactions contemplated by this Agreement. The Target Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions contemplated herein.
(f) The financial statements of the Target Fund as of February 29, 2020 and for the fiscal year then ended, have been prepared in accordance with generally accepted accounting principles in the United States of America and have been audited by an independent registered public accounting firm, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Target Fund as of February 29, 2020, and there are no known liabilities, contingent or otherwise, of the Target Fund as of such date that are not disclosed in such statements.
(g) Since the date of the financial statements referred to in subsection (f) above, there have been no material adverse changes in the Target Funds financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), and there are no liabilities of a material nature, contingent or otherwise, of the Target Fund that have arisen after such date. Before the Closing Date, the Target Fund will advise the Acquiring Fund of all material liabilities contingent or otherwise, incurred by it subsequent to February 29, 2020, whether or not incurred in the ordinary course of business. For the purposes of this subsection (g), a decline in the net asset value of the Target Fund shall not constitute a material adverse change.
(h) All federal, state, local and other tax returns and reports of the Target Fund required by law to be filed by it (taking into account permitted extensions for filing) have been timely filed and are complete and correct in all material respects. All federal, state, local and other taxes of the Target Fund required to be paid (whether or not shown on any such return or report) have been paid, or provision shall have been made for the payment thereof, and any such unpaid taxes, as of the date of the financial statements referred to above, are properly reflected thereon. To the best of the Target Funds knowledge, no tax authority is currently auditing or preparing to audit the Target Fund, and no assessment for taxes, interest, additions to tax or penalties has been asserted against the Target Fund.
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(i) The authorized capital of the Target Fund consists of an unlimited number of common shares of beneficial interest, par value $0.01 per share. All of the issued and outstanding shares of the Target Fund are duly and validly issued, fully paid and non-assessable by the Target Fund (recognizing that under the laws of the Commonwealth of Massachusetts, Target Fund Common Shareholders, under certain circumstances, could be held personally liable for the obligations of the Target Fund). All of the issued and outstanding shares of the Target Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the Target Funds transfer agent, as provided in Section 3.3. The Target Fund has no outstanding preferred shares; no outstanding options, warrants or other rights to subscribe for or purchase any shares of the Target Fund; and no outstanding securities convertible into shares of the Target Fund.
(j) At the Closing, the Target Fund will have good and marketable title to the Target Funds assets to be transferred to the Acquiring Fund pursuant to Section 1.2, and full right, power and authority to sell, assign, transfer and deliver such assets, and the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the 1933 Act), except those restrictions as to which the Acquiring Fund has received notice and necessary documentation at or prior to the Closing.
(k) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Target Fund, including the determinations of the Target Fund Board required by Rule 17a-8(a) under the 1940 Act. This Agreement constitutes a valid and binding obligation of the Target Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors rights and to general equity principles.
(l) The information to be furnished by the Target Fund for use in any no-action letters, applications for orders, registration statements, proxy materials and other documents that may be necessary in connection with the transactions contemplated herein shall be accurate and complete in all material respects and shall comply in all material respects with the requirements of the federal securities laws and other laws and regulations.
(m) From the effective date of the Registration Statement (as defined in Section 5.7) through the time of the meeting of Target Fund shareholders described in Section 5.2 and as of the Closing, any written information furnished by the Target Fund with respect to the Target Fund for use in the Proxy Materials (as defined in Section 5.7), or any other materials provided in connection with the Reorganization, does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements, in light of the circumstances under which such statements were made, not misleading.
(n) No consent, approval, authorization, or order of any court, governmental authority, or any stock exchange on which shares of the Target Fund are listed is required for the consummation by the Target Fund of the transactions contemplated herein, except such as have been or will be obtained.
(o) For each taxable year of its operations (including the taxable year ending on the Closing Date), the Target Fund (i) has elected to qualify, and has qualified or will qualify (in the case of the taxable year ending on the Closing Date), as a regulated investment company under Subchapter M of the Code (a RIC); (ii) has been eligible to compute and has computed its federal income tax under Section 852 of the Code, and on or prior to the Closing Date will have declared a distribution with respect to all of its investment company taxable income (determined without regard to the deduction for dividends paid), the excess of its interest income excludible from gross income under Section 103(a) of the Code over its deductions disallowed under Sections 265 and 171(a)(2) of the Code and its net capital gain (after reduction for any available capital loss carryforward and excluding any net capital gain on which the Target Fund paid tax under Section 852(b)(3)(A) of the Code) (as such terms are defined in the Code) that has accrued or will accrue on or prior to the Closing Date, and (iii) has
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been, and will be (in the case of the taxable year ending on the Closing Date), treated as a separate corporation for federal income tax purposes. The Target Fund has not taken any action, caused any action to be taken or caused any action to fail to be taken which action or failure could cause the Target Fund to fail to qualify as a RIC. Prior to the Closing, the Target Fund will have had no earnings and profits accumulated in any taxable year to which the provisions of Part I of Subchapter M of the Code did not apply to it.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents and warrants to the Target Fund as follows:
(a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota.
(b) The Acquiring Fund is registered as a closed-end management investment company under the 1940 Act, and such registration is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement (subject to shareholder approval and compliance with the other provisions hereof) will not result, in violation of the Acquiring Funds Articles of Incorporation, or By-Laws, or any material agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound.
(d) No litigation, administrative proceeding or investigation of or before any court or governmental body presently is pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect its financial condition, the conduct of its business or the ability of the Acquiring Fund to carry out the transactions contemplated by this Agreement. The Acquiring Fund knows of no facts that might form the basis for the institution of such proceedings and it is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions contemplated herein.
(e) The financial statements of the Acquiring Fund as of February 29, 2020 and for the fiscal year then ended, have been prepared in accordance with generally accepted accounting principles in the United States of America and have been audited by an independent registered public accounting firm, and such statements (copies of which have been furnished to the Target Fund) fairly reflect the financial condition of the Acquiring Fund as of February 29, 2020 and there are no known liabilities, contingent or otherwise, of the Acquiring Fund as of such date that are not disclosed in such statements.
(f) Since the date of the financial statements referred to in subsection (e) above, there have been no material adverse changes in the Acquiring Funds financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), and there are no known liabilities of a material nature, contingent or otherwise, of the Acquiring Fund arising after such date. For the purposes of this subsection (f), a decline in the net asset value of the Acquiring Fund shall not constitute a material adverse change.
(g) All federal, state, local and other tax returns and reports of the Acquiring Fund required by law to be filed by it (taking into account permitted extensions for filing) have been timely filed and are complete and correct in all material respects. All federal, state, local and other taxes of the Acquiring Fund required to be paid (whether or not shown on any such return or report) have been paid, or provision will have been made for the payment thereof, and any such unpaid taxes, as of the date of the financial statements referred to above, are properly reflected thereon. To the best of the Acquiring Funds knowledge, no tax authority is currently auditing or preparing to audit the Acquiring Fund, and no assessment for taxes, interest, additions to tax or penalties has been asserted against the Acquiring Fund.
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(h) The authorized capital of the Acquiring Fund consists of 250,000,000 shares of common stock, par value $.01 per share. All of the issued and outstanding shares of the Acquiring Fund are duly and validly issued, fully paid and non-assessable by the Acquiring Fund. The Acquiring Fund has no outstanding preferred stock; no outstanding options, warrants or other rights to subscribe for or purchase any shares of the Acquiring Fund; and no outstanding securities convertible into shares of the Acquiring Fund.
(i) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquiring Fund, including the determinations of the Acquiring Fund Board required pursuant to Rule 17a-8(a) under the 1940 Act. This Agreement constitutes a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors rights and to general equity principles.
(j) The Acquiring Fund Common Shares to be issued and delivered to the Target Fund for the account of Target Fund Common Shareholders pursuant to the terms of this Agreement will, at the Closing, have been duly authorized. When so issued and delivered, such Acquiring Fund Common Shares will be duly and validly issued shares of the Acquiring Fund and will be fully paid and non-assessable by the Acquiring Fund.
(k) The information to be furnished by the Acquiring Fund for use in any no-action letters, applications for orders, registration statements, proxy materials and other documents that may be necessary in connection with the transactions contemplated herein shall be accurate and complete in all material respects and shall comply in all material respects with the requirements of the federal securities laws and other laws and regulations.
(l) From the effective date of the Registration Statement (as defined in Section 5.7) through the time of the meeting of Acquiring Fund shareholders described in Section 5.2 and as of the Closing, any written information furnished by the Acquiring Fund with respect to the Acquiring Fund for use in the Proxy Materials (as defined in Section 5.7), or any other materials provided in connection with the Reorganization, does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements, in light of the circumstances under which such statements were made, not misleading.
(m) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except such as have been or will be obtained.
(n) For each taxable year of its operations, including the taxable year that includes the Closing Date, the Acquiring Fund: (i) has elected to qualify, has qualified or will qualify (in the case of the taxable year that includes the Closing Date) and intends to continue to qualify as a RIC under the Code; (ii) has been eligible to and has computed its federal income tax under Section 852 of the Code, and will do so for the taxable year that includes the Closing Date; and (iii) has been, and will be (in the case of the taxable year that includes the Closing Date), treated as a separate corporation for federal income tax purposes. The Acquiring Fund has not taken any action, caused any action to be taken or caused any action to fail to be taken which action or failure could cause the Acquiring Fund to fail to qualify as a RIC. Prior to the Closing, the Acquiring Fund will have had no earnings and profits accumulated in any taxable year to which the provisions of Part I of Subchapter M of the Code did not apply to it.
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and any state securities laws as it may deem appropriate in order to consummate the transactions hereunder.
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ARTICLE V
COVENANTS OF THE FUNDS
5.1 OPERATION IN ORDINARY COURSE. Subject to Sections 1.2 and 8.5, and except for the proposed Domicile Change (as defined in Section 13.4) for the Acquiring Fund, each Fund will operate its respective business in the ordinary course from the date of this Agreement through the Closing, it being understood that such ordinary course of business will include customary dividends and distributions, and any other distributions necessary or desirable to avoid federal income or excise taxes.
5.2 APPROVAL OF SHAREHOLDERS. The Funds will call meetings of their respective shareholders to consider and act upon the proposals required to effect the provisions of this Agreement, as applicable, and to take all other appropriate actions necessary to obtain approval of the transactions contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Target Fund covenants that the Acquiring Fund Common Shares to be issued pursuant to this Agreement are not being acquired for the purpose of making any distribution other than in connection with the Reorganization and in accordance with the terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Target Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Target Funds shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, each Fund will take or cause to be taken all actions, and do or cause to be done all things, reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including any actions required to be taken after the Closing.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in any case within 60 days after the Closing Date, the Target Fund will furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund and which will be certified by the Controller or Treasurer of the Target Fund, a statement of the earnings and profits of the Target Fund for federal income tax purposes, as well as any net operating loss carryovers and capital loss carryovers that will be carried over to the Acquiring Fund pursuant to Section 381 of the Code.
5.7 PREPARATION OF REGISTRATION STATEMENT AND PROXY MATERIALS. The Funds will prepare and file with the Commission a registration statement on Form N-14 relating to the Acquiring Fund Common Shares to be issued to Target Fund Common Shareholders and related matters (the Registration Statement). The Registration Statement shall include a proxy statement of the Target Fund and a prospectus of the Acquiring Fund relating to the transactions contemplated by this Agreement, as applicable (the Joint Proxy Statement/Prospectus). The Registration Statement shall be in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act, as applicable. Each party will provide the other party with the materials and information necessary to prepare the Registration Statement, including the proxy statements and related materials (the Proxy Materials), for inclusion therein, in connection with the meetings of the Funds shareholders to consider the approval of this Agreement and the transactions contemplated herein.
5.8 TAX STATUS OF REORGANIZATION. The intention of the parties is that the Reorganization will qualify as a reorganization within the meaning of Section 368(a) of the Code. Neither Fund shall take any action, or cause any action to be taken (including, without limitation, the filing of any tax return), that is inconsistent with such treatment or that results in the failure of the transactions to qualify as a reorganization within the meaning of Section 368(a) of the Code. At or prior to the Closing, the parties to this Agreement will take such action, or cause such action to be taken, as is reasonably necessary to enable counsel to render the tax opinion contemplated in Section 8.8.
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ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND
The obligations of the Target Fund to consummate the transactions provided for herein will be subject to the fulfillment or waiver of the following conditions:
6.1 All representations, covenants and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing, except to the extent such representations, covenants and warranties may be modified by the Domicile Change. The Acquiring Fund shall have delivered to the Target Fund a certificate executed in the Acquiring Funds name by (i) the Chief Administrative Officer or any Vice President of the Acquiring Fund and (ii) the Controller or Treasurer of the Acquiring Fund, in form and substance satisfactory to the Target Fund and dated as of the Closing Date, to such effect and as to such other matters as the Target Fund shall reasonably request.
6.2 The Acquiring Fund shall have performed and complied in all material respects with all terms, conditions, covenants, obligations, agreements and restrictions required by this Agreement to be performed or complied with by it prior to or at the Closing.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions provided for herein shall be subject to the fulfillment or waiver of the following conditions:
7.1 All representations, covenants and warranties of the Target Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing. The Target Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in the Target Funds name by (i) the Chief Administrative Officer or any Vice President of the Target Fund and (ii) the Controller or Treasurer of the Target Fund, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to such effect and as to such other matters as the Acquiring Fund shall reasonably request.
7.2 The Target Fund shall have performed and complied in all material respects with all terms, conditions, covenants, obligations, agreements and restrictions required by this Agreement to be performed or complied with by it prior to or at the Closing.
7.3 The Target Fund shall have delivered to the Acquiring Fund a statement of the Target Funds assets and liabilities, together with a list of the Target Funds portfolio securities showing the tax basis of such securities by lot and the holding periods of such securities, as of the Closing, certified by the Controller or Treasurer of the Target Fund.
7.4 Prior to the Valuation Time, the Target Fund will have declared the dividends and/or distributions contemplated by Section 8.5.
7.5 The Target Fund shall have delivered such records, agreements, certificates, instruments and such other documents as the Acquiring Fund shall reasonably request.
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ARTICLE VIII
FURTHER CONDITIONS PRECEDENT
The obligations of the Funds to consummate the transactions under this Agreement are subject to the fulfillment or waiver of the following conditions:
8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding common shares of the Target Fund and the Acquiring Fund in accordance with applicable law and the provisions of the Target Funds Declaration of Trust or By-Laws. Notwithstanding anything herein to the contrary, the parties may not waive the condition set forth in this Section 8.1.
8.2 As of the Closing, the Commission shall not have issued an unfavorable report under Section 25(b) of the 1940 Act, or instituted any proceeding seeking to enjoin the consummation of the transactions contemplated by this Agreement under Section 25(c) of the 1940 Act. Furthermore, no action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein.
8.3 All consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and of state securities authorities, including any necessary no-action positions and exemptive orders from such federal and state authorities) to permit consummation of the transactions contemplated herein will have been obtained or made. All notices to, or consents or waivers from, other persons, or other actions necessary to permit consummation of the transactions contemplated herein will have been obtained or made.
8.4 The Registration Statement shall have become effective under the 1933 Act, and no stop orders suspending the effectiveness thereof shall have been issued. To the best knowledge of the parties to this Agreement, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Target Fund shall have declared, prior to the Valuation Time, a dividend or dividends with respect to its common shares that, together with all other dividends paid by the Target Fund with respect to all taxable periods ending on or before the Closing Date, shall have the effect of distributing to its shareholders at least all of the Target Funds investment company taxable income for all taxable periods ending on or before the Closing Date (computed without regard to any deduction for dividends paid), if any, plus the excess of its interest income excludible from gross income under Section 103(a) of the Code, if any, over its deductions disallowed under Sections 265 and 171(a)(2) of the Code for all taxable periods ending on or before the Closing Date and all of its net capital gains realized in all taxable periods ending on or before the Closing Date (after reduction for any available capital loss carryforward and excluding any net capital gain on which the Target Fund paid tax under Section 852(b)(3)(A) of the Code). Prior to Closing, the Target Fund shall establish an escrow account and set aside assets in the amount of such dividend or dividends in such escrow account to be held solely for the benefit of Target Fund Common Shareholders as of the record date for such dividend or dividends. The Target Fund shall not have any rights with respect to, or interest in, the assets held in the escrow account.
8.6 The Target Fund shall have received (i) an opinion from Vedder Price P.C., special counsel to the Acquiring Fund, and (ii) an opinion from Dorsey & Whitney LLP, with respect to matters governed by the laws of the State of Minnesota, each dated as of the Closing Date, substantially to the effect that:
(a) The Acquiring Fund has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Minnesota and, to such counsels knowledge, has the corporate power to own its properties and assets and carry on its business as presently conducted, in each case as described in the definitive Joint Proxy Statement/Prospectus as filed with the Commission pursuant to Rule 497 under the 1933 Act.
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(b) The Acquiring Fund is registered as a closed-end management investment company under the 1940 Act, and, to such counsels knowledge, such registration under the 1940 Act is in full force and effect.
(c) Assuming that the Acquiring Fund Common Shares will be issued in accordance with the terms of this Agreement, the Acquiring Fund Common Shares to be issued and delivered to the Target Fund on behalf of the Target Fund Common Shareholders as provided by this Agreement are duly authorized and, upon such delivery, will be validly issued and fully paid and non-assessable by the Acquiring Fund.
(d) The Registration Statement is effective and, to such counsels knowledge, no stop order under the 1933 Act pertaining thereto has been issued.
(e) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or the State of Minnesota is required for consummation by the Acquiring Fund of the transactions contemplated herein, except as have been obtained.
(f) The execution and delivery of this Agreement by the Acquiring Fund did not, and the consummation by the Acquiring Fund of the transactions contemplated herein will not, violate the Acquiring Funds Articles of Incorporation or By-Laws.
provided however, that if the Domicile Change has been consummated, insofar as the opinions above then relate to or are dependent on matters governed by the laws of the Commonwealth of Massachusetts, in lieu of an opinion Dorsey & Whitney LLP, the Target Fund shall have received an opinion from Morgan, Lewis & Bockius LLP with respect to matters governed by the laws of the Commonwealth of Massachusetts, provided further, that such opinions shall be modified, as shall be deemed appropriate by Morgan, Lewis & Bockius LLP, to account for the Acquiring Funds status as a Massachusetts business trust.
Insofar as the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the State of Minnesota, Vedder Price P.C. may rely on the opinions of Dorsey & Whitney LLP. To the extent the opinions expressed above may be modified by the Domicile Change, and insofar as they relate to or are dependent on matters governed by the laws of the Commonwealth of Massachusetts, Vedder Price P.C. may rely on the opinions of Morgan, Lewis & Bockius LLP.
8.7 The Acquiring Fund shall have received (i) an opinion from Vedder Price P.C., special counsel to the Target Fund, and (ii) an opinion from Morgan, Lewis & Bockius LLP, with respect to matters governed by the laws of the Commonwealth of Massachusetts, each dated as of the Closing Date, substantially to the effect that:
(a) The Target Fund has been formed as a voluntary association with transferable shares of beneficial interest commonly referred to as a Massachusetts business trust, and is existing under the laws of the Commonwealth of Massachusetts and, to such counsels knowledge, has the power as a business trust under its Declaration of Trust and Massachusetts law applicable to business trusts to conduct its business as described in the definitive Joint Proxy Statement/Prospectus as filed with the Commission pursuant to Rule 497 under the 1933 Act.
(b) The Target Fund is registered as a closed-end management investment company under the 1940 Act, and, to such counsels knowledge, such registration under the 1940 Act is in full force and effect.
(c) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or the Commonwealth of Massachusetts is required for consummation by the Target Fund of the transactions contemplated herein, except as have been obtained, and except as may be required under any Massachusetts securities law, statute, rule or regulation, about which such counsel expresses no opinion.
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(d) To the knowledge of such counsel, the Target Fund has the power under its Declaration of Trust to transfer its assets as contemplated by this Agreement.
(e) The execution and delivery of this Agreement by the Target Fund did not, and the consummation by the Target Fund of the transactions contemplated herein will not, violate the Target Funds Declaration of Trust or By-Laws (assuming the requisite approval of the Target Funds shareholders has been obtained in accordance with the requirements of the Target Funds Declaration of Trust and By-Laws).
Insofar as the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the Commonwealth of Massachusetts, Vedder Price P.C. may rely on the opinions of Morgan, Lewis & Bockius LLP.
8.8 The Funds shall have received an opinion of Vedder Price P.C., dated as of the Closing Date and addressed to the Acquiring Fund and the Target Fund, substantially to the effect that for federal income tax purposes:
(a) The transfer by the Target Fund of substantially all its assets to the Acquiring Fund solely in exchange for Acquiring Fund Common Shares and the assumption by the Acquiring Fund of substantially all the liabilities of the Target Fund, immediately followed by the pro rata distribution of all the Acquiring Fund Common Shares so received by the Target Fund to the Target Fund Common Shareholders of record in complete liquidation of the Target Fund and the dissolution of the Target Fund under applicable state law promptly thereafter, will constitute a reorganization within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the Target Fund will each be a party to a reorganization, within the meaning of Section 368(b) of the Code, with respect to the Reorganization.
(b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of substantially all the Target Funds assets solely in exchange for Acquiring Fund Common Shares and the assumption by the Acquiring Fund of substantially all the liabilities of the Target Fund.
(c) No gain or loss will be recognized by the Target Fund upon the transfer of substantially all its assets to the Acquiring Fund solely in exchange for Acquiring Fund Common Shares and the assumption by the Acquiring Fund of substantially all the liabilities of the Target Fund or upon the distribution (whether actual or constructive) of such Acquiring Fund Common Shares to the Target Fund Common Shareholders solely in exchange for such shareholders shares of the Target Fund in complete liquidation of the Target Fund.
(d) No gain or loss will be recognized by the Target Fund Common Shareholders upon the exchange, pursuant to the Reorganization, of all their shares of the Target Fund solely for Acquiring Fund Common Shares, except to the extent the Target Fund Common Shareholders receive cash in lieu of a fractional Acquiring Fund Common Share.
(e) The aggregate basis of the Acquiring Fund Common Shares received by each Target Fund Common Shareholder pursuant to the Reorganization (including any fractional Acquiring Fund Common Share to which a Target Fund Common Shareholder would be entitled) will be the same as the aggregate basis of the Target Fund shares exchanged therefor by such shareholder.
(f) The holding period of the Acquiring Fund Common Shares received by each Target Fund Common Shareholder in the Reorganization (including any fractional Acquiring Fund Common Share to which a Target Fund Common Shareholder would be entitled) will include the period during which the shares of the Target Fund exchanged therefor were held by such shareholder, provided the Target Fund shares are held as capital assets at the effective time of the Reorganization.
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(g) The basis of the assets of the Target Fund received by the Acquiring Fund will be the same as the basis of such assets in the hands of the Target Fund immediately before the effective time of the Reorganization.
(h) The holding period of the assets of the Target Fund received by the Acquiring Fund will include the period during which those assets were held by the Target Fund.
No opinion will be expressed as to (1) the effect of the Reorganization on the Target Fund, the Acquiring Fund or any Target Fund Common Shareholder with respect to any asset (including, without limitation, any stock held in a passive foreign investment company as defined in Section 1297(a) of the Code) as to which any gain or loss is required to be recognized under federal income tax principles (a) at the end of a taxable year (or on the termination thereof) or (b) upon the transfer of such asset regardless of whether such transfer would otherwise be a non-taxable transaction under the Code, or (2) any other federal tax issues (except those set forth above) and all state, local or foreign tax issues of any kind.
Such opinion will be based on customary assumptions and such representations as Vedder Price P.C. may reasonably request of the Funds, and each Fund will cooperate to make and certify the accuracy of such representations. Notwithstanding anything herein to the contrary, neither Fund may waive the conditions set forth in this Section 8.8.
ARTICLE IX
EXPENSES
9.1 The expenses incurred in connection with the Reorganization (whether or not the Reorganization is consummated) will be allocated between the Funds based on the projected relative benefits to each Fund during the first year following the Reorganization, and each Fund shall have accrued such expenses as liabilities at or before the Valuation Time. Reorganization expenses include, without limitation, (a) expenses associated with the preparation and filing of the Registration Statement and other Proxy Materials; (b) postage; (c) printing; (d) accounting fees; (e) legal fees; (f) proxy solicitation costs; and (g) other related administrative or operational costs.
9.2 Each party represents and warrants to the other party that there is no person or entity entitled to receive any brokers fees or similar fees or commission payments in connection with structuring the transactions provided for herein.
9.3 Notwithstanding the foregoing, expenses will in any event be paid by the party directly incurring such expenses if and to the extent that the payment by the other party of such expenses would result in the disqualification of a Fund, as the case may be, as a RIC under the Code.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The parties agree that neither party has made to the other party any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant to or in connection with this Agreement will not survive the consummation of the transactions contemplated hereunder.
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ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the parties, and such termination may be effected by the Chief Administrative Officer, President or any Vice President of each Fund without further action by the Target Fund Board or the Acquiring Fund Board. In addition, this Agreement may be terminated at or before the Closing due to:
(a) a breach by the non-terminating party of any representation or warranty, or agreement to be performed at or before the Closing, if not cured within 30 days of the breach and prior to the Closing;
(b) a condition precedent to the obligations of the terminating party that has not been met or waived and it reasonably appears that it will not or cannot be met; or
(c) a determination by the Target Fund Board or the Acquiring Fund Board that the consummation of the transactions contemplated herein is not in the best interests of its respective Fund involved in the Reorganization.
11.2 In the event of any such termination, in the absence of willful default, there shall be no liability for damages on the part of the Acquiring Fund or the Target Fund.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the officers of each Fund subject to the prior review of each Funds counsel and the authorization of each Funds Board of Directors or Board of Trustees, as applicable; provided, however, that following the meeting of the shareholders of the Target Fund called by such Fund pursuant to Section 5.2 of this Agreement, no such amendment, modification or supplement may have the effect of changing the provisions for determining the number of Acquiring Fund Common Shares to be issued to the Target Fund Common Shareholders under this Agreement to the detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
13.1 The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, and no assignment or transfer hereof or of any rights or obligations hereunder shall be
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made by either party without the written consent of the other party, except with respect to the proposed change of the domicile of the Acquiring Fund from a Minnesota corporation to a Massachusetts business trust (the Domicile Change) to which, if the Acquiring Fund determines it is desirable to so proceed, each party hereby consents. If the Domicile Change takes effect prior to the Closing, all references in this Agreement to the Acquiring Fund as a Minnesota corporation shall instead be references to the Acquiring Fund as a Massachusetts business trust, and such Massachusetts business trust is a permitted assignee under this Agreement; accordingly, all references herein to the Acquiring Funds Articles of Incorporation, to the Board of Directors, to the State of Minnesota, to Minnesota law and to shares of the Acquiring Funds common stock, par value $.01 per share, shall be deemed to refer to the Massachusetts business trusts declaration of trust, to its Board of Trustees, to the Commonwealth of Massachusetts, to Massachusetts law and to the Massachusetts business trusts common shares of beneficial interest, par value $0.01 per share, respectively, with such other modifications as may be necessary or appropriate to account for the Domicile Change. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
13.5 With respect to each Fund organized as a Massachusetts business trust, it is expressly agreed that the obligations of such Fund hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of such Fund personally, but shall bind only the property of the Fund, as provided in such Funds Declaration of Trust, which is on file with the Secretary of the Commonwealth of Massachusetts. The execution and delivery of this Agreement have been authorized by such Funds Board of Trustees, and this Agreement has been signed by authorized officers of the Fund acting as such. Neither the authorization by such trustees nor the execution and delivery by such officers will be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property of such Fund, as provided in the Funds Declaration of Trust.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first written above.
NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC. | ||
By: | ||
Name: | ||
Title: | ||
NUVEEN NEW YORK MUNICIPAL VALUE FUND 2 | ||
By: | ||
Name: | ||
Title: |
[Signature Page to Agreement and Plan of Reorganization (NNY-NYV Reorganization)]
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
(CHANGE OF DOMICILE)
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of this [] day of [], 2020, between Nuveen New York Municipal Value Fund (the Successor Fund), a newly created Massachusetts business trust, and Nuveen New York Municipal Value Fund, Inc. (the Predecessor Fund), a Minnesota corporation. The Successor Fund and Predecessor Fund may be referred to herein each as a Fund and, collectively, as the Funds.
This Agreement is intended to be, and is adopted as, a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code), and the Treasury Regulations promulgated thereunder. The reorganization of the Predecessor Fund into the Successor Fund will consist of: (i) the transfer of all of the assets of the Predecessor Fund to the Successor Fund in exchange solely for newly issued common shares of beneficial interest, par value $.01 per share, of the Successor Fund (the Successor Fund Common Shares), and the assumption by the Successor Fund of all of the liabilities of the Predecessor Fund, and (ii) the pro rata distribution of all of the Successor Fund Common Shares received by the Predecessor Fund to the holders of common shares of the Predecessor Fund in complete liquidation, dissolution and termination of the Predecessor Fund as provided herein, all upon the terms and conditions set forth in this Agreement (the Reorganization).
WHEREAS, the Predecessor Fund is a closed-end, management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act);
WHEREAS, the Successor Fund has been organized in order to continue the business and operations of the Predecessor Fund;
WHEREAS, the Successor Fund currently has no assets and has carried on no business activities prior to the date first shown above and will have had no assets, other than de minimis assets received in connection with the issuance of one share of the Successor Fund to facilitate the organization of the Successor Fund, and will carry on no business activities prior to the consummation of the transactions described herein, other than as necessary to facilitate the organization of the Successor Fund and complete the transactions contemplated hereby;
WHEREAS, the Successor Fund is authorized to issue the Successor Fund Common Shares; and
WHEREAS, the Board of Directors of the Predecessor Fund (the Predecessor Fund Board) has determined that the Reorganization is in the best interests of the Predecessor Fund and that the interests of the existing shareholders of the Predecessor Fund will not be diluted as a result of the Reorganization.
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:
ARTICLE I
TRANSFER OF ASSETS OF THE PREDECESSOR FUND IN EXCHANGE FOR SUCCESSOR FUND COMMON SHARES AND THE ASSUMPTION OF THE LIABILITIES OF THE PREDECESSOR FUND AND TERMINATION AND LIQUIDATION OF THE PREDECESSOR FUND
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein and on the basis of the representations and warranties contained herein, the Predecessor Fund agrees to transfer all of its assets, as set
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forth in Section 1.2, to the Successor Fund. In consideration therefor, the Successor Fund agrees (i) to issue and deliver to the Predecessor Fund the number of full and fractional Successor Fund Common Shares equal in number and value to the common shares of the Predecessor Fund outstanding as of the close of business on the business day immediately prior to the Closing (as defined in this Section 1.1), and (ii) to assume all of the liabilities of the Predecessor Fund, if any, as set forth in Section 1.3. Such transactions shall take place at the closing provided for in Section 2.1 (the Closing).
1.2 ASSETS TO BE TRANSFERRED. The Predecessor Fund shall transfer all of its assets to the Successor Fund, including, without limitation, cash, securities, commodities, interests in futures, dividends or interest receivables owned by the Predecessor Fund and any deferred or prepaid expenses shown as an asset on the books of the Predecessor Fund as of the Closing.
1.3 LIABILITIES TO BE ASSUMED. At the Closing, all of the liabilities of the Predecessor Fund will be assumed by the Successor Fund, which assumed liabilities will include all of the Predecessor Funds liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable at the Closing, and whether or not specifically referred to in this Agreement.
1.4 SHAREHOLDER APPROVALS FOR SUCCESSOR FUND. Prior to the Closing, the Successor Fund will issue one Successor Fund Common Share (the Initial Share) to the Predecessor Fund (the Sole Shareholder) in exchange for $1.00 for the sole purpose of allowing the Sole Shareholder to (a) approve the investment management agreement with respect to the Successor Fund, (b) approve the investment sub-advisory agreement with respect to the Successor Fund, (c) approve the assignment and assumption at the Closing of the Agreement and Plan of Reorganization dated [], 2020 with respect to the Predecessor Fund, (d) elect trustees of the Successor Fund and (e) approve any other matter for which shareholder approval is required.
1.5 LIQUIDATION AND DISTRIBUTION. Immediately after the Closing (the Liquidation Date), the Predecessor Fund will distribute in complete liquidation of the Predecessor Fund, pro rata to its common shareholders of record (the Predecessor Fund Common Shareholders), as of the time of such distribution, all of the Successor Fund Common Shares received by the Predecessor Fund pursuant to Section 1.1. Such distribution and liquidation will be accomplished by the transfer of the Successor Fund Common Shares then credited to the account of the Predecessor Fund on the books of the Successor Fund to open accounts on the share records of the Successor Fund in the names of the Predecessor Fund Common Shareholders and representing such shareholders respective pro rata shares of the Successor Fund Common Shares received by the Predecessor Fund. All of the issued and outstanding common shares of the Predecessor Fund simultaneously will be canceled on the books of the Predecessor Fund. The Successor Fund will not issue certificates representing Successor Fund Common Shares in connection with such transfers, except for any global certificate or certificates required by a securities depository in connection with the establishment of book-entry ownership of the shares.
1.6 OWNERSHIP OF SHARES. Ownership of Successor Fund Common Shares will be shown on the books of the Successor Funds transfer agent.
1.7 TRANSFER TAXES. Any transfer taxes payable upon the issuance of Successor Fund Common Shares in a name other than the registered holder of the Predecessor Funds common shares on the books of the Predecessor Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Successor Fund Common Shares are to be issued and transferred.
1.8 TERMINATION. The Predecessor Fund will be dissolved, terminated and have its affairs wound up in accordance with the Predecessor Funds governing documents and the laws of the State of Minnesota promptly following the Closing.
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1.9 REPORTING. Any reporting responsibility of the Predecessor Fund, including, without limitation, the responsibility for filing of regulatory reports, tax returns or other documents with the Securities and Exchange Commission (the Commission) or other regulatory authority, the exchange on which the Predecessor Funds common shares are listed or any state securities commission and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Predecessor Fund up to and including the Liquidation Date.
1.10 BOOKS AND RECORDS. All books and records of the Predecessor Fund, including all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder, will be available to the Successor Fund from and after the Closing and will be turned over to the Successor Fund as soon as practicable following the Liquidation Date.
1.11 PREDECESSOR FUND DISTRIBUTION. If and to the extent the Predecessor Fund Board deems it advisable for federal income tax purposes, the Predecessor Fund shall make a distribution of its investment company taxable income (within the meaning of Section 852(b)(2) of the Code) (computed without regard to any deduction for dividends paid), if any, plus the excess of interest income excludible from gross income under Section 103(a) of the Code, if any, over deductions disallowed under Sections 265 and 171(a)(2) of the Code and net capital gain (after reduction for any available capital loss carryforward and excluding any net capital gain on which the Predecessor Fund paid tax under Section 852(b)(3)(A) of the Code), if any, prior to the close of business on the business day immediately preceding the Closing.
ARTICLE II
CLOSING AND CLOSING DATE
2.1 CLOSING DATE. The conditions precedent set forth in Articles VVII herein must be satisfied or waived with respect to both Funds in order for the closing of the Reorganization to take place. The Closing shall occur on January 11, 2021, or such other date as the parties may agree (the Closing Date). Unless otherwise provided, all acts taking place at the Closing shall be deemed to take place as of [7:58] a.m., Central time, on the Closing Date. The Closing will be held as of [7:58] a.m., Central time, at the offices of Vedder Price P.C. in Chicago, Illinois, or at such other time and/or place as the parties may agree.
2.2 CUSTODIANS CERTIFICATE. The Predecessor Fund shall cause the custodian for the Predecessor Fund to deliver to the Successor Fund at the Closing a certificate of an authorized officer stating that the Predecessor Funds portfolio securities, cash and any other assets have been delivered in proper form to the Successor Fund as of the Closing.
2.3 CERTIFICATE OF TRANSFER AGENT
(a) The Predecessor Fund shall issue and deliver, or cause its transfer agent to issue and deliver, to the Successor Fund at the Closing a certificate of an authorized officer stating that the Predecessor Funds records contain the names and addresses of all holders of common shares of the Predecessor Fund and the number and percentage ownership of outstanding common shares held by each such Predecessor Fund Common Shareholder immediately prior to the Closing.
(b) The Successor Fund shall issue and deliver, or cause its transfer agent to issue and deliver, to the Predecessor Fund a confirmation evidencing the Successor Fund Common Shares to be credited at the Closing to the Predecessor Fund or provide evidence satisfactory to the Predecessor Fund that such Successor Fund Common Shares have been credited to the Predecessor Funds account on the books of the Successor Fund.
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2.4 DELIVERY OF ADDITIONAL ITEMS. At the Closing, each party shall deliver to the other party such bills of sale, checks, assignments, assumptions of liability, share certificates, opinions, receipts and other documents or instruments, if any, as such other party or its counsel may reasonably request to effect the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS OF THE PREDECESSOR FUND. The Predecessor Fund represents and warrants to the Successor Fund as follows:
(a) The Predecessor Fund is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Minnesota and has the power to own all of its properties and assets and, subject to approval of the shareholders of the Predecessor Fund, to carry out this Agreement.
(b) The Predecessor Fund is registered as a closed-end management investment company under the 1940 Act, and such registration is in full force and effect.
(c) The Predecessor Fund is not, and the execution, delivery and performance of this Agreement (subject to shareholder approval and compliance with the other provisions hereof) will not result, in violation of any provision of the Predecessor Funds Articles of Incorporation, as amended (the Articles) or By-Laws or of any material agreement, indenture, instrument, contract, lease or other undertaking to which the Predecessor Fund is a party or by which it is bound.
(d) Except as otherwise disclosed in writing to and accepted by the Successor Fund, the Predecessor Fund has no material contracts or other commitments that will be terminated with liability to it on or before the Closing.
(e) No litigation, administrative proceeding, or investigation of or before any court or governmental body presently is pending or to its knowledge threatened against the Predecessor Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect its financial condition, the conduct of its business or the ability of the Predecessor Fund to carry out the transactions contemplated by this Agreement. The Predecessor Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions contemplated herein.
(f) The financial statements of the Predecessor Fund as of February 29, 2020, and for the fiscal year then ended, have been prepared in accordance with generally accepted accounting principles in the United States of America and have been audited by an independent registered public accounting firm, and such statements (copies of which have been furnished to the Successor Fund) fairly reflect the financial condition of the Predecessor Fund as of February 29, 2020, and there are no known liabilities, contingent or otherwise, of the Predecessor Fund as of such date that are not disclosed in such statements.
(g) Since the date of the financial statements referred to in subsection (f) above, there have been no material adverse changes in the Predecessor Funds financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), and there are no liabilities of a material nature, contingent or otherwise, of the Predecessor Fund that have arisen after such date. Before the Closing Date, the Predecessor Fund will advise the Successor Fund of all material liabilities, contingent or otherwise, incurred by it subsequent to February 29, 2020, whether or not incurred in the ordinary course of business. For the purposes of this
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subsection (g), a decline in the net asset value of the Predecessor Fund shall not constitute a material adverse change. Other than as discussed herein and other than in the Predecessor Funds ordinary course of business of being an investment company registered under the 1940 Act, the Predecessor Fund has not sold or otherwise disposed of, and has no plan or intent to sell or otherwise dispose of, any of its assets prior to the Closing
(h) All federal, state, local and other tax returns and reports of the Predecessor Fund required by law to be filed by it (taking into account permitted extensions for filing) have been timely filed and are complete and correct in all material respects. All federal, state, local and other taxes of the Predecessor Fund required to be paid (whether or not shown on any such return or report) have been paid, or provision shall have been made for the payment thereof, and any such unpaid taxes, as of the date of the financial statements referred to above, are properly reflected thereon. To the best of the Predecessor Funds knowledge, no tax authority is currently auditing or preparing to audit the Predecessor Fund, and no assessment for taxes, interest, additions to tax or penalties has been asserted against the Predecessor Fund.
(i) For each taxable year of its operations, the Predecessor Fund (i) has elected to qualify, and has qualified or will qualify (in the case of the taxable year that includes the Closing Date for that portion of such taxable year ending with the Closing Date), as a regulated investment company under Subchapter M of the Code (a RIC); (ii) has been eligible to compute and has computed its federal income tax under Section 852 of the Code, and (iii) has been for all its taxable years , and will be on the Closing Date, treated as a separate corporation for federal income tax purposes. The Predecessor Fund will qualify as a RIC as of the Closing and will have satisfied as of the close of its most recent prior quarter of its taxable year, the diversification requirements of Section 851(b)(3) of the Code without regard to the last sentence of Section 851(d)(1) of the Code. The Predecessor Fund has not taken any action, caused any action to be taken or caused any action to fail to be taken which action or failure could cause the Predecessor Fund to fail to qualify as a RIC. Prior to the Closing, the Predecessor Fund will have had no earnings and profits accumulated in any taxable year to which the provisions of Subchapter M of the Code did not apply to it.
(j) The authorized capital of the Predecessor Fund consists of 250,000,000 shares of common stock, par value $.01 per share. All of the issued and outstanding shares of the Predecessor Fund are duly and validly issued, fully paid and non-assessable by the Predecessor Fund. All of the issued and outstanding shares of the Predecessor Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the Predecessor Funds transfer agent as provided in Section 2.3. The Predecessor Fund has no outstanding preferred stock; no outstanding options, warrants or other rights to subscribe for or purchase any shares of the Predecessor Fund; and no outstanding securities convertible into shares of the Predecessor Fund.
(k) At the Closing, the Predecessor Fund will have good and marketable title to the Predecessor Funds assets to be transferred to the Successor Fund pursuant to Section 1.2, and full right, power and authority to transfer such assets, and the Successor Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the 1933 Act), except those restrictions as to which the Successor Fund has received notice and necessary documentation at or prior to the Closing.
(l) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action, other than shareholder approval, on the part of the Predecessor Fund, including the determinations of the Predecessor Fund Board required by Rule 17a-8(a) under the 1940 Act. This Agreement constitutes a valid and binding obligation of the Predecessor Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors rights and to general equity principles.
(m) The information to be furnished by the Predecessor Fund for use in any no-action letters, applications for orders, registration statements, proxy materials and other documents that may be necessary in
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connection with the transactions contemplated herein shall be accurate and complete in all material respects and shall comply in all material respects with the requirements of the federal securities laws and other laws and regulations.
(n) From the date of the Proxy Statement (as defined in Section 4.6) through the time of the meeting of shareholders and as of the Closing, any written information furnished by the Predecessor Fund with respect to the Predecessor Fund for use in the Proxy Statement, or any other materials provided in connection with the Reorganization, does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements, in light of the circumstances under which such statements were made, not misleading.
(o) No consent, approval, authorization, or order of any court, governmental authority, or any stock exchange on which shares of the Predecessor Fund are listed is required for the consummation by the Predecessor Fund of the transactions contemplated herein, except such as have been or will be obtained.
3.2 REPRESENTATIONS OF THE SUCCESSOR FUND. The Successor Fund represents and warrants to the Predecessor Fund as follows:
(a) The Successor Fund is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts.
(b) The Successor Fund is not, and the execution, delivery and performance of this Agreement will not result, in violation of the Successor Funds Declaration of Trust or By-Laws.
(c) The authorized capital of the Successor Fund consists of an unlimited number of common shares of beneficial interest, par value $.01 per share. As of the date hereof and immediately prior to the Closing, the Successor Fund has had and will have no outstanding common or preferred shares or any other outstanding securities other than the Initial Share issued to the Sole Shareholder for the purposes set forth in Section 1.4; no outstanding options, warrants or other rights to subscribe for or purchase any shares of the Successor Fund; and no outstanding securities convertible into shares of the Successor Fund.
(d) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Successor Fund. This Agreement constitutes a valid and binding obligation of the Successor Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors rights and to general equity principles.
(e) The Successor Fund Common Shares to be issued and delivered pursuant to the terms of this Agreement will, at the Closing, have been duly authorized. When so issued and delivered, such Successor Fund Common Shares will be duly and validly issued shares of the Successor Fund, and will be fully paid and non-assessable by the Successor Fund (recognizing that under Massachusetts law, Successor Fund shareholders, under certain circumstances, could be held personally liable for the obligations of the Successor Fund).
(f) The Successor Fund was newly formed for the sole purpose of consummating the Reorganization and continuing the business and operations of the Predecessor Fund. As of the Closing, and immediately prior to the Reorganization, the Successor Fund has not held any assets other than the consideration received for the Initial Share or engaged in any activity or business, other than such activity as required for the organization of an investment company prior to its commencement of operations or to consummate the Reorganization.
(g) The information to be furnished by the Successor Fund for use in any no-action letters, applications for orders, registration statements, proxy materials and other documents that may be necessary in
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connection with the transactions contemplated herein shall be accurate and complete in all material respects and shall comply in all material respects with the requirements of the federal securities laws and other laws and regulations.
(h) From the date of the Proxy Statement through the time of the meeting of shareholders of the Predecessor Fund as described in Section 4.2 and as of the Closing, any written information furnished by the Successor Fund with respect to the Successor Fund for use in the Proxy Statement, or any other materials provided in connection with the Reorganization, does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements, in light of the circumstances under which such statements were made, not misleading.
(i) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Successor Fund of the transactions contemplated herein, except such as have been or will be obtained.
(j) The Successor Fund (i) will elect to be taxed as a RIC, will qualify for the tax treatment afforded RICs under the Code for its taxable year that includes the Closing Date, and intends to continue to qualify for such treatment for its subsequent taxable years, and (ii) will be eligible to compute its federal income tax under Section 852 of the Code for the taxable year that includes the Closing Date, and will do so for the taxable year that includes the Closing Date. The Successor Fund has not taken any action, caused any action to be taken or caused any action to fail to be taken which action or failure could cause the Successor Fund to fail to qualify as a RIC for its taxable year that includes the Closing Date. The Successor Fund has no earnings and profits accumulated in any taxable year or any other tax attributes for federal income tax purposes.
ARTICLE IV
COVENANTS OF THE FUNDS
4.1 OPERATION IN ORDINARY COURSE. The Predecessor Fund will operate its business in the ordinary course from the date of this Agreement through the Closing, it being understood that such ordinary course of business will include customary dividends and distributions, and any other distributions necessary or desirable to avoid federal income or excise taxes.
4.2 APPROVAL OF SHAREHOLDERS. The Predecessor Fund will call a meeting of its shareholders to consider and act upon this Agreement and to take all other appropriate actions necessary to obtain approval of the transactions contemplated herein.
4.3 INVESTMENT REPRESENTATION. The Predecessor Fund covenants that the Successor Fund Common Shares to be issued pursuant to this Agreement are not being acquired for the purpose of making any distribution other than in connection with the Reorganization and in accordance with the terms of this Agreement.
4.4 ADDITIONAL INFORMATION. The Predecessor Fund will assist the Successor Fund in obtaining such information as the Successor Fund reasonably requests concerning the beneficial ownership of the Predecessor Funds shares.
4.5 FURTHER ACTION. Subject to the provisions of this Agreement, each Fund will take or cause to be taken all actions, and do or cause to be done all things, reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including any actions required to be taken after the Closing.
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4.6 PROXY STATEMENT. The Predecessor Fund will prepare and file with the Commission a Proxy Statement (the Proxy Statement) in compliance with the Securities Exchange Act of 1934, as amended (the 1934 Act), and the 1940 Act, and the rules and regulations thereunder, which Proxy Statement may be combined with a proxy statement/prospectus of the Predecessor Fund prepared in connection with a separate transaction involving the Predecessor Fund for administrative ease.
4.7 TRANSFER OF ASSETS AND LIABILITIES. Each Fund will, from time to time, as and when requested by the other Fund, execute and deliver or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action, as the other Fund may deem necessary or desirable in order to (a) vest in and confirm to the Successor Fund title to and possession of all the assets of the Predecessor Fund to be transferred to the Successor Fund pursuant to this Agreement, (b) vest in and confirm to the Predecessor Fund title to and possession of all the Successor Fund Common Shares to be transferred to the Predecessor Fund pursuant to this Agreement, (c) cause the Successor Fund to assume all of the Predecessor Funds liabilities in accordance with this Agreement, and (d) otherwise carry out the intent and purpose of this Agreement.
4.8 REGULATORY APPROVALS. The Successor Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1934 Act, the 1940 Act, any exchange on which the Predecessor Funds shares are listed and such of the state blue sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date.
4.9 SUCCESSOR FUND ACTIVITIES. The Successor Fund shall not issue any shares or other securities prior to the Closing, except for the Initial Share issued to the Sole Shareholder for the purposes set forth in Section 1.4, or conduct any business or activity prior to the Closing except for such activity as is required to consummate the transactions contemplated by this Agreement.
4.10 TAX STATUS OF REORGANIZATION. The intention of the parties is that the Reorganization will qualify as a reorganization within the meaning of Section 368(a) of the Code. Neither Fund shall take any action, or cause any action to be taken (including, without limitation, the filing of any tax return), that is inconsistent with such treatment or that results in the failure of the transactions to qualify as a reorganization within the meaning of Section 368(a) of the Code. At or prior to the Closing, the parties to this Agreement will take such action, or cause such action to be taken, as is reasonably necessary to enable counsel to render the tax opinion contemplated in Section 7.4.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PREDECESSOR FUND
The obligations of the Predecessor Fund to consummate the transactions provided for herein will be subject to the fulfillment or waiver of the following conditions:
5.1 All representations, covenants and warranties of the Successor Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing. The Successor Fund shall have delivered to the Predecessor Fund a certificate executed in the Successor Funds name by (i) the Chief Administrative Officer or any Vice President of the Successor Fund and (ii) the Controller or Treasurer of the Successor Fund, in form and substance satisfactory to the Predecessor Fund and dated as of the Closing Date, to such effect and as to such other matters as the Predecessor Fund shall reasonably request.
5.2 The Successor Fund shall have performed and complied in all material respects with all terms, conditions, covenants, obligations, agreements and restrictions required by this Agreement to be performed or complied with by it prior to or at the Closing.
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ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SUCCESSOR FUND
The obligations of the Successor Fund to consummate the transactions provided for herein shall be subject to the fulfillment or waiver of the following conditions:
6.1 All representations, covenants and warranties of the Predecessor Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing. The Predecessor Fund shall have delivered to the Successor Fund on the Closing Date a certificate executed in the Predecessor Funds name by (i) the Chief Administrative Officer or any Vice President of the Predecessor Fund and (ii) the Controller or Treasurer of the Predecessor Fund, in form and substance satisfactory to the Successor Fund and dated as of the Closing Date, to such effect and as to such other matters as the Successor Fund shall reasonably request.
6.2 The Predecessor Fund shall have performed and complied in all material respects with all terms, conditions, covenants, obligations, agreements and restrictions required by this Agreement to be performed or complied with by it prior to or at the Closing.
6.3 The Predecessor Fund shall have delivered to the Successor Fund a statement of the Predecessor Funds assets and liabilities, together with a list of the Predecessor Funds portfolio securities showing the tax basis of such securities by lot and the holding periods of such securities, as of the Closing, certified by the Controller or Treasurer of the Predecessor Fund.
6.4 The Predecessor Fund shall have delivered such records, agreements, certificates, instruments and such other documents as the Successor Fund shall reasonably request.
ARTICLE VII
FURTHER CONDITIONS PRECEDENT
The obligations of the Funds to consummate the transactions under this Agreement are subject to the fulfillment or waiver of the following conditions:
7.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding common shares of the Predecessor Fund in accordance with applicable law and the provisions of the Predecessor Funds Articles and By-Laws. Notwithstanding anything herein to the contrary, the parties may not waive the condition set forth in this Section 7.1.
7.2 As of the Closing, the Commission shall not have issued an unfavorable report under Section 25(b) of the 1940 Act, or instituted any proceeding seeking to enjoin the consummation of the transactions contemplated by this Agreement under Section 25(c) of the 1940 Act. Furthermore, no action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein.
7.3 All consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and of state securities authorities, including any necessary no-action positions and exemptive orders from such federal and state authorities) to permit consummation of the transactions contemplated herein will have been obtained or made. All notices to, or consents or waivers from, other persons or other actions necessary to permit consummation of the transactions contemplated herein will have been obtained or made.
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7.4 The Funds shall have received an opinion of Vedder Price P.C., dated as of the Closing Date and addressed to the Successor Fund and the Predecessor Fund, substantially to the effect that for federal income tax purposes:
(a) The transfer by the Predecessor Fund of all its assets to the Successor Fund solely in exchange for Successor Fund Common Shares and the assumption by the Successor Fund of all the liabilities of the Predecessor Fund, immediately followed by the pro rata distribution of all the Successor Fund Common Shares so received by the Predecessor Fund to the Predecessor Fund Common Shareholders of record in complete liquidation of the Predecessor Fund and the dissolution of the Predecessor Fund under applicable state law promptly thereafter, will constitute a reorganization within the meaning of Section 368(a)(1) of the Code, and the Successor Fund and the Predecessor Fund will each be a party to a reorganization, within the meaning of Section 368(b) of the Code, with respect to the Reorganization.
(b) No gain or loss will be recognized by the Successor Fund upon the receipt of all the Predecessor Funds assets solely in exchange for Successor Fund Common Shares and the assumption by the Successor Fund of all the liabilities of the Predecessor Fund.
(c) No gain or loss will be recognized by the Predecessor Fund upon the transfer of all its assets to the Successor Fund solely in exchange for Successor Fund Common Shares and the assumption by the Successor Fund of all the liabilities of the Predecessor Fund or upon the distribution (whether actual or constructive) of such Successor Fund Common Shares to the Predecessor Fund Common Shareholders solely in exchange for such shareholders shares of the Predecessor Fund in complete liquidation of the Predecessor Fund.
(d) No gain or loss will be recognized by the Predecessor Fund Common Shareholders upon the exchange, pursuant to the Reorganization, of all their shares of the Predecessor Fund solely for Successor Fund Common Shares.
(e) The aggregate basis of the Successor Fund Common Shares received by each Predecessor Fund Common Shareholder pursuant to the Reorganization will be the same as the aggregate basis of the Predecessor Fund common shares exchanged therefor by such shareholder.
(f) The holding period of the Successor Fund Common Shares received by each Predecessor Fund Common Shareholder in the Reorganization will include the period during which the common shares of the Predecessor Fund exchanged therefor were held by such shareholder, provided the Predecessor Fund common shares are held as capital assets at the effective time of the Reorganization.
(g) The basis of the assets of the Predecessor Fund received by the Successor Fund will be the same as the basis of such assets in the hands of the Predecessor Fund immediately before the effective time of the Reorganization.
(h) The holding period of the assets of the Predecessor Fund received by the Successor Fund will include the period during which those assets were held by the Predecessor Fund.
No opinion will be expressed as to (1) the effect of the Reorganization on the Predecessor Fund, the Successor Fund or any Predecessor Fund Common Shareholder with respect to any asset (including, without limitation, any stock held in a passive foreign investment company as defined in Section 1297(a) of the Code) as to which any gain or loss is required to be recognized under federal income tax principles (a) at the end of a taxable year (or on the termination thereof) or (b) upon the transfer of such asset regardless of whether such transfer would otherwise be a non-taxable transaction under the Code, or (2) any other federal tax issues (except those set forth above) and all state, local or foreign tax issues of any kind.
B-10
Such opinion will be based on customary assumptions and such representations as Vedder Price P.C. may reasonably request of the Funds, and each Fund will cooperate to make and certify the accuracy of such representations. Notwithstanding anything herein to the contrary, neither Fund may waive the conditions set forth in this Section 7.4.
7.5 The Predecessor Fund shall have received (i) an opinion from Vedder Price P.C., special counsel to the Successor Fund, and (ii) an opinion from Morgan, Lewis & Bockius LLP, with respect to matters governed by the laws of the Commonwealth of Massachusetts, each dated as of the Closing Date, substantially to the effect that:
(a) The Successor Fund has been formed as a voluntary association with transferable shares of beneficial interest commonly referred to as a Massachusetts business trust, and is existing under the laws of the Commonwealth of Massachusetts and has the power as a business trust under its Declaration of Trust and Massachusetts law applicable to business trusts to conduct its business as described in the Proxy Statement.
(b) Assuming that the Successor Fund Common Shares will be issued in accordance with the terms of this Agreement, the Successor Fund Common Shares to be issued and delivered to the Predecessor Fund on behalf of the Predecessor Fund Common Shareholders as provided by this Agreement are duly authorized and, upon such delivery will be validly issued, fully paid and non-assessable by the Successor Fund, except that, as described in the Proxy Statement, shareholders of the Successor Fund may under certain circumstances be held personally liable for its obligations under Massachusetts law. No shareholder of the Successor Fund has, as such holder, any preemptive rights to acquire, purchase or subscribe for any securities of the Successor Fund, under the Successor Funds Declaration of Trust, By-Laws or Massachusetts law.
(c) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or the Commonwealth of Massachusetts is required for consummation by the Successor Fund of the transactions contemplated herein, except as have been obtained, and except as may be required under any Massachusetts securities law, statute, rule or regulation, about which such counsel expresses no opinion.
(d) The execution and delivery of this Agreement by the Successor Fund did not, and the consummation by the Successor Fund of the transactions contemplated herein will not, violate the Successor Funds Declaration of Trust or By-Laws.
Insofar as the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the Commonwealth of Massachusetts, Vedder Price P.C. may rely on the opinions of Morgan, Lewis & Bockius LLP.
7.6 The Successor Fund shall have received (i) an opinion from Vedder Price P.C., special counsel to the Predecessor Fund, and (ii) an opinion from Dorsey & Whitney LLP, with respect to matters governed by the laws of the State of Minnesota, each dated as of the Closing Date, substantially to the effect that:
(a) The Predecessor Fund has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Minnesota and, to such counsels knowledge, has the corporate power to own its properties and assets and to carry on its business as presently conducted, in each case as described in the Proxy Statement.
(b) The Predecessor Fund is registered as a closed-end management investment company under the 1940 Act, and, to such counsels knowledge, such registration under the 1940 Act is in full force and effect.
(c) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or the State of Minnesota is required for consummation by the Predecessor Fund of the transactions contemplated herein, except as have been obtained.
B-11
(d) The execution and delivery of this Agreement by the Predecessor Fund did not, and the consummation by the Predecessor Fund of the transactions contemplated herein will not, violate the Predecessor Funds Articles or By-Laws (assuming the requisite approval of the Funds shareholders has been obtained in accordance with its Articles and By-Laws).
Insofar as the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the State of Minnesota, Vedder Price P.C. may rely on the opinions of Dorsey & Whitney LLP.
ARTICLE VIII
EXPENSES
8.1 The expenses incurred by the Funds in connection with this Agreement and the transactions contemplated hereby shall be paid by the Predecessor Fund, and any such expenses not paid prior to the Closing will be assumed as a liability by the Successor Fund in connection with the Reorganization.
8.2 Each party represents and warrants to the other party that there is no person or entity entitled to receive any brokers fees or similar fees or commission payments in connection with structuring the transactions provided for herein.
8.3 Notwithstanding the foregoing, expenses will in any event be paid by the party directly incurring such expenses if and to the extent that the payment by the other party of such expenses would result in the disqualification of a Fund, as the case may be, as a RIC under the Code.
ARTICLE IX
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
9.1 The parties agree that neither party has made to the other party any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties.
9.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant to or in connection with this Agreement will not survive the consummation of the transactions contemplated hereunder.
ARTICLE X
TERMINATION
10.1 This Agreement may be terminated by the mutual agreement of the parties, and such termination may be effected by the Chief Administrative Officer, President or any Vice President of each Fund without further action by the Predecessor Fund Board or the Board of Trustees of the Successor Fund (the Successor Fund Board). In addition, this Agreement may be terminated at or before the Closing due to:
(a) a breach by the non-terminating party of any representation or warranty, or agreement to be performed at or before the Closing, if not cured within 30 days of the breach and prior to the Closing;
(b) a condition precedent to the obligations of the terminating party that has not been met or waived and it reasonably appears that it will not or cannot be met; or
B-12
(c) a determination by the Predecessor Fund Board or the Successor Fund Board that the consummation of the transactions contemplated herein is not in the best interests of its respective Fund involved in the Reorganization.
10.2 In the event of any such termination, in the absence of willful default, there shall be no liability for damages on the part of the Successor Fund or the Predecessor Fund.
ARTICLE XI
AMENDMENTS
11.1 This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the officers of each Fund subject to the prior review of each Funds counsel and the authorization of each of the Predecessor Fund Board and the Successor Fund Board; provided, however, that following the meeting of the shareholders of the Predecessor Fund called by such Fund pursuant to Section 4.2 of this Agreement, no such amendment, modification or supplement may have the effect of changing the provisions for determining the number of Successor Fund Common Shares to be issued to the Predecessor Fund Common Shareholders under this Agreement to the detriment of such shareholders without their further approval.
ARTICLE XII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
12.1 The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
12.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
12.3 This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.
12.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, and no assignment or transfer hereof or of any rights or obligations hereunder shall be made by either party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
12.5 It is expressly agreed that the obligations of the Successor Fund hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of such Fund personally, but shall bind only the property of the Fund, as provided in such Funds Declaration of Trust, which is on file with the Secretary of the Commonwealth of Massachusetts. The execution and delivery of this Agreement have been authorized by the Successor Fund Board, and this Agreement has been signed by an authorized officer of the Successor Fund acting as such. Neither the authorization by such trustees nor the execution and delivery by such officer will be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property of the Successor Fund, as provided in the Funds Declaration of Trust.
[Remainder of Page Intentionally Left Blank]
B-13
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first written above.
NUVEEN NEW YORK MUNICIPAL VALUE FUND | ||
By: | ||
Name: | ||
Title: | ||
NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC. | ||
By: | ||
Name: | ||
Title: |
[Signature Page to Agreement and Plan of Reorganizaiton (NNY Domicile Change)]
FINANCIAL HIGHLIGHTS
Information contained in the tables below under the headings Per Share Operating Performance and Ratios/ Supplemental Data shows the operating performance for the most recent 10 fiscal years for each Fund.
Target Fund
The following Financial Highlights table is intended to help a prospective investor understand the Target Funds financial performance for the periods shown. Certain information of the Target Fund reflects financial results for a single Common Share of the Target Fund. The total returns in the table represent the rate an investor would have earned or lost on an investment in Common Shares of the Fund (assuming reinvestment of all dividends). The Target Funds financial statements as of and for the fiscal years ended February 29, 2020, February 28, 2019 and February 28, 2018, the five month period from October 1, 2016 through February 28, 2017 and the fiscal years ended September 30, 2016, 2015 and 2014, including the financial highlights for the fiscal years or period then ended, have been audited by KPMG LLP (KPMG), an independent registered public accounting firm. KPMGs report, along with the Target Funds financial statements, is included in the Target Funds Annual Report. KPMG has not reviewed or examined any records, transactions or events after the date of such reports. The information with respect to the fiscal periods ended September 30, 2013 and prior was audited by other auditors. A copy of the Annual Report may be obtained from www.sec.gov or by visiting www.nuveen.com. The information contained in, or that can be accessed through the website is not part of this Joint Proxy Statement/Prospectus. Past results are not indicative of future performance.
Year Ended February 28/29, | Year Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||
Per Share Operating
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2020 | 2019 | 2018 | 2017(c) | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||||||||||
Beginning Common Share Net Asset Value (NAV) |
$ | 15.34 | $ | 15.10 | $ | 15.46 | $ | 16.14 | $ | 15.89 | $ | 15.94 | $ | 15.16 | $ | 16.36 | $ | 15.36 | $ | 16.10 | $ | 15.91 | ||||||||||||||||||||||
Investment Operations: |
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Net Investment Income (Loss) |
0.43 | 0.53 | 0.55 | 0.25 | 0.81 | 0.67 | 0.68 | 0.72 | 0.72 | 0.75 | 0.79 | |||||||||||||||||||||||||||||||||
Net Realized/ Unrealized Gain (Loss) |
1.25 | 0.22 | (0.21 | ) | (0.64 | ) | 0.07 | (0.08 | ) | 0.76 | (1.25 | ) | 0.95 | (0.74 | ) | 0.17 | ||||||||||||||||||||||||||||
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Total |
1.68 | 0.75 | 0.34 | (0.39 | ) | 0.88 | 0.59 | 1.44 | (0.53 | ) | 1.67 | 0.01 | 0.96 | |||||||||||||||||||||||||||||||
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Less Distributions: |
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From Net Investment Income |
(0.47 | ) | (0.51 | ) | (0.59 | ) | (0.29 | ) | (0.63 | ) | (0.64 | ) | (0.66 | ) | (0.67 | ) | (0.67 | ) | (0.75 | ) | (0.77 | ) | ||||||||||||||||||||||
From Accumulated Net Realized Gains |
(0.24 | ) | | (0.11 | ) | | | | | | | | | |||||||||||||||||||||||||||||||
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Total |
(0.71 | ) | (0.51 | ) | (0.70 | ) | (0.29 | ) | (0.63 | ) | (0.64 | ) | (0.66 | ) | (0.67 | ) | (0.67 | ) | (0.75 | ) | (0.77 | ) | ||||||||||||||||||||||
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Common Share |
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Ending NAV |
$ | 16.31 | $ | 15.34 | $ | 15.10 | $ | 15.46 | $ | 16.14 | $ | 15.89 | $ | 15.94 | $ | 15.16 | $ | 16.36 | $ | 15.36 | $ | 16.10 | ||||||||||||||||||||||
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Ending Share Price |
$ | 14.77 | $ | 13.68 | $ | 13.78 | $ | 14.87 | $ | 15.90 | $ | 14.85 | $ | 14.44 | $ | 13.99 | $ | 16.33 | $ | 14.13 | $ | 15.38 | ||||||||||||||||||||||
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Total Returns: |
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Based on NAV(a) |
11.11 | % | 5.05 | % | 2.17 | % | (2.41 | )% | 5.62 | % | 3.74 | % | 9.69 | % | (3.36 | )% | 11.12 | % | 0.27 | % | 6.26 | % | ||||||||||||||||||||||
Based on Share Price(a) |
13.32 | % | 3.08 | % | (2.83 | )% | (4.67 | )% | 11.45 | % | 7.34 | % | 8.12 | % | (10.46 | )% | 20.74 | % | (3.15 | )% | 9.12 | % | ||||||||||||||||||||||
Ratios/Supplemental Data |
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Ending Net Assets (000) |
$ | 38,329 | $ | 36,052 | $ | 35,489 | $ | 36,329 | $ | 37,927 | $ | 37,326 | $ | 37,455 | $ | 35,630 | $ | 38,434 | $ | 36,040 | $ | 37,796 | ||||||||||||||||||||||
Ratios to Average Net Assets |
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Expenses |
0.75 | % | 0.75 | % | 0.75 | % | 0.85 | %* | 0.76 | % | 0.75 | % | 0.76 | % | 0.74 | % | 0.75 | % | 0.77 | % | 0.74 | % | ||||||||||||||||||||||
Net Investment Income (Loss) |
2.73 | % | 3.50 | % | 3.53 | % | 3.90 | %* | 5.01 | % | 4.19 | % | 4.37 | % | 4.50 | % | 4.55 | % | 4.99 | % | 5.04 | % | ||||||||||||||||||||||
Portfolio Turnover Rate(b) |
17 | % | 34 | % | 27 | % | 13 | % | 8 | % | 11 | % | 19 | % | 3 | % | 10 | % | 18 | % | 2 | % |
C-1
(a) |
Total Return Based on Common Share NAV is the combination of changes in common share NAV, reinvested dividend income at NAV and reinvested capital gains distributions at NAV, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending NAV. The actual reinvest price for the last dividend declared in the period may often be based on the Funds market price (and not its NAV), and therefore may be different from the price used in the calculation. Total returns are not annualized. |
Total Return Based on Common Share Price is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. |
(b) |
Portfolio Turnover Rate is calculated based on the lesser of long-term purchases or sales divided by the average long-term market value during the period. |
(c) |
For the five months ended February 28, 2017. |
* |
Annualized. |
Acquiring Fund
The following Financial Highlights table is intended to help a prospective investor understand the Acquiring Funds financial performance for the periods shown. Certain information of the Acquiring Fund reflects financial results for a single Common Share of the Acquiring Fund. The total returns in the table represent the rate an investor would have earned or lost on an investment in Common Shares of the Fund (assuming reinvestment of all dividends). The Acquiring Funds financial statements as of and for the fiscal years ended February 29, 2020, February 28, 2019 and February 28, 2018, the five month period from October 1, 2016 through February 28, 2017 and the fiscal years ended September 30, 2016, 2015 and 2014, including the financial highlights for the fiscal years or period then ended, have been audited by KPMG, an independent registered public accounting firm. KPMGs report, along with the Acquiring Funds financial statements, is included in the Acquiring Funds Annual Report. KPMG has not reviewed or examined any records, transactions or events after the date of such reports. The information with respect to the fiscal periods ended September 30, 2013 and prior was audited by other auditors. A copy of the Annual Report may be obtained from www.sec.gov or by visiting www.nuveen.com. The information contained in, or that can be accessed through the website is not part of this Joint Proxy Statement/Prospectus. Past results are not indicative of future performance.
Year Ended February 28/29, | Year Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||
Per Share Operating Performance |
2020 | 2019 | 2018 | 2017(d) | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||||||||||
Beginning Common Share Net Asset Value (NAV) |
$ | 9.87 | $ | 9.81 | $ | 9.89 | $ | 10.33 | $ | 10.01 | $ | 10.08 | $ | 9.65 | $ | 10.41 | $ | 9.93 | $ | 10.02 | $ | 9.91 | ||||||||||||||||||||||
Investment Operations: |
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Net Investment Income (Loss) |
0.35 | 0.36 | 0.37 | 0.16 | 0.41 | 0.40 | 0.41 | 0.40 | 0.42 | 0.43 | 0.42 | |||||||||||||||||||||||||||||||||
Net Realized/ Unrealized Gain (Loss) |
0.59 | 0.06 | (0.07 | ) | (0.44 | ) | 0.30 | (0.08 | ) | 0.41 | (0.75 | ) | 0.48 | (0.08 | ) | 0.14 | ||||||||||||||||||||||||||||
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Total |
0.94 | 0.42 | 0.30 | (0.28 | ) | 0.71 | 0.32 | 0.82 | (0.35 | ) | 0.90 | 0.35 | 0.56 | |||||||||||||||||||||||||||||||
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Less Distributions: |
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From Net Investment Income |
(0.35 | ) | (0.36 | ) | (0.38 | ) | (0.16 | ) | (0.39 | ) | (0.39 | ) | (0.39 | ) | (0.39 | ) | (0.42 | ) | (0.43 | ) | (0.43 | ) | ||||||||||||||||||||||
From Accumulated Net Realized Gains |
| | | | | | | (0.02 | ) | | (0.01 | ) | (0.02 | ) | ||||||||||||||||||||||||||||||
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Total |
(0.35 | ) | (0.36 | ) | (0.38 | ) | (0.16 | ) | (0.39 | ) | (0.39 | ) | (0.39 | ) | (0.41 | ) | (0.42 | ) | (0.44 | ) | (0.45 | ) | ||||||||||||||||||||||
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Common Share |
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Ending NAV |
$ | 10.46 | $ | 9.87 | $ | 9.81 | $ | 9.89 | $ | 10.33 | $ | 10.01 | $ | 10.08 | $ | 9.65 | $ | 10.41 | $ | 9.93 | $ | 10.02 | ||||||||||||||||||||||
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Ending Share Price |
$ | 10.36 | $ | 9.67 | $ | 9.26 | $ | 9.70 | $ | 10.33 | $ | 9.71 | $ | 9.71 | $ | 8.97 | $ | 10.55 | $ | 9.47 | $ | 9.88 | ||||||||||||||||||||||
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Total Returns: |
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Based on NAV(a) |
9.72 | % | 4.37 | % | 3.01 | % | (2.71 | )% | 7.23 | % | 3.22 | % | 8.63 | % | (3.51 | )% | 9.23 | % | 3.62 | % | 5.82 | % | ||||||||||||||||||||||
Based on Share Price(a) |
10.93 | % | 8.52 | % | (0.80 | )% | (4.54 | )% | 10.56 | % | 4.05 | % | 12.76 | % | (11.41 | )% | 16.11 | % | 0.39 | % | 8.78 | % |
C-2
Year Ended February 28/29, | Year Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||
Per Share
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2020 | 2019 | 2018 | 2017(d) | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||||||||||
Ratios/Supplemental Data |
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Ending Net Assets (000) |
$ | 159,252 | $ | 150,281 | $ | 149,313 | $ | 150,358 | $ | 156,939 | $ | 152,137 | $ | 153,087 | $ | 146,522 | $ | 157,979 | $ | 150,555 | $ | 152,031 | ||||||||||||||||||||||
Ratios to Average Net Assets |
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Expenses(b) |
0.59 | % | 0.59 | % | 0.60 | % | 0.63 | %* | 0.60 | % | 0.60 | % | 0.63 | % | 0.61 | % | 0.65 | % | 0.65 | % | 0.67 | % | ||||||||||||||||||||||
Net Investment Income (Loss) |
3.45 | % | 3.63 | % | 3.69 | % | 3.77 | %* | 4.04 | % | 3.98 | % | 4.13 | % | 3.97 | % | 4.14 | % | 4.40 | % | 4.30 | % | ||||||||||||||||||||||
Portfolio Turnover Rate(c) |
7 | % | 17 | % | 12 | % | 14 | % | 15 | % | 31 | % | 23 | % | 21 | % | 10 | % | 10 | % | 5 | % |
(a) |
Total Return Based on Common Share NAV is the combination of changes in common share NAV, reinvested dividend income at NAV and reinvested capital gains distributions at NAV, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending NAV. The actual reinvest price for the last dividend declared in the period may often be based on the Funds market price (and not its NAV), and therefore may be different from the price used in the calculation. Total returns are not annualized. |
Total Return Based on Common Share Price is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. |
(b) |
The expense ratios reflect, among other things, the interest expense deemed to have been paid by the Fund on the floating rate certificates issued by the special purpose trusts for the self-deposited inverse floaters held by the Fund, where applicable, as follows: |
Year Ended 2/28-2/29: |
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2020 |
0.02 | % | ||
2019 |
0.02 | |||
2018 |
0.03 | |||
2017(d) |
0.03 | * | ||
Year Ended 9/30: |
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2016 |
0.02 | |||
2015 |
0.01 | |||
2014 |
0.01 | |||
2013 |
0.01 | |||
2012 |
0.01 | |||
2011 |
0.01 | |||
2010 |
0.01 |
(c) |
Portfolio Turnover Rate is calculated based on the lesser of long-term purchases or sales divided by the average long-term market value during the period. |
(d) |
For the five months ended February 28, 2017. |
* |
Annualized. |
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FACTORS AFFECTING MUNICIPAL SECURITIES IN NEW YORK
Special Considerations Relating to New York Municipal Obligations
The Funds will have considerable investments in New York municipal obligations. Accordingly, the Funds are susceptible to certain factors that could adversely affect issuers of New York municipal obligations. The ability of issuers to pay interest on, and repay principal of, New York municipal obligations may be affected by: (1) amendments to the Constitution of the State of New York (the State) and other statutes that limit the taxing and spending authority of New York government entities; (2) the general financial and economic profile as well as the political climate of the State, its public authorities and political subdivisions; (3) a change in New York laws and regulations or subsequent court decisions that may affect, directly or indirectly, New York municipal obligations; and (4) the short- and long-term effects of the COVID-19 pandemic. The Funds yield and share prices are sensitive to these factors as one or more of such factors could undermine New York issuers efforts to borrow, inhibit secondary market liquidity, erode credit ratings and affect New York issuers ability to pay interest on, and repay principal of, New York municipal obligations. Furthermore, it should be noted that the creditworthiness of obligations issued by local New York issuers may be unrelated to the creditworthiness of obligations issued by the State and the City of New York (the City), and that there is no obligation on the part of the State to make payment on such local obligations in the event of default.
Summarized below are important financial concerns relating to the Funds investments in New York municipal obligations. This section is not intended to be an entirely comprehensive description of all risks involved in investing in New York municipal obligations. The information in this section is intended to give a recent historical description and is not intended to indicate future or continuing trends in the financial or other positions of the State and the City. It should be noted that the information recorded here primarily is based on the economic and budget forecasts and economic risks found in certain reports issued by the State, the City and the Metropolitan Transportation Authority (the MTA). The accuracy and completeness of the information in those reports have not been independently verified. The resources used to prepare the disclosure related to the City, the State and the U.S. economy were published between December 2019 and August 2020, and the resources used to prepare the MTA disclosure were published between February 2020 and June 2020. Since the time that such resources were published, there may have been, and may yet be, significant changes in circumstances altering the economic and budget predictions found in those resources and presented here, especially in light of the developing COVID-19 pandemic. In addition, it is important to note that many of the dollar amounts referenced in this section have been truncated to one digit after the decimal and rounded up or down to the appropriate dollar denomination. Because such dollar amounts generally reference large sums of money (e.g., millions or billions of dollars), the truncation and/or rounding of such dollar amounts may significantly differ from the untruncated and unrounded dollar amounts.
State Economy
New York State and especially New York City have been significantly impacted by the COVID-19 pandemic. Coronavirus fears, travel bans, and regulations that limit social gatherings which have caused a wide range of business sectors to cease operations, especially retail trade and leisure and hospitality. The abrupt halt of economic activity in most industries continues to lead to layoffs and furloughs. As a result, private sector employment in New York State is expected to shed jobs starting from the first fiscal quarter of 2020 through the first fiscal quarter of 2021 on a year-over-year basis. Private sector employment is expected to decline 7.5 percent in 2020 and recover in 2021 to a growth rate of 3.1 percent.
Due to global economic and financial uncertainties, the S&P 500 equity price index is expected to decline 14.7 percent in 2020. Finance and insurance sector bonuses are expected to decline 50.4 percent in fiscal year 2021. The outlook for total bonuses is slightly less negative, with a projected decline of 44.9 percent in fiscal year 2021. Total wages are expected to decline 7.2 percent in fiscal year 2021.
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State property income and proprietors income are projected to decline 9.1 percent and 5.3 percent, respectively, in fiscal year 2021. The CARES Act relief payments to individuals across the nation are estimated by the Joint Committee of Taxation to be $292.4 billion. These payments are reflected within State transfer income as early as the second quarter of 2020, driving up State transfer income by approximately 23 percent in fiscal year 2021. On balance, State personal income is projected to decline 2.2 percent in fiscal year 2021, followed by a projected growth of 1.8 percent in fiscal year 2022.
All of the risks to the U.S. forecast apply to the State forecast as well. The COVID-19 pandemic and weak global growth are contributing to increased market volatility and restraining equity prices growth over the near term. As the nations financial capital, both the volume of financial market activity and volatility in equity markets pose a particularly significant degree of risk for the New York State economy. Since the New York City area became the epicenter of the COVID-19 outbreak in the U.S., a prolonged impact of the virus would threaten economic growth within the City and overall State. More-than-expected layoffs could pose a significant downside risk to employment and wage outlook. Upside risks such as the faster than expected containment of the virus, stronger equity markets, and more robust national and global growth could result in higher employment and wage growth.
The State has a diverse economy with a relatively large share of the nations financial activities, employment in the information, health services and education sectors, but a rather small share of the nations farming and mining activity. The State has the fourth highest population in the nation, and its residents have a comparatively high level of personal wealth. The most significant sectors of the States economy differ from those of the national economy. Tourism comprises a significant part of the economy. The States location, airport facilities and natural harbors have made it an essential link in international commerce. Manufacturing and construction account for smaller shares of employment for the State than for the nation, while service industries account for a larger share. The financial activities sector share of total State wages is particularly large relative to the nation. During an economic recession that is concentrated in construction and manufacturing, the State is likely to be less affected than the nation as a whole; however, the State is more likely to be affected during a recession that is concentrated in the services sector. The City has the highest population of any city in the nation and is the center of the nations largest metropolitan area. The City accounts for a large percentage of the States residents and personal income.
The discussion that follows regarding the status of the U.S. and State economies is primarily based on information published by the State Division of the Budget (the DOB) on June 3, 2020. All predictions and past performance information regarding the U.S. and State economies contained in this subsection were made on or before that date even though they may be stated in the present tense and may no longer be accurate. You are also encouraged to read, in conjunction with this description of the State economy, the New York City Economy subsection of this Appendix, which presents some of the City Office of Management and Budget (the OMB) projections regarding the economy.
The COVID-19 pandemic has caused economic activity in the nation and the State to decrease. Initial unemployment claims surged in the second half of March 2020 through the first three weeks of April, bringing the five-week total to approximately 26.5 million. This number of initial claims is record breaking for a five-week period and surpasses the nonfarm job gains from October 2010 through February 2020. According to the U.S. Bureau of Economic Analysis (the BEA), U.S. real Gross Domestic Product (the GDP) is estimated to have declined by 5.0 percent in the first quarter of 2020, and the DOB estimates the GDP will fall by 24.5 percent in the second quarter. For comparison, the prior DOB forecast (February 2020) estimated quarterly growth of 1.5 percent and 2.5 percent, respectively. On an annual basis, U.S. real GDP growth for 2020 is expected to contract by 5.7 percent.
Most key measures of the States economic output are expected to fall in comparison to fiscal year 2020, which began on April 1, 2019 and ended on March 31, 2020. The DOB forecasts that nonfarm employment will fall by 7 percent; total wages will fall by 7.2 percent, and personal income and wages (excluding bonuses) will
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fall by 2.2 percent. Financial and insurance sector bonuses, an important source of personal income tax collections, are expected to drop by 50 percent. The States unemployment rate is expected to average 11.4 percent.
The Governor proposed the fiscal year 2021 Executive Budget on January 21, 2020, and amendments to it on February 14, 2020. In the Executive Budget Financial Plan dated February 24, 2020, the DOB estimated that, if the budget was adopted without modification, the General Fund would be balanced in fiscal year 2021. The outyear budget gaps were projected at $1.9 billion in fiscal year 2022, $3.3 billion in fiscal year 2023, and $3.3 billion in fiscal year 2024. The Executive Budget Financial Plan reflected a proposed $105.8 billion in State Operating Funds spending for fiscal year 2021, an annual increase of $1.9 billion, or 1.9 percent.
The pandemics impact on economic activity has rendered the Executive Budget Financial Plan estimates obsolete. In the Enacted Budget Financial Plan, the DOB has reduced the fiscal year 2021 estimate for General Fund receipts by $13.3 billion in comparison to the Executive Budget Financial Plan. Steep reductions have been made to the estimates for General Fund tax receipts ($12.2 billion), lottery and gaming revenues that support School Aid ($858 million), and dedicated tax receipts to the Dedicated Highway and Bridge Trust Fund (the DHBTF), for which the General Fund is the payor of last resort ($168 million). For context, all Funds tax receipts are expected to decline by 8.9 percent from fiscal year 2020 and 14.1 percent from the Executive Budget Financial Plan forecast and remain at that reduced level in fiscal year 2022. Tax receipts are not expected to return to fiscal year 2020 levels until fiscal year 2024.
The decline in General Fund receipts is forecast to carry through each subsequent year of the Enacted Budget Financial Plan, for a total loss of $60.5 billion through fiscal year 2024 compared to the Executive Budget Financial Plan. The total budget gap for the four-year Financial Plan period (fiscal year 2021 through fiscal year 2024), prior to the savings measures described below, is now projected to be $69 billion, or more than 8 times higher than the total gap of $8.5 billion projected in the Executive Budget Financial Plan.
To date, the Federal government has taken legislative, administrative, and Federal Reserve actions intended to stabilize financial markets; extend aid to large and small businesses, health care providers, and individuals; and reimburse governments for the direct costs of pandemic response. From the perspective of the State Financial Plan, the most significant actions to date include the Presidents approval designating New York as a major disaster area, making it eligible for FEMA grants and aid; establishing the Coronavirus Relief Fund under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which will provide the State with funding for COVID-related expenses; a temporary increase in FMAP, which is the matching rate that the Federal government pays on eligible Medicaid expenditures; and the creation of a Municipal Liquidity Facility (MLF) that authorizes the Federal Reserve to purchase revenue and bond anticipation notes of states and certain local governments.
The Federal legislation to date, however, provides only limited unrestricted aid to replace the expected severe loss in State tax receipts. The temporary FMAP increase is estimated to provide $1.45 billion in savings in fiscal year 2021. Medicaid enrollment growth as a result of the recession is likely to further erode the value of the FMAP benefit. Certain congressional leaders have expressed support for legislation to provide such aid to the states and local governments, but no consensus has been reached. Therefore, the State cannot count on additional Federal aid and must move ahead with plans to impose deep, widespread reductions to local aid programs and agency operations to provide for a balanced budget in fiscal year 2021. If unrestricted aid becomes available, or tax receipts rebound unexpectedly, the planned reductions may become less severe. There can be no assurance that the State economy will not experience results worse than those predicted in the 2020 fiscal year or subsequent fiscal years, with related material and adverse effects on the States estimates of receipts and disbursements.
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State Budget
Each year, the Governor is required to provide the State Legislature with a balanced executive budget which constitutes the proposed State financial plan for the ensuing fiscal year. The States fiscal year for 2020 ended on March 31, 2020. (The States fiscal year for 2021 will run from April 1, 2020 to March 31, 2021.) The Governors executive budget is required to be balanced on a cash basis and that is the primary focus of the DOB in preparing the financial plan for the State. State finance law also requires the State financial plan to be reported using generally accepted accounting principles (GAAP), in accordance with standards and regulations set forth by the Governmental Accounting Standards Board (GASB). As such, the State reports its financial results on both the cash accounting basis, showing receipts and disbursements, and the GAAP modified accrual basis, showing revenues and expenditures.
In April 2020, the DOB published the Enacted Budget Financial Plan for Fiscal Year 2021 (the Financial Plan), which sets forth the States official financial plans for fiscal years 2021 through 2024. Subsequently, the DOB issued the first quarterly update to the Financial Plan in July 2020 (the First Quarterly Update). (The Financial Plan, to the extent updated and modified by the First Quarterly Update, is referred to as the Updated Financial Plan.) The DOB also issued the Annual Information Statement, dated June 3, 2020, and supplemented July 8, 2020 (together, the 2021 AIS). The State financial results, as described below, are calculated on a cash accounting basis, unless specified otherwise. The GAAP projections for the States budget can be obtained from the DOB.
The DOB reported a General Fund closing cash balance of approximately $8.9 billion for the end of fiscal year 2020, an increase of $1.7 billion from the fiscal year 2019 results. The change in the balance reflects the use of available cash at the end of fiscal year 2020 to reduce the budget gap in fiscal year 2021 and the timing of payments not made at the close of fiscal year 2020 that are expected to be made in fiscal year 2021. The estimated closing balance is dependent on many factors, including the implementation of the reductions in local aid and State agency operations, the performance of tax receipts, and other assumptions described in the Updated Financial Plan.
According to the Updated Financial Plan, total General Fund receipts for fiscal year 2021 (including transfers from other funds) are expected to total $70.9 billion, an annual decrease of $8.2 billion. In comparison to the February 2020 financial plan, the DOB has reduced the fiscal year 2021 estimate for General Fund receipts by $13.3 billion, and expects reduced receipts to carry through to each successive fiscal year creating a total a total loss of $60.5 billion through fiscal year 2024. General Fund disbursements for fiscal year 2021 (including transfers to other funds) are expected to total $73.2 billion, an annual decrease of $4.3 billion.
General Fund Out-year Budget Gap Projections
The DOB anticipates balanced operations in the General Fund after use of reserves. The Updated Financial Plan projects budget deficits (after budget control actions) in future years of $7.4 billion in 2022, $9.3 billion in 2023, and $8.8 billion in 2024. The combined four-year deficit projected for fiscal years 2022 through 2024 totals approximately $25.6 billion. The deficit estimates in future years are based on the assumption that annual growth in State Operating Funds spending will be limited to 2 percent, and that all savings that result from the 2 percent limitation will be made available to the General Fund.
The budget forecasts are based on assumptions of economic performance, revenue collections, spending patterns and projections of the costs of program activities. There can be no guarantee that the States financial position will not change materially and adversely from current projections. If this were to happen, the State would be required to take additional gap-closing actions, such as decreases in State agency operations; delays or decreases in payments to local governments or other recipients of State aid; delays in or suspension of capital maintenance and construction; extraordinary financing of operating expenses; or other actions. In some cases, the
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ability of the State to implement these actions requires the approval of the Legislature and cannot be implemented unilaterally by the Governor. See also the discussion below in the Other Considerations subsection of this Appendix.
Other Considerations
Many complex political, social, economic, financial and environmental forces influence the States economy and finances, which may in turn affect the Updated Financial Plan. These factors may affect the State unpredictably from fiscal year to fiscal year and are influenced by governments, institutions and events that are not subject to the States control. The Updated Financial Plan is also based on numerous assumptions, including forecasts of national and State economic activity and the ability of the State to collect related tax receipts as projected. Economic forecasts have frequently failed to predict accurately the timing and magnitude of changes in the national and State economies. In certain fiscal years, actual collections were substantially below the levels predicted for the year. In addition, surplus projections in future years are based on the assumption that annual growth in State Operating Funds spending is limited to 2 percent, and that all savings that result from the 2 percent limit will be made available to the General Fund. There can be no assurance that the States actual results will not differ materially and adversely from the current forecast.
There are numerous uncertainties and risks that could affect the Updated Financial Plan, including the impact of: national and international events; ongoing financial risks in the Eurozone; changes in consumer confidence, price and supply of oil and gas; major terrorist events and hostilities or war; climate change and extreme weather events; severe epidemic or pandemic events; cybersecurity threats; Federal statutory and regulatory changes concerning financial sector activities; Federal tax law; changes to Federal programs; changes concerning financial sector bonus payouts, as well as any future legislation governing the structure of compensation; shifts in monetary policy affecting interest rates and the financial markets; credit rating agency actions; financial and real estate market developments which may adversely affect bonus income and capital gains realizations; technology industry developments and employment; effect of household debt on consumer spending and State tax collections; and outcomes of litigation and other claims affecting the State. Other uncertainties and contingencies that could affect the Updated Financial Plan include, but are not limited to, wage and benefit increases for State employees that exceed projected annual costs; changes in the size of the States workforce; realization of the projected rate of return for pension fund assets, and current assumptions with respect to wages for State employees affecting the States required pension fund contributions; willingness and ability of the Federal government to provide the aid projected in the Updated Financial Plan; ability of the State to implement cost reduction initiatives, including reductions in State agency operations, and the success with which the State controls expenditures; unanticipated growth in Medicaid program costs; and ability of the State and its public authorities to issue securities successfully in public credit markets.
The Updated Financial Plan forecast also contains specific transaction risks and other uncertainties that, if they were to materialize, could have a negative effect on the Updated Financial Plan in fiscal year 2021 or in future years, including, but not limited to, reductions in State agency operations; delays or reductions in payments to local governments or other recipients of State aid; delays in or suspension of capital maintenance and construction; extraordinary financing of operating expenses; use of nonrecurring resources; or other measures. In some cases, the ability of the State to implement such actions requires the approval of the Legislature and cannot be implemented solely by the Governor.
The Updated Financial Plan projections generally assume that School Aid and Medicaid disbursements will be restricted to the increase in State personal income and the ten-year average growth in the Medicaid component of the Consumer Price Index, respectively. Beginning in fiscal year 2021, the statutory Personal Income Growth Index for School Aid has been amended to limit school aid increases to no more than the average annual income growth over a ten-year period. This change will reduce volatility in allowable growth and align the School Aid cap with the statutory Medicaid cap. Due to the anticipated impact of the COVID-19 pandemic on State revenues, State support for School Aid for school year 2021 in the Enacted Budget is 3.7 percent lower than in
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school year 2020, but is offset in part with increased Federal support noted below. This reduction in State Operating Funds support will be offset by approximately $1.1 billion in funding provided to the State through the Federal CARES Act, including the Elementary and Secondary School Emergency Education Relief Fund and the Governors Emergency Education Relief Fund. With these Federal funds, SY 2021 School Aid is expected to total $27.9 billion, an annual increase of approximately $100 million or 0.4 percent.
One of the risks that could cause budget gaps to increase materially relates to Medicaid cost controls. The Updated Financial Plan assumes the use of available statutory tools to implement Medicaid cost savings. However, there can be no assurance that these controls will be sufficient to limit the rate of annual growth in the Medicaid spending of the Department of Healths State Funds to the levels projected in the Updated Financial Plan. In addition, limitation on annual growth is dependent on timely federal government approvals, revenue performance in the States Health Care Reform Act fund (which finances about one-third of the Department of Health State-share costs of Medicaid) and the cooperation of the health care industry.
The State faces long-term threats and potential hazards and risks as a result of climate change, such as rising sea levels, more severe coastal flooding and erosion hazards, and more intense storms. The recent storms affecting the State have exposed vulnerabilities in the States infrastructure to extreme weather events. The DOB expects that substantial long-term planning and investment by the federal government, State and municipalities will be needed to adapt existing infrastructure to the risks presented by climate change. There can be no guarantee that all expected federal disaster aid described above will be provided to the State and its affected entities, or that it will be provided on the projected schedule. The State authorizes the General Fund to temporarily borrow resources from other funds in the States short-term investment pool (STIP). The fiscal year 2021 Enacted Budget amended the statute to permit such borrowings until the end of the fiscal year, which was previously limited to up to four months. The General Fund may occasionally temporarily borrow funds from STIP during the fiscal year. The State continues to set aside money quarterly for debt service payments that are financed with General Fund resources, and reserve money to pay debt service on bonds secured by dedicated receipts, including personal income tax (PIT) bonds, as required by law and bond covenants.
Under legislation enacted in August 2010, the State and local governments may defer paying (or amortize) a part of their annual pension costs. Although amortization temporarily cuts the pension costs that must be paid by public employers in a particular fiscal year, it ultimately results in greater total costs when repaid with interest. Pension contribution costs greater than the States prescribed amortization thresholds may be deferred. Based in part on certain actuarial assumptions, the Updated Financial Plan assumes that the State will continue to amortize a part of its pension costs in fiscal year 2021 and beyond. The State made pension payments to the New York State Local Retirement System of $2.3 billion in fiscal year 2020. The State opted not to amortize under the Contribution Stabilization Program and paid the bill in full as of March 1, 2020. Amortized amounts must be paid by the State and participating employers in equal annual installments over a ten-year period, and employers may prepay these amounts at any time without penalty. Employers are required to pay interest on the amortized amounts at a rate determined annually by the State Comptroller that is comparable to taxable fixed income investments of a comparable duration. The interest rate on the amount an employer chooses to amortize in a particular rate year is fixed for the duration of the ten-year repayment period. Should the employer choose to amortize in the next rate year, the interest rate on that amortization will be the rate set for that year. For amounts amortized in fiscal year 2011, fiscal year 2012, fiscal year 2013, fiscal year 2014, fiscal year 2015, fiscal year 2016, fiscal year 2017, fiscal year 2018, fiscal year 2019 and fiscal year 2020, the interest rates are 5 percent, 3.75 percent, 3 percent, 3.67 percent, 3.15 percent, 3.21 percent, 2.33 percent, 2.84 percent, 3.64 percent and 2.55 percent respectively. The first payment is due in the fiscal year following the decision to amortize pension costs.
State law allows health insurance companies to convert from a not-for-profit to a for-profit corporation, subject to certain restrictions and approvals. The proceeds of such conversions must be used by the State for health-care-related expenses. The States financial plan in recent years has counted on proceeds from conversions (for example, $501 million in fiscal year 2020, $138 million annually in fiscal years 2021 and 2022 and $68 million in fiscal year 2023), which have not been realized.
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The State receives a substantial amount of Federal aid for health care, education, transportation, and other governmental purposes, as well as Federal funding to respond to and recover from acute crises or emergencies such as severe weather events, disasters and disease outbreaks. Many policies that drive this Federal aid are subject to possible changes by the Trump Administration and Congress. Current Federal aid projections and the assumptions on which they rely are subject to revision because of changes in Federal policy.
The Centers for Medicare & Medicaid Services (the CMS) and the State have an existing agreement authorizing up to $8 billion in Federal funding through March 31, 2021 to transform New Yorks health care system and ensure access to quality care for all Medicaid beneficiaries. This funding was provided through an amendment to the States Partnership Plan 1115 Medicaid waiver. Since January 1, 2014, in accordance with provisions of the Affordable Care Act, the State has been eligible for enhanced FMAP funding associated with childless adults.
The Financial Plan may also be adversely affected by other Federal government actions including audits, disallowances, and changes to Federal participation rates or other Medicaid rules. For instance, the Financial Plan includes reimbursement to the Federal government of $100 million annually through fiscal year 2027 pursuant to a March 2015 agreement between the State and the CMS. The agreement resolved a pending disallowance for fiscal year 2011 and all related payment disputes for State-operated services prior to April 1, 2013, including home and community-based waiver services. Pursuant to the agreement, the State must adjust the Federal/State share of future Medicaid costs to reimburse the Federal government. The State used $850 million in Extraordinary Monetary Settlement payments, previously set aside for financial risks, to finance the initial repayment amount in fiscal year 2016.
Debt outstanding and debt service costs over the course of the plan period are projected to remain below the limits prescribed by the Debt Reform Act of 2000 (the Debt Reform Act) based on the updated forecasts in the Updated Financial Plan. However, the State is currently in a period of relatively limited debt capacity. The available room under the debt outstanding cap is expected to decline from $6.2 billion in fiscal year 2020 to $2.3 billion in fiscal year 2024. This calculation excludes all issuances in fiscal year 2021 but includes the estimated impact of funding increased capital commitment levels with State bonds after fiscal year 2021. The State may implement measures to further adjust capital spending priorities and debt financing practices to stay in compliance with the statutory outstanding debt limit.
The Bipartisan Budget Act of 2019 suspended the Federal debt limit through July 31, 2021 and brought to a close the extraordinary measures that the U.S. Treasury had been operating under since the prior suspension expired on March 1, 2019. A Federal government default on payments, particularly for a prolonged period, could have a materially adverse effect on national and State economies, financial markets, and intergovernmental aid payments. Specific effects on the Financial Plan of a future Federal government default are unknown and impossible to predict. However, data from past economic downturns suggests that the States revenue loss could be substantial if there was an economic downturn due to a Federal default.
A payment default by the Federal Government may adversely affect the municipal bond market. Municipal issuers, including the State, could face higher borrowing costs and impaired access to capital markets. This would jeopardize planned capital investments in transportation infrastructure, higher education facilities, hazardous waste remediation, environmental projects, and economic development projects. Additionally, the market for and market value of outstanding municipal obligations, including municipal obligations of the State, could be adversely affected.
Substantially all of the States employees become eligible for post-retirement benefits if they reach retirement while working for the State. In accordance with the GASB Statement 75, the State must perform an actuarial valuation every two years for purposes of calculating Other Post-Employment Benefits (OPEB) liabilities. The Annual Required Contribution represents the annual level of funding that, if set aside on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded liabilities of the plan over
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a maximum period of 30 years. Any amounts required but not actually set aside to pay for these benefits are accumulated with interest as part of the net OPEB obligation, after adjusting for amounts previously required. The total ending OPEB liability for fiscal year 2019 is $63.4 billion ($50.9 billion for the State and $12.5 billion for the State University of New York (SUNY). The total OPEB liability as of March 31, 2019 was measured as of March 31, 2018 and was determined using an actuarial valuation as of April 1, 2017, with update procedures used to roll forward the total OPEB liability to March 31, 2018. The total beginning OPEB liability for fiscal year 2019 was $66.5 billion ($53.5 billion for the State and $13 billion for SUNY). The total OPEB liability was calculated using the Entry Age Normal cost method. The discount rate is based on the Bond Buyer 20-year general obligation municipal bond index rate on March 31 (3.86 percent in fiscal year 2018 and 3.89 percent in fiscal year 2019). The total OPEB liability declined by $3.1 billion during fiscal year 2019, primarily attributable to the difference between expected and actual experience.
The States Secured Hospital Program enables certain financially distressed not-for-profit hospitals to gain access to the capital markets. Under the Secured Hospital Program, the State is obligated to pay debt service, subject to annual appropriations by the Legislature, on certain bonds in the event there are shortfalls in revenues from other sources, including hospital payments and certain reserve funds held by the applicable trustees for the bonds. As of March 31, 2020, there was a total of $135 million of outstanding bonds under the program. Three of the four remaining hospitals in the States Secured Hospital Program are in poor financial condition. The Updated Financial Plan assumes additional debt service costs of $32 million in fiscal year 2021, $27 million in fiscal year 2022, $21 million in fiscal years 2023 and 2024 and $13 million in fiscal year 2025. In relation to the entire Secured Hospitals Program portfolio, an estimated maximum annual exposure to the State of up to $6 million would be realized if reserve funds held by trustees were fully depleted and if all remaining hospitals in the Secured Hospitals Program failed to meet the terms of their loan agreements.
Implementation of the Updated Financial Plan relies on the States ability to successfully market its bonds. The State primarily finances much of its capital spending from the General Fund or STIP, which it subsequently reimburses with proceeds from the sale of bonds. If the State cannot sell bonds at the levels (or on the timetable) anticipated in the States capital plan, the States overall cash position and capital funding plan may be adversely affected. The success of expected public sales will depend on prevailing market conditions. Future developments in the financial markets generally, and future developments regarding the State and public discussion of those developments, may affect the market for outstanding State-supported and State-related debt.
The General Fund periodically is the beneficiary of State financial settlements. The Updated Financial Plan projects receipts from settlement proceeds of approximately $895 million in fiscal year 2020 and $80 million in fiscal year 2021. There is no guarantee that settlement proceeds will be received in the amounts projected in the Updated Financial Plan.
Recent State Fiscal Years
The State Comptroller has reported that the General Fund ended the 2020 fiscal year with the following audited results in accordance with GAAP for governments as promulgated by the GASB. Total receipts for fiscal year 2020, including transfers from other funds, were approximately $79.2 billion. Disbursements, including transfers to other funds, totaled approximately $77.5 billion. The General Fund ended fiscal year 2020 with a closing cash fund balance of $8.9 billion.
State Debt
The debt of the State and of certain public authorities (Authorities) consists of State-supported debt and State-related debt. State-supported debt is a subcategory of State-related debt. State-supported debt includes: (1) general obligation debt of the State to which the full faith and credit of the State has been pledged; (2) lease-purchase and contractual-obligations of public Authorities and municipalities where the States obligations to
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make payments to those public Authorities and municipalities to cover debt service on those instruments is dependent on annual appropriations made by the Legislature and not based upon general obligations of the State; (3) long-term obligations issued by the Local Government Assistance Corporation (LGAC) Program, a public benefit corporation empowered to issue long-term obligations to fund certain payments to local governments traditionally funded through the States annual seasonal borrowing; and (4) State PIT Revenue Bond Financing , which is issued by certain Authorities. The legislation enacting the issuance of State PIT Revenue Bonds provides that 25 percent of PIT receipts, excluding refunds owed to taxpayers, must be deposited into the Revenue Bond Tax Fund to be used to make debt service payments on these bonds. Legislation enacted in 2007 increased, under certain circumstances, the amount of PIT receipts to be deposited into the Revenue Bond Tax Fund by removing an exclusion for PIT amounts deposited to the School Tax Relief Fund.
State-related debt is a broader category of state debt that includes State-related debt but also includes State-guaranteed debt, moral obligation financings, certain contingent-contractual obligation financings, and certain other State financings (Other State Financings). Debt service on State-guaranteed debt, moral obligation financings, and the contingent-contractual obligation financings is expected to be paid from sources other than the State, and State appropriations are contingent in that they may be made and used only under certain circumstances. Other State Financings relate to debt issued by an Authority on behalf of a municipality. These include capital leases, mortgage loan commitments and debt of the municipal bond bank agency to finance prior year school claims. The municipality pays debt service on such financings by assigning specified State and local assistance payments it receives. The State does not have any obligation to continue to appropriate the local assistance payments that are the subject of the municipality assignments or make any debt service payments on such financings.
As of March 31, 2020, the State had approximately $2.1 billion outstanding in general obligation debt, $1.5 billion in debt relating to lease-purchase and other service contract financing of State capital programs, $37.1 billion in State PIT Revenue Bonds, $1.7 billion in other revenue bonds, $253 million in debt from the LGAC, $135 million outstanding in contingent-contractual obligation financings, $11.5 billion in sales tax revenue bonds, and $633 million in other State financings. The Updated Financial Plan projects debt issuances of $6.3 billion in fiscal year 2021 to finance new capital projects.
Total State-supported debt outstanding is projected to increase from $54.2 billion in 2020 to $59.2 billion in 2021. The estimated debt service on State-related debt for the 2021 fiscal year is projected to be approximately $10.4 billion, an increase of $5.4 billion from fiscal year 2020, which is due, in part, to liquidity financings and debt prepayments. New State-supported debt issued on or after April 1, 2000 is subject to the Debt Reform Act. This Act imposes caps on new debt outstanding and new debt service costs, restricts the use of debt to capital works and purposes only and restricts the maximum term of debt issuances to no more than 30 years. The cost of debt issued after April 1, 2000 and subject to the statutory cap is projected at $5.1 billion in fiscal year 2021, or roughly $3.8 billion below the statutory debt service limit.
Legislation enacted in 2013 created a new Sales Tax Revenue Bond Program which comprises State-supported debt subject to the Debt Reform Act caps summarized above. The legislation created the Sales Tax Revenue Bond Tax Fund, a sub-fund within the General Debt Service Fund that will provide for the payment of these bonds, which are secured by the dedication of payments from this fund. The Sales Tax Revenue Bond Tax Fund receives revenues consisting of 25 percent of the States sales and use tax receipts. After the LGAC satisfies all of its obligations and liabilities, expected to be on April 1, 2021, the sales tax receipt amounts directed to this fund will increase to 50 percent, with a limited exception. Tax receipts greater than debt service requirements will be transferred to the General Fund. PIT Revenue Bonds will be used interchangeably with Sales Tax Revenue Bonds to finance most of the States capital requirements. Approximately $11.5 billion in Sales Tax Revenue Bonds were outstanding as of March 31, 2020.
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Credit Ratings and Bond Market
The major rating agencies, Fitch, Kroll, Moodys, and Standard & Poors, assign the State general credit ratings of AA+, AA+, Aa1, and AA+, respectively. On April 1, 2020, Moodys changed the States credit outlook from stable to negative. On April 10, 2020, Fitch changed the States credit outlook from stable to negative. On April 16, 2020, Standard & Poors confirmed the States stable outlook.
The State, through its public authorities and general obligation issuances, is one of the largest issuers of municipal bonds in the United States. The State relies on regular bond sales to fund its capital program. In addition, in fiscal year 2021, it is planning on note sales to meet temporary liquidity needs caused by the pandemic.
Since the outbreak of COVID-19 in the United States, the municipal bond market has experienced significant disruption. From March 4th through April 8th, 2020, net outflows from municipal bond mutual funds and exchange-traded funds totaled over $48 billion. Issuances in March 2020 dropped to $17.2 billion, compared to the five-year March average of $31.1 billion. An inability of the State to sell bonds or notes at the level or on the timetable it expects could have a material and adverse impact on the States financial position and the implementation of its fiscal year 2021 Enacted Budget Capital Program and Financing Plan (Capital Plan).
In April 2020, the Federal Reserve initiated programs to purchase short-term debt from municipal issuers, as a measure to bolster liquidity and repair the municipal market. Most notably, the Federal Reserve announced that it will purchase short-term municipal notes using funding from the CARES Act, which included $500 billion for loans to eligible businesses and states and local governments. The DOB will continue to evaluate Federal Reserve purchase facilities as more information becomes available to determine whether all or a portion of expected PIT note sales could be executed through the new lending facility.
Litigation
The State is a defendant in certain court cases that could ultimately affect the ability of the State to maintain a balanced financial plan. The State believes that the Updated Financial Plan includes sufficient reserves to offset the costs associated with any potential adverse rulings. In addition, any potential amounts may be structured over a multi-year period. However, it is possible that adverse decisions in legal proceedings against the State could exceed the amount of all potential Updated Financial Plan resources set aside for judgments, and consequently could negatively affect the States ability to maintain a balanced Updated Financial Plan. The disclosure below only includes litigation where the State deems the monetary claims against the State to be material or that involves significant challenges to or impacts on the States financial policies or practices. The State generally only deems a monetary claim to be material if it exceeds $100 million. Furthermore, the litigation discussed below does not include all pending material matters and it does not include any pending material matter where the States legal counsel has advised that it is not probable that the State will suffer adverse decisions.
Real Property Claims
Over the years, there have been a number of cases in which Native American tribes have asserted possessory interests in real property or sought monetary damages as a result of claims that certain transfers of property from the tribes or their predecessors-in-interest in the 18th and 19th centuries were illegal. Of these cases, only one remains active.
In Canadian St. Regis Band of Mohawk Indians, et al. v. State of New York, et al. (NDNY), plaintiffs seek ejectment and monetary damages for their claim that approximately 15,000 acres in Franklin and St. Lawrence Counties were illegally transferred from their predecessors-in-interest. The defendants motion for judgment on the pleadings, relying on prior decisions in other cases rejecting such land claims, was granted in great part through decisions on July 8, 2013 and July 23, 2013, holding that all claims are dismissed except for claims over the area known as the Hogansburg Triangle and a right of way claim against Niagara Mohawk Power Corporation.
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On May 21, 2013, the State, Franklin and St. Lawrence Counties, and the tribe signed an agreement resolving a gaming exclusivity dispute, which agreement provides that the parties will work towards a mutually agreeable resolution of the tribes land claim. The land claim has been stayed by the Second Circuit through at least February 12, 2020 to allow for settlement negotiations. The district court has extended the stay until October 30, 2020, with a status report due on that date.
On May 28, 2014, the State, the New York Power Authority and St. Lawrence County signed a memorandum of understanding with the St. Regis Mohawk Tribe endorsing a general framework for a settlement, subject to further negotiation. The memorandum of understanding does not address all claims by all parties and will require a formal written settlement agreement. Any formal settlement agreement will also require additional local, State and Congressional approval.
School Aid
In Maisto v. State of New York (formerly identified as Hussein v. State of New York), plaintiffs seek a judgment declaring that the States system of financing public education violates § 1 of article 11 of the State Constitution, on the ground that it fails to provide a sound basic education. In a decision and order dated July 21, 2009, Supreme Court, Albany County, denied the States motion to dismiss the action. On January 13, 2011, the Appellate Division, Third Department, affirmed the denial of the motion to dismiss. On May 6, 2011, the Third Department granted defendants leave to appeal to the Court of Appeals. On June 26, 2012, the Court of Appeals affirmed the denial of the States motion to dismiss.
The trial commenced on January 21, 2015 and was completed on March 12, 2015. On September 19, 2016, the trial court ruled in favor of the State and dismissed the action. Plaintiffs filed a notice of appeal dated October 5, 2016 with the Appellate Division, Third Department. Plaintiffs have filed their appellate brief and the States brief was filed May 30, 2017. The appeal was argued on September 5, 2017. By decision and order dated October 26, 2017, the Appellate Division reversed the judgment of the trial court and remanded the case for the trial court to make specific findings as to the adequacy of inputs and causation. In a decision and order dated January 10, 2019, Supreme Court, Albany County, found that the States system of financing public education is adequate to provide the opportunity for a sound basic education. Plaintiffs filed a Notice of Appeal on February 21, 2019. Their time to perfect their appeal was extended until April 17, 2020, a deadline that has been indefinitely suspended until further court directive during the unprecedented COVID-19 public health emergency.
In Aristy-Farer, et al. v. The State of New York, et al. (Sup. Ct., N.Y. Co.), commenced February 6, 2013, plaintiffs seek a judgment declaring that the provisions of L. 2012, Chapter 53 and L. 2012, Chapter 57, Part A § 1, linking payment of State school aid increases for 2012-2013 school year to submission by local school districts of approvable teacher evaluation plans violates, among other provisions of the State Constitution, Article XI, § 1, because implementation of the statutes would prevent students from receiving a sound basic education. Plaintiffs moved for a preliminary injunction enjoining the defendants from taking any actions to carry out the statutes to the extent that they would reduce payment of State aid disbursements referred to as General Support for Public Schools to the City of New York pending a final determination. The State opposed this motion. By order dated February 19, 2013, the Court granted the motion for preliminary injunction. The State appealed. On May 21, 2013, the Appellate Division, First Department, denied plaintiffs motion for a stay pending appeal. As a result, plaintiffs have agreed to vacate their preliminary injunction and the State will withdraw its appeal. On April 7, 2014, Supreme Court denied the States motion to dismiss. The Answer to the Second Amended Complaint was filed on February 2, 2015.
By decision dated August 12, 2014, the Supreme Court, New York County, granted a motion to consolidate Aristy-Farer, discussed in the preceding paragraph, with New Yorkers for Student Educational Rights v. New York. On June 27, 2017, the Court of Appeals dismissed the Aristy-Farer action but held that the New Yorkers for Student Educational Rights v. New York action could proceed on a limited basis as to the New York City and Syracuse school districts, as discussed below.
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In New Yorkers for Students Educational Rights v. New York, the organizational plaintiff and several individual plaintiffs commenced a new lawsuit on February 11, 2014, in the Supreme Court, New York County, claiming that the State is not meeting its constitutional obligation to fund schools in New York City and throughout the State to provide students with an opportunity for a sound basic education. Plaintiffs specifically allege that the State is not meeting its funding obligations for New York City schools under the Court of Appeals decision in Campaign for Fiscal Equity (CFE) v. New York, 8 N.Y.3d 14 (2006), and repeating the allegations of Aristy-Farer challenge legislation conditioning increased funding for New York City schools on the timely adoption of a teacher evaluation plan. With regard to other school districts throughout the State, plaintiffs allege that the State is not providing adequate Statewide funding, has not fully implemented certain 2007 reforms to the State aid system, has imposed gap elimination adjustments decreasing State aid to school districts, and has imposed caps on State aid increases, and on local property tax increases unless approved by a supermajority. Finally, they allege that the State has failed to provide assistance, services, accountability mechanisms, and a rational cost formula to ensure that students throughout the State have an opportunity for a sound basic education.
Plaintiffs seek a judgment declaring that the State has failed to comply with CFE, that the State has failed to comply with the command of State Constitution Article XI to provide funding for public schools across the State, and that the gap elimination adjustment and caps on State aid and local property tax increases are unconstitutional. They seek an injunction requiring the State to eliminate the gap elimination adjustments and caps on State aid and local property tax increases, to reimburse New York City for the funding that was withheld for failure to timely adopt a teacher evaluation plan, to provide greater assistance, services and accountability, to appoint an independent commission to determine the cost of providing students the opportunity for a sound basic education, and to revise State aid formulas.
On May 30, 2014, the State filed a motion to dismiss all claims. By order dated November 17, 2014, the Supreme Court, New York County, denied defendants motion to dismiss. Defendants filed a Notice of Appeal on December 15, 2014. Defendants filed Answers to the Amended Complaint on February 2, 2015. The appeals of both November 17, 2014 decisions, along with the appeal in Aristy-Farer, were heard by the First Department on February 24, 2016.
On April 5, 2016, following the submission of a stipulation by the parties, the trial court stayed the case pending the outcome of the appeal before the First Department.
On September 8, 2016, the First Department ruled largely in favor of plaintiffs and held that the bulk of their school-financing claims in Aristy-Farer and New Yorkers for Students Educational Rights could proceed. Defendants moved for leave to appeal to the Court of Appeals, and that motion was granted by the First Department on December 15, 2016. The matter was fully briefed in the Court of Appeals, which heard argument on May 30, 2017.
On June 27, 2017, the Court of Appeals held that plaintiffs could proceed on their claims that the State was failing in its constitutional obligation to ensure the provision of minimally adequate educational services in the New York City and Syracuse school districts and remanded for further proceedings as to those two districts only.
Plaintiffs filed their Second Amended Complaint on December 11, 2017. The first cause of action alleges that the State has failed to provide a sound basic education in five school districts: New York City, Syracuse, Schenectady, Central Islip, and Gouverneur. The second cause of action alleges that the State has failed to maintain a system of accountability to ensure that a sound basic education is being provided in those five districts. The third cause of action asserts a statewide cause of action, alleging that since 2009 the State has failed to adopt appropriate policies, systems and mechanisms to properly implement the requirements of N.Y. Const. art. XI. § 1 and of the CFE decisions. This cause of action is not limited to the five districts.
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Defendants filed a partial motion to dismiss the third cause of action in the Second Amended Complaint on April 9, 2018. On May 4, 2018, plaintiffs filed a Third Amended Complaint, which is identical to the Second Amended Complaint, but removed the third cause of action. Defendants Answer to the Third Amended Complaint was filed on July 10, 2018. The current schedule is as follows: 1) fact discovery completed by June 16, 2020; 2) expert discovery to be completed by August 14, 2020; 3) note of issue due by August 21, 2020; and 4) summary judgment motions due 60 days after note of issue. The parties have not yet completed depositions of defendants, and they expect to extend these deadlines due to the global health crisis.
On May 4, 2018, the case was reassigned from Hon. Manuel J. Mendez to Hon. Lucy Billings. On August 12, 2019, the individual plaintiffs from Central Islip voluntarily discontinued their claims. On October 17, 2019, the individual plaintiff from Gouverneur voluntarily discontinued his claim. Central Islip and Gouverneur are no longer subjects of the litigation.
Health Insurance Premiums
In NYSCOBPA v. Cuomo, 11-CV-1523 (NDNY) and ten other cases, state retirees, and certain current court employees, allege various claims, including violation of the Contracts Clause of the United States Constitution, via 42 U.S. Code § 1983, against the Governor and other State officials challenging the 2011 increase in their health insurance contribution.
In 2011, CSEA negotiated a two percent increase in the employee contribution to health insurance premiums. Over time, the other unions incorporated this term into their collective bargaining agreements. In October 2011, the premium shift was administratively extended to unrepresented employees, retirees, and certain court employees pursuant to their contract terms (which provide that their health insurance terms are those of the majority of Executive Branch employees). The administrative extension is at issue in all eleven cases.
Certain claims were dismissed, including the claims against all State agencies and the personal capacity claims against all individual State defendants except Patricia Hite and Robert Megna.
Following discovery, the State defendants filed motions for summary judgment in all eleven cases. In the motions, the State defendants argued primarily that nothing in the language of any of the collective bargaining agreements or in the negotiating history supports plaintiffs claim that the health insurance premium contribution rates for retirees vested and could not be changed. With respect to the court employees, State defendants argued that their contract terms required extension of the premium shift to them. Briefing was completed on January 26, 2018.
On September 24, 2018, the District Court granted defendants motions for summary judgment in all respects. Between October 13, 2018 and November 2, 2018, notices of appeal were filed in all eleven cases. (Three separate notices of appeal were filed in Brown v. Cuomo, No. 13-CV-645, and those appeals were consolidated. Two of the three sets of appellants in Brown v. Cuomo are represented by the same counsel and have filed a single set of briefs.) On December 21, 2018, the U.S. Court of Appeals for the Second Circuit issued an order coordinating briefing in the twelve appeals. Under that order, plaintiffs opening brief in the lead case (Donahue v. State, No. 18-3193 2d Cir.) was filed February 4, 2019, and plaintiffs in the other cases filed supplemental briefs by March 6, 2019. Defendants brief responding to all twelve briefs of appellants was filed on July 8, 2019. Plaintiffs reply briefs were filed on or about August 7, 2019. Both sides requested oral argument in each of the twelve appeals. Oral argument in the Second Circuit was held on June 22, 2020.
State Retirement Systems
The State and Local Retirement Systems (Systems) provide coverage for public employees of the State and its localities (except employees of the City and teachers, who are covered by separate plans). The State
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Constitution considers membership in any State pension or retirement system to be a contractual relationship, the benefits of which shall not be diminished or impaired. The present value of anticipated benefits for current members, retirees and beneficiaries increased from $251.4 billion on April 1, 2018 to $260.3 billion (including $133.3 billion for current retirees and beneficiaries) on April 1, 2019, and the net position restricted for pension benefits as of March 31, 2019 were $215.2 billion (including $5.0 billion in receivables, consisting of employer contributions, amortized amounts, member contributions, member loans, accrued interest and dividends, investment sales and other miscellaneous receivables), an increase of $3.1 billion or 1.5 percent from the fiscal year 2018 level of $212.1 billion. Under the funding method used by the Systems, the anticipated benefits of current members, retirees and beneficiaries are expected to be sufficiently covered by the net assets, plus future actuarially determined contributions.
For fiscal year 2020, the total State payment (including Judiciary) was approximately $2.3 billion. The State opted not to amortize under the Contribution Stabilization Program and paid the bill in full as of March 1, 2020. The estimated State payment (including Judiciary) due for fiscal year 2021 is approximately $2.349 billion. Several prepayments have reduced this amount by $44.8 million.
Authorities
Generally, the fiscal stability of the State is partially dependent upon the fiscal stability of its public Authorities, including those that finance, construct and/or operate revenue-producing public facilities. These Authorities generally pay their own operating expenses and debt service costs from revenues generated by the projects they finance or operate, such as tolls charged for the use of highways, bridges or tunnels, charges for public power, electric and gas utility services, tuition and fees, rentals charged for housing units, and charges for occupancy at medical care facilities. In addition, State legislation also authorizes numerous financing structures, which may be used for the financings.
Furthermore, there are statutory arrangements that, under certain circumstances, authorize State local assistance payments otherwise payable to localities to be made rather to certain Authorities to secure the payment of debt service on their revenue bonds and notes. However, the State has no constitutional or statutory responsibility to give assistance to localities above amounts that have been appropriated therefor in any particular year. Some public Authorities also receive funds from State appropriations to pay for the operating costs of certain programs.
Authorities are not subject to the constitutional restrictions on the incurrence of debt that apply to the State itself and may issue bonds and notes within the amounts and restrictions provided for in legislative authorization. Not surprisingly, the States access to the public credit markets could be impaired and the market price of its outstanding debt may be materially and adversely affected if certain of its Authorities were to default on their respective obligations. As of December 31, 2019 (with respect to the New York Job Development Authority, as of March 31, 2019), there were 17 Authorities with outstanding debt of $100 million or more, and the aggregate outstanding debt, including refunding bonds, was approximately $201 billion, only a portion of which constitutes State-supported or State-related debt.
Metropolitan Transportation Authority
In February 2020, MTA released its adopted 2020 Budget and Four-Year Financial Plan 2020-2023 (the MTA Plan) for itself and its affiliates and subsidiaries, which operate various rail, subway and bus services in the City and the surrounding area. On June 24, 2020, MTA released an emergency financial update, amending the MTA Plan due to the effects of the COVID-19 pandemic (the Updated MTA Plan). The MTA Plan reflects MTAs continued pursuit of seeking greater operational efficiency and additional cost saving initiatives, and addresses long-term costs such as health care, pensions and paratransit that were previously viewed as uncontrollable. While the MTA Plan originally projected surpluses in 2020 and 2021, the Updated MTA Plan
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projected a budget gap in fiscal year 2020. The currently unenacted Health and Economic Recovery Omnibus Emergency Solutions Act would provide MTA with $3.9 billion in federal funding that would offset estimated operating losses in 2020. Given uncertainty around additional federal aid, MTA has various liquidity resources such as lines of credit, PAYGO resources, the OPEB Trust, the deferral of federal payroll taxes and the Federal Reserve Banks Municipal Liquidity Facility to deal with the immediate funding need. Absent additional Federal aid in 2020 and 2021, MTA may freeze wages, reduce and/or delay the 2020-2024 Capital Program, reduce expenses for non-personnel, institute reductions in force, increase fares and tolls, reduce service and use long-term deficit financing.
The official financial disclosure of the MTA and its subsidiaries is available by contacting the Metropolitan Transportation Authority, Finance Department, 347 Madison Avenue, 6th Floor, New York, New York 10017, or by visiting the MTA website at www.mta.info.
New York City Economy
The fiscal demands on the State may be affected by the fiscal condition of the City. The City relies in part on State aid to balance its budget and meet its cash requirements. It is also possible that the States finances may be affected by the ability of the City, and certain entities issuing debt for the benefit of the City, to market securities successfully in the public credit markets. There can be no assurance that there will not be reductions in State aid to the City from amounts currently projected; that State budgets in any given fiscal year will be adopted by the April 1 statutory deadline; that interim appropriations will be enacted; or that any such reductions or delays will not have adverse effects on the Citys cash flow or expenditures.
The discussion that follows regarding the status of the City economy is based primarily on information published by OMB and the New York City Comptroller no later than August 3, 2020. All predictions and past performance information regarding the City economy contained in this subsection were made by OMB and the New York City Comptroller on or prior to that date, even though they may be stated in the present tense, and may no longer be accurate, especially in light of the developing COVID-19 pandemic. All the risks to the national and State economies apply to the City economy. In conjunction with this summary of the City economy you should also review the State Economy subsection of this Appendix which presents the DOBs assessment of the national and State economy.
The economy of New York City, which was the epicenter of the COVID-19 pandemic at its onset, has seen a greater impact of the pandemic than the nation thus far. City jobs declined faster than the nation through June. From February to April, U.S. employment declined by 14.5 percent, but bounced back by 5.8 percent from April to June, for a net decline of 9.6 percent from February to June. In New York City, employment plunged by about 20 percent from February to April and grew by a smaller 3.4 percent from April to June. This 20 percent decline in New York City employment was equivalent to the loss of an unprecedented 921,100 jobs between February and April.
Small businesses in New York City have suffered a devastating blow. Small business revenues declined dramatically in March. Manhattan small business revenue was already declining in early March, and had declined by 70 percent by months end, as businesses shuttered and commuters stayed home. Despite some recovery, Manhattan small business revenue in early July is down over 40 percent from the beginning of January. Outer borough small businesses, less dependent on commuters, fared better but still experienced revenue declines of 40 percent to 60 percent by early April. In July, Staten Island and Queens small business revenue remained down over 20 percent from January, while in the Bronx, small business revenue has begun to recover, and is up 9 percent over January.
The Citys Adopted Budget of $88.19 billion is $9.57 billion less than the modified fiscal year 2020 budget, a drop of almost 10 percent. The sharp reduction eclipsed the drop of $1.8 billion, or approximately 3 percent, in fiscal year 2009, following the 2008 financial crisis. Revenues are $7.1 billion less than forecasted in the
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Preliminary Budget released in January, before the COVID-19 outbreak in the City. The drop in revenues, along with State budget actions, City Council initiatives and additional agency expenditures opened an $8.33 billion shortfall in the fiscal year 2021 budget.
To bridge the shortfall, the City put forward $2.83 billion in savings proposals. Of these, less than half have recurring outyear value. Non-recurring initiatives for fiscal year 2021 include savings from closed or cancelled programs due to COVID-19 restrictions; non-recurring savings, such as the $328 million reduction in NYPD overtime; and one-time revenues such as a $137 million rental payment from the Water Board, and $40 million from the sale of residual interest from securitized loan transactions by the Department of Housing Preservation and Development.
Other significant actions to close the shortfall include the use of $2.75 billion of reserves. The City will draw down $1.6 billion from the Retiree Health Benefits Trust to partially pay for fiscal year 2021 retiree health benefits, and reduced budgeted reserves by $1.15 billion leaving just $100 million in budgeted reserves for the year, the statutory minimum. The budget also relies on $1 billion in unspecified labor savings. The mayor has threatened up to 22,000 layoffs if savings are not found by October 1. These additional resources coupled with the use of $605 million of eFMAP Federal funding under the Family First Coronavirus Response Act to pay the Citys share of Medicaid payments in fiscal year 2021 and an additional $1.1 billion prepayment of fiscal year 2021 debt service allow the City to close the $8.33 billion shortfall.
While the Adopted Budget is balanced, the Comptrollers Offices analysis of the Budget and Financial Plan shows a budget deficit risk of $543 million in fiscal year 2021 and larger gaps of $4.84 billion, $3.55 billion, and $3.59 billion in fiscal year 2022 through fiscal year 2024, respectively. The fiscal year 2021 budget deficit and larger outyear gaps projected by the Comptrollers Office stem from risks to the Citys expenditure assumptions primarily in the Plans overtime projections, several Department of Education expenditures including funding for charter school tuition and special education Carter cases, the Fair Fares program, homeless shelter spending, and pension contributions. The Comptrollers Office estimates that overall, spending could be higher than projected in the Plan by $764 million in fiscal year 2021, $744 million in fiscal year 2022, $986 million in fiscal year 2023, and $1.27 billion in fiscal year 2024. The expenditure risks are partially offset by the Comptrollers Offices higher tax revenues forecast, resulting in net risks to the Financial Plan of $543 million in fiscal year 2021, $662 million in fiscal year 2022, $504 million in fiscal year 2023, and $412 million in fiscal year 2024.
A failure by the Federal government to provide adequate fiscal relief to state and local governments could upend the State budget and by extension, the Citys budget. New York State has threatened to reduce local aid by as much as 20 percent if Congress does not appropriate additional, unrestricted aid to states and local governments, using executive powers included in the enacted State budget. A recurring surge of the virus could lead to another round of business shutdowns and stay-at-home orders. Longer-term, changes in work patterns and behavior could impact the Citys tax base, even with the eventual development of a vaccine. The official financial disclosure of the City and the financing entities issuing debt on its behalf is available by contacting OMB Investor Relations at (212) 788-0920 or contacting the City Office of Management and Budget, 255 Greenwich St., 8th Floor, New York, NY 10007.
New York City Financial Plan
In June 2020, the City Council adopted the Mayors Executive Budget with certain modifications (the City Plan). The Citys fiscal year for 2020 ended on June 30, 2020. (The Citys fiscal year for 2021 will run from July 1, 2020 to June 30, 2021.) The City Plans projected revenues and expenditures for the 2021 fiscal year are balanced, in accordance with GAAP (except for the application of GASB Statement No. 49, which prescribes the accounting treatment of pollution remediation costs). However, the City Plan projects gaps of $4.2 billion, $3.0 billion and $3.2 billion for fiscal years 2022, 2023 and 2024, respectively. The City Plan estimates total revenues of $88.1 billion for fiscal year 2021, and total revenues for each of the gap out-years of approximately
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$93.7 billion in 2022, $97.0 billion in 2023 and $98.2 billion in 2024. The City Plans projections for total expenditures for fiscal year 2021 is $88.2 billion, and for each of the gap out-years is approximately $97.8 billion in 2022, $100.0 billion in 2023 and $101.5 billion in 2024.
The staffs of the New York State Financial Control Board (FCB), Office of the State Deputy Comptroller for the City of New York (OSDC), the City Comptroller and the Independent Budget Office (IBO) issue periodic reports on the Citys financial plans. Copies of the most recent reports are available by contacting: FCB, 123 William Street, 23rd Floor, New York, NY 10038, Attention: Executive Director; OSDC, 59 Maiden Lane, 29th Floor, New York, NY 10038, Attention: Deputy Comptroller; City Comptroller, Municipal Building, 6th Floor, One Centre Street, New York, NY 10007-2341, Attention: Deputy Comptroller for Budget; and IBO, 110 William Street, 14th Floor, New York, NY 10038, Attention: Director.
New York City Financing Program
Successful execution of the City Plan depends upon the Citys ability to market its securities successfully. The Citys program for financing capital projects for fiscal years 2020 through 2024 projects $50.2 billion of long-term borrowing to support the Citys current capital program, including State funded financing through New York City Transitional Finance Authority (TFA) Building Aid Revenue Bonds (BARBS). The financing of the Citys capital program is divided among General Obligation (GO) bonds, TFA bonds (other than BARBS) and New York City Municipal Water Finance Authority (NYW) bonds.
The debt service for the City, TFA (excluding BARBs) and City appropriation debt or conduit debt, not including the effect of pre-payments, was 7.1 percent of the Citys total budgeted revenues in 2019. That ratio is expected to increase to 9.1 percent in 2023. As a percentage of tax revenues, the debt service ratio was 10.5% percent in fiscal year 2019 and is anticipated to grow to 12.9 percent in fiscal year 2023.
For fiscal year 2019, the Citys total debt outstanding issued through GO bonds, TFA bonds, TSASC bonds and Conduit Debt (including TFA BARBS) was approximately $97.0 billion. Another $30.0 billion in NYW bonds were outstanding for fiscal year 2019. For fiscal year 2020, the Citys total debt outstanding issued through GO bonds, TFA bonds, TSASC bonds and Conduit Debt (including BARBS) is expected to be approximately $90.7 billion.
The City Plan is predicated on numerous assumptions, including the condition of the Citys and the regions economies and the associated receipt of economically sensitive tax revenues in the projected amounts. The City Plan is also subject to a variety of other factors.
In addition to borrowings related to capital projects, the City issues both revenue and tax anticipation notes to finance its seasonal working capital requirements. The success of projected public sales of City, NYW, TFA, TSASC and other bonds and notes will be subject to prevailing market conditions. The Citys planned capital and operating expenditures are dependent upon the sale of its GO debt, as well as debt of the NYW, TFA, Dormitory Authority of the State of New York and TSASC.
As of August 2020, the Citys outstanding GO bonds were rated AA with a stable outlook by S&P, AA with a stable outlook by Fitch and Aa1 with a stable outlook by Moodys. Ratings reflect only the respective views of such organizations, and an explanation of the significance of such ratings may be obtained from the rating agency that furnished the rating. There is no assurance that a particular rating will continue for any given period of time or that any such rating will not be revised downward or withdrawn entirely, if in the judgment of the agency originally establishing the rating, circumstances so warrant. Any such downward revision or withdrawal could have an adverse effect on the market prices of the Citys GO bonds.
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Other Localities
There have been severe financial and other adverse impacts on localities throughout the State, but particularly on New York City and the surrounding counties as the epicenter of the COVID-19 pandemic. The DOB has not attempted to assess the financial and healthcare impacts on the States localities.
While the fiscal condition of New York City and other local governments in the State is reliant, in part, on State aid to balance their annual budgets and meet their cash requirements, the State is not legally responsible for their financial condition and viability. Indeed, the provision of State aid to localities, while one of the largest disbursement categories in the State budget, is not constitutionally obligated to be maintained at current levels or to be continued in future fiscal years and the State Legislature may amend or repeal statutes relating to the formulas for and the apportionment of State aid to localities.
Due to delayed Congressional action on stimulus measures, the DOB expects to transmit a detailed aid-to localities reduction plan to the Legislature late in the second quarter of the States fiscal year 2021. In the interim, without assurance of Federal aid, the DOB has begun withholding a minimum of 20 percent of most local aid payments to achieve the cash flow savings anticipated in the Updated Financial Plan pursuant to the Reduction Authority. As of June 30, 2020, the DOB had withheld roughly $360 million pursuant to the Reduction Authority. In addition, the DOB is withholding a range of other payments, including local aid payments that do not have specific statutory payment dates and liabilities, transfers to other funds, and general salary increases that were scheduled to take effect on April 1. The DOB estimates that such withholds have totaled approximately $1.2 billion as of July 8, 2020. It is expected that, in the absence of unrestricted Federal aid, the DOB will continue to withhold a range of payments in the second quarter of fiscal year 2021.
Historically, the State has provided unrestricted financial assistance to cities, counties, towns and villages outside of the City. Certain localities outside the City have experienced financial problems and have consequently requested and received additional State assistance during the last several State fiscal years. While a relatively infrequent practice, deficit financing by local governments has become more prevalent in recent years. Not included in the projections of the States receipts and disbursements for the States 2021 fiscal year or thereafter is the potential impact of any future requests by localities for additional financial assistance.
Like the State, localities must respond to changing political, economic and financial influences that can adversely affect their financial condition. For example, the State or federal government may decrease (or, potentially, eliminate) funding of local programs, therefore requiring localities to pay those expenditures using their own funds. Furthermore, prior cash flow problems for the State have caused delays in State aid payments, which in some instances, have necessitated short-term borrowing at the local level. Additional factors that have had, or could have, an impact on the fiscal condition of localities include: the loss of temporary federal stimulus funding; recent State aid trends; constitutional and statutory limitations on the imposition by localities and school districts of property, sales and other taxes; and for certain communities, the substantial upfront costs for rebuilding and clean-up after a natural disaster.
Localities may face unanticipated problems as a result of pending litigation, judicial decisions and long-range economic trends. They may also require additional State assistance because of other large-scale potential problems, such as declining urban populations, reductions in the real property tax base, increasing expenditures, or the loss of skilled manufacturing jobs. Severe financial difficulties could jeopardize localities access to the public credit markets, which may negatively impact the marketability of notes and bonds issued by the localities within the State.
Counties, cities, towns, villages, school districts and fire districts have engaged in substantial short-term and long-term borrowings. For the 2018 fiscal year, the total indebtedness for all localities in the State other than the City was approximately $41.6 billion. This figure includes bonds issued by the localities, certain debt guaranteed by the localities and installment purchase contracts, but excludes capital lease obligations, assets held in sinking funds, certain amounts available at the start of a fiscal year for redemption of debt, and the indebtedness of certain localities that did not file annual financial reports with the State Comptroller.
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VOTE BY MAIL Vote, sign and date this Proxy Card and return in the postage-paid envelope |
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VOTE AT THE VIRTUAL MEETING Visit: www.meetingcenter.io/238367439 on December 7 at 2:00 p.m. Central Time. To participate in the Virtual Meeting, enter the 14-digit control number from the shaded box on this card. The Password for this meeting is NUVC2020. |
Please detach at perforation before mailing.
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NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC. SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 7, 2020 |
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS. The undersigned shareholder(s) of Nuveen New York Municipal Value Fund, Inc., a Minnesota corporation, revoking previous proxies, hereby appoints Gifford R. Zimmerman, Kevin J. McCarthy, Christopher M. Rohrbacher and Mark L. Winget, or any one of them as true and lawful attorneys with power of substitution of each, to vote all shares of Nuveen New York Municipal Value Fund, Inc. that the undersigned is entitled to vote at the Special Meeting of Shareholders to be held virtually at the following Website: www.meetingcenter.io/238367439, on December 7, 2020, at 2:00 p.m. Central Time, and at any and all adjournments or postponements thereof as indicated on the reverse side. To participate in the virtual meeting, enter the 14-digit control number from the shaded box on this card. The Password for this meeting is NUVC2020. In their discretion, the proxy holders named above are authorized to vote upon such other matters as may properly come before the meeting or any adjournment or postponement thereof.
Receipt of the Notice of the Special Meeting of Shareholders and the accompanying Joint Proxy Statement/Prospectus is hereby acknowledged. The shares of Nuveen New York Municipal Value Fund, Inc. represented hereby will be voted as indicated or FOR the proposals if no choice is indicated.
VOTE VIA THE INTERNET: www.proxy-direct.com | ||||||
VOTE VIA THE TELEPHONE: 1-800-337-3503
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PLEASE SIGN, DATE ON THE REVERSE SIDE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
xxxxxxxxxxxxxx | code |
EVERY SHAREHOLDERS VOTE IS IMPORTANT!
VOTE THIS PROXY CARD TODAY!
Important Notice Regarding the Availability of Proxy Materials for
Nuveen New York Municipal Value Fund, Inc.
Special Meeting of Shareholders to Be Held Virtually on December 7, 2020.
The Joint Proxy Statement/Prospectus for this meeting is available at:
http://www.nuveenproxy.com/Closed-End-Fund-Proxy-Information/
IF YOU VOTE ON THE INTERNET OR BY TELEPHONE,
YOU NEED NOT RETURN THIS PROXY CARD
Please detach at perforation before mailing.
In their discretion, the proxy holders are authorized to vote upon such other matters as may properly come before the meeting or any adjournments or postponements thereof.
Properly executed proxies will be voted as specified. If no other specification is made, such shares will be voted FOR the proposals.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS SHOWN IN THIS EXAMPLE: |
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A | Proposals | |||||||
FOR | AGAINST | ABSTAIN | ||||||
1. |
To approve an Agreement and Plan of Reorganization pursuant to which Nuveen New York Municipal Value Fund 2 (the Target Fund) would: (i) transfer substantially all of its assets to Nuveen New York Municipal Value Fund, Inc. (the Acquiring Fund) in exchange solely for newly issued common shares of the Acquiring Fund and the Acquiring Funds assumption of substantially all of the liabilities of the Target Fund; (ii) distribute such newly issued shares of the Acquiring Fund to the common shareholders of the Target Fund; and (iii) liquidate, dissolve and terminate in accordance with applicable law. |
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FOR | AGAINST | ABSTAIN | ||||||
2. |
To approve an Agreement and Plan of Reorganization that would result in the Acquiring Fund reorganizing as a newly created Massachusetts business trust.
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☐ | ☐ | ☐ | ||||
B | Authorized Signatures This section must be completed for your vote to be counted. Sign and Date Below |
Note: |
Please sign exactly as your name(s) appear(s) on this Proxy Card, and date it. When shares are held jointly, each holder should sign. When signing as attorney, executor, guardian, administrator, trustee, officer of corporation or other entity or in another representative capacity, please give the full title under the signature. |
Date (mm/dd/yyyy) Please print date below | Signature 1 Please keep signature within the box | Signature 2 Please keep signature within the box | ||||||
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EVERY SHAREHOLDERS VOTE IS IMPORTANT
EASY VOTING OPTIONS: | ||
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VOTE ON THE INTERNET Log on to: www.proxy-direct.com or scan the QR code Follow the on-screen instructions available 24 hours |
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VOTE BY PHONE Call 1-800-337-3503 Follow the recorded instructions available 24 hours |
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VOTE BY MAIL Vote, sign and date this Proxy Card and return in the postage-paid envelope |
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VOTE AT THE VIRTUAL MEETING Visit: www.meetingcenter.io/238367439 on December 7 at 2:00 p.m. Central Time. To participate in the Virtual Meeting, enter the 14-digit control number from the shaded box on this card. The Password for this meeting is NUVC2020. |
Please detach at perforation before mailing.
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NUVEEN NEW YORK MUNICIPAL VALUE FUND 2 SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 7, 2020 |
THIS PROXY IS BEING SOLICITED BY THE BOARD OF TRUSTEES. The undersigned shareholder(s) of Nuveen New York Municipal Value Fund 2, a Massachusetts business trust, revoking previous proxies, hereby appoints Gifford R. Zimmerman, Kevin J. McCarthy, Christopher M. Rohrbacher and Mark L. Winget, or any one of them as true and lawful attorneys with power of substitution of each, to vote all shares of Nuveen New York Municipal Value Fund 2 that the undersigned is entitled to vote at the Special Meeting of Shareholders to be held virtually at the following Website: www.meetingcenter.io/238367439, on December 7, 2020, at 2:00 p.m. Central Time, and at any and all adjournments or postponements thereof as indicated on the reverse side. To participate in the virtual meeting, enter the 14-digit control number from the shaded box on this card. The Password for this meeting is NUVC2020. In their discretion, the proxy holders named above are authorized to vote upon such other matters as may properly come before the meeting or any adjournment or postponement thereof.
Receipt of the Notice of the Special Meeting of Shareholders and the accompanying Joint Proxy Statement/Prospectus is hereby acknowledged. The shares of Nuveen New York Municipal Value Fund 2 represented hereby will be voted as indicated or FOR the proposal if no choice is indicated.
VOTE VIA THE INTERNET: www.proxy-direct.com | ||||||
VOTE VIA THE TELEPHONE: 1-800-337-3503
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NYV_31617_083120_BK1
PLEASE SIGN, DATE ON THE REVERSE SIDE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
xxxxxxxxxxxxxx | code |
EVERY SHAREHOLDERS VOTE IS IMPORTANT!
VOTE THIS PROXY CARD TODAY!
Important Notice Regarding the Availability of Proxy Materials for
Nuveen New York Municipal Value Fund 2
Special Meeting of Shareholders to Be Held Virtually on December 7, 2020.
The Joint Proxy Statement/Prospectus for this meeting is available at:
http://www.nuveenproxy.com/Closed-End-Fund-Proxy-Information/
IF YOU VOTE ON THE INTERNET OR BY TELEPHONE,
YOU NEED NOT RETURN THIS PROXY CARD
Please detach at perforation before mailing.
In their discretion, the proxy holders are authorized to vote upon such other matters as may properly come before the meeting or any adjournments or postponements thereof.
Properly executed proxies will be voted as specified. If no other specification is made, such shares will be voted FOR the proposal.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS SHOWN IN THIS EXAMPLE: |
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A | Proposal | |||||||
FOR | AGAINST | ABSTAIN | ||||||
1. |
To approve an Agreement and Plan of Reorganization pursuant to which Nuveen New York Municipal Value Fund 2 (the Target Fund) would: (i) transfer substantially all of its assets to Nuveen New York Municipal Value Fund, Inc. (the Acquiring Fund) in exchange solely for newly issued common shares of the Acquiring Fund and the Acquiring Funds assumption of substantially all of the liabilities of the Target Fund; (ii) distribute such newly issued shares of the Acquiring Fund to the common shareholders of the Target Fund; and (iii) liquidate, dissolve and terminate in accordance with applicable law. |
☐ | ☐ | ☐ | ||||
B | Authorized Signatures This section must be completed for your vote to be counted. Sign and Date Below |
Note: |
Please sign exactly as your name(s) appear(s) on this Proxy Card, and date it. When shares are held jointly, each holder should sign. When signing as attorney, executor, guardian, administrator, trustee, officer of corporation or other entity or in another representative capacity, please give the full title under the signature. |
Date (mm/dd/yyyy) Please print date below | Signature 1 Please keep signature within the box | Signature 2 Please keep signature within the box | ||||||
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The information contained 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 it is not a solicitation of an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION,
DATED OCTOBER 13, 2020
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE REORGANIZATION OF
NUVEEN NEW YORK MUNICIPAL VALUE FUND, INC. (NNY)
AND
NUVEEN NEW YORK MUNICIPAL VALUE FUND 2 (NYV)
(EACH, A FUND AND COLLECTIVELY, THE FUNDS)
This Statement of Additional Information (SAI) is available to shareholders of Nuveen New York Municipal Value Fund, Inc. (the Acquiring Fund) and Nuveen New York Municipal Value Fund 2 (the Target Fund) in connection with the proposed reorganization of the Target Fund into the Acquiring Fund, pursuant to an Agreement and Plan of Reorganization that provides for: (1) the Acquiring Funds acquisition of substantially all of the assets of the Target Fund in exchange for newly issued common shares of the Acquiring Fund, par value $0.01 per share, and the Acquiring Funds assumption of substantially all of the liabilities of the Target Fund; and (2) the pro rata distribution of the newly issued Acquiring Fund common shares by the Target Fund to its common shareholders as part of the liquidation, dissolution and termination of the Target Fund in accordance with applicable law (the Reorganization).
This SAI is not a prospectus and should be read in conjunction with the Joint Proxy Statement/ Prospectus dated [●], 2020 and filed on Form N-14 with the Securities and Exchange Commission (SEC) relating to the proposed Reorganization of the Target Fund into the Acquiring Fund (the Joint Proxy Statement/Prospectus). A copy of the Joint Proxy Statement/Prospectus and other information may be obtained without charge by calling (800) 257-8787 or from the Funds website (http://www.nuveen.com). The information contained in, or that can be accessed through, the Funds website is not part of the Joint Proxy Statement/Prospectus or this SAI. You may also obtain a copy of the Joint Proxy Statement/Prospectus on the website of the SEC (http://www.sec.gov). Capitalized terms used but not defined in this SAI have the meanings assigned to them in the Joint Proxy Statement/Prospectus.
This SAI is dated [●], 2020.
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INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the information contained in the Joint Proxy Statement/ Prospectus concerning the investment objectives and policies of the Funds. The investment policies described below, except as set forth under Investment Restrictions or as otherwise noted, are not fundamental policies and may be changed by a Funds Board of Directors or Board of Trustees, as applicable (each, a Board or the Board, and each director or trustee, a Board Member), without the approval of shareholders.
The Funds have substantially similar investment objectives and policies. The Acquiring Funds primary investment objective is to provide, through investment in a professionally managed portfolio of tax-exempt New York municipal obligations, current interest income exempt from both federal and New York State and New York City personal income taxes. The Acquiring Funds secondary investment objective is to achieve enhancement of portfolio value through investments in tax-exempt New York municipal obligations that, in the opinion of the Funds investment adviser, Nuveen Fund Advisors, LLC (Nuveen Fund Advisors or the Adviser), and/or the Funds sub-adviser, Nuveen Asset Management, LLC (Nuveen Asset Management or the Sub-Adviser), are underrated or represent municipal market sectors that are undervalued. The Target Funds primary investment objective is to provide current income exempt from regular federal, New York State and New York City income taxes, and its secondary investment objective is to enhance portfolio value and total return. Each Funds investment objectives are fundamental policies.
As a fundamental policy, under normal circumstances, the Acquiring Fund will invest at least 80% of its net assets, including assets attributable to any principal amount of any borrowings (including the issuance of commercial paper or notes) or any preferred shares outstanding, in municipal securities and other related investments, the income from which is exempt from federal, New York State and New York City income taxes. As a non-fundamental policy, under normal circumstances, the Acquiring Fund will invest at least 80% of its net assets in municipal securities that, at the time of investment, are investment grade quality. As a non-fundamental policy, the Acquiring Fund may invest up to 20% of its net assets in municipal securities that at the time of investment are rated below investment grade or are unrated but judged to be of comparable quality by the Adviser and/or Sub-Adviser. As a non-fundamental policy, no more than 10% of the Acquiring Funds net assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by the Adviser and/or Sub-Adviser.
As a fundamental policy, under normal circumstances, the Target Fund will invest at least 80% of its net assets in municipal securities, the income from which is exempt from regular federal, New York State and New York City income taxes. As a non-fundamental policy, the Target Fund will invest at least 80% of its net assets in municipal securities that, at the time of investment, are investment grade quality. As a non-fundamental policy the Target Fund may invest up to 20% of its net assets in municipal securities that at the time of investment are rated below investment grade or are unrated by any nationally recognized statistical rating organization (NRSRO) but judged to be of comparable quality by the Adviser and/or Sub-Adviser. As a non-fundamental policy, the Target Fund may invest up to 10% of its net assets in municipal securities rated below B3/B- or that are unrated by any NRSRO but judged to be of comparable quality by the Adviser and/or Sub-Adviser.
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Each Fund is a diversified, closed-end management investment company. As a fundamental policy, the Acquiring Fund may not issue senior securities, as defined in the Investment Company Act of 1940, as amended (the 1940 Act), except in connection with bank borrowing and derivatives transactions. As a fundamental policy, the Target Fund will not leverage its capital structure by issuing senior securities such as preferred shares or debt instruments. However, each Fund may borrow for temporary, emergency or other purposes as permitted by the 1940 Act and invest in certain instruments, including inverse floating rate securities, that have the economic effect of financial leverage. The Target Fund may invest up to 15% of its net assets in inverse floating rate securities. The Acquiring Fund has no stated limitation on investments in inverse floating rate securities.
In addition to and supplementing the Joint Proxy Statement/Prospectus, the Acquiring Funds portfolio will be composed principally of the investments described below.
Municipal Securities
General. The Acquiring Fund may invest in various municipal securities, including municipal bonds and notes, other securities issued to finance and refinance public projects, and other related securities and derivative instruments creating exposure to municipal bonds, notes and securities that provide for the payment of interest income that is exempt from regular federal income tax. Municipal securities are generally debt obligations issued by state and local governmental entities and may be issued by U.S. territories to finance or refinance public projects such as roads, schools, and water supply systems. Municipal securities may also be issued on behalf of private entities or for private activities, such as housing, medical and educational facility construction, or for privately owned transportation, electric utility and pollution control projects. Municipal securities may be issued on a long-term basis to provide permanent financing. The repayment of such debt may be secured generally by a pledge of the full faith and credit taxing power of the issuer, a limited or special tax, or any other revenue source including project revenues, which may include tolls, fees and other user charges, lease payments and mortgage payments. Municipal securities may also be issued to finance projects on a short-term interim basis, anticipating repayment with the proceeds of the later issuance of long-term debt. Municipal securities may be issued and purchased in the form of bonds, notes, leases or certificates of participation; structured as callable or non-callable; with payment forms including fixed coupon, variable rate, zero coupon, capital appreciation bonds, tender option bonds, and residual interest bonds or inverse floating rate securities; or acquired through investments in pooled vehicles, partnerships or other investment companies. Inverse floating rate securities are securities that pay interest at rates that vary inversely with changes in prevailing short-term tax-exempt interest rates and represent a leveraged investment in an underlying municipal security, which could have the economic effect of financial leverage.
The Acquiring Fund may invest in municipal bonds issued by U.S. territories and possessions (such as Puerto Rico or Guam) that are exempt from regular federal income 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.
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Tobacco Settlement Bonds. Included in the general category of municipal securities described in the Joint Proxy Statement/Prospectus are tobacco settlement bonds. The Acquiring Fund may invest in tobacco settlement bonds, which are municipal securities that are backed solely by expected revenues to be derived from lawsuits involving tobacco related deaths and illnesses which were settled between certain states and American tobacco companies. Tobacco settlement bonds are secured by an issuing states proportionate share in the Master Settlement Agreement (MSA). The MSA is an agreement, reached out of court in November 1998 between 46 states and nearly all of the U.S. tobacco manufacturers. The MSA provides for annual payments in perpetuity by the manufacturers to the states in exchange for releasing all claims against the manufacturers and a pledge of no further litigation. Tobacco manufacturers pay into a master escrow trust based on their market share, and each state receives a fixed percentage of the payment as set forth in the MSA. A number of states have securitized the future flow of those payments by selling bonds pursuant to indentures or through distinct governmental entities created for such purpose. The principal and interest payments on the bonds are backed by the future revenue flow related to the MSA. Annual payments on the bonds, and thus risk to the Acquiring Fund, are highly dependent on the receipt of future settlement payments to the state or its governmental entity.
The actual amount of future settlement payments is further dependent on many factors, including, but not limited to, annual domestic cigarette shipments, reduced cigarette consumption, increased taxes on cigarettes, inflation, financial capability of tobacco companies, continuing litigation and the possibility of tobacco manufacturer bankruptcy. The initial and annual payments made by the tobacco companies will be adjusted based on a number of factors, the most important of which is domestic cigarette consumption. If the volume of cigarettes shipped in the U.S. by manufacturers participating in the settlement decreases significantly, payments due from them will also decrease. Demand for cigarettes in the U.S. could continue to decline due to price increases needed to recoup the cost of payments by tobacco companies. Demand could also be affected by: anti-smoking campaigns, tax increases, reduced advertising, enforcement of laws prohibiting sales to minors; elimination of certain sales venues such as vending machines; and the spread of local ordinances restricting smoking in public places. As a result, payments made by tobacco manufacturers could be negatively impacted if the decrease in tobacco consumption is significantly greater than the forecasted decline. A market share loss by the MSA companies to non-MSA participating tobacco manufacturers would cause a downward adjustment in the payment amounts. A participating manufacturer filing for bankruptcy also could cause delays or reductions in bond payments. The MSA itself has been subject to legal challenges and has, to date, withstood those challenges.
Municipal Leases and Certificates of Participation. The Acquiring 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 that is issued by a state or local government to acquire equipment and facilities. Income from such obligations generally is 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
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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 Acquiring Funds original investment. To the extent that the Acquiring 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 Acquiring Fund will purchase municipal securities representing lease obligations only where the Adviser and/or the Sub-Adviser 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 typically are 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 Acquiring Fund with the right to a pro rata undivided interest in the underlying municipal securities. In addition, such participations generally provide the Acquiring Fund with the right to demand payment, on not more than seven days notice, of all or any part of the Funds 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 issuers 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 issuers 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
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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 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 Funds distributions of its interest income from private activity bonds may subject certain investors to the federal alternative minimum tax.
Inverse Floating Rate Securities. The Acquiring Fund may invest in inverse floating rate securities. Inverse floating rate securities are securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Generally, inverse floating rate securities represent beneficial interests in a special purpose trust, commonly referred to as a tender option bond trust (TOB trust), that holds municipal bonds. The TOB trust typically sells two classes of beneficial interests or securities: floating rate securities (sometimes referred to as short-term floaters or tender option bonds), and inverse floating rate securities (sometimes referred to as inverse floaters). Both classes of beneficial interests are represented by certificates or receipts. The floating rate securities have first priority on the cash flow from the municipal bonds held by the TOB trust. In this structure, the floating rate security holders have the option, at periodic short-term intervals, to tender their securities to the trust for purchase and to receive the face value thereof plus accrued interest. The obligation of the trust to repurchase tendered securities is supported by a remarketing agent and by a liquidity provider. As consideration for providing this support, the remarketing agent and the liquidity provider receive periodic fees. The holder of the short-term floater effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. However, the trust is not obligated to purchase tendered short-term floaters in the event of certain defaults with respect to the underlying municipal bonds or a significant downgrade in the credit rating assigned to the bond issuer.
As the holder of an inverse floating rate investment, the Acquiring Fund receives the residual cash flow from the TOB trust. Because the holder of the short-term floater is generally assured liquidity at the face value of the security plus accrued interest, the holder of the inverse floater assumes the interest rate cash flow risk and the market value risk associated with the municipal bond deposited into the TOB trust. The volatility of the interest cash flow and the residual market value will vary with the degree to which the trust is leveraged. This is expressed in the ratio of the total face value of the short-term floaters to the value of the inverse floaters that are issued by the TOB trust, and it can exceed three times for more highly leveraged trusts. All voting rights and decisions to be made with respect to any other rights relating to the municipal bonds held in the TOB trust are passed through, pro rata, to the holders of the short-term floaters and to the Acquiring Fund as the holder of the associated inverse floaters.
Because any increases in the interest rate on the short-term floaters issued by a TOB trust would reduce the residual interest paid on the associated inverse floaters, and because fluctuations in the value of the municipal bond deposited in the TOB trust would affect only the value of the inverse
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floater and not the value of the short-term floater issued by the trust so long as the value of the municipal bond held by the trust exceeded the face amount of short-term floaters outstanding, the value of inverse floaters is generally more volatile than that of an otherwise comparable municipal bond held on an unleveraged basis outside a TOB trust. Inverse floaters generally will underperform the market of fixed-rate bonds in a rising interest rate environment (i.e., when bond values are falling), but they will tend to outperform the market of fixed-rate bonds when interest rates decline or remain relatively stable. Although volatile in value and return, inverse floaters typically offer the potential for yields higher than those available on fixed-rate bonds with comparable credit quality, coupon, call provisions and maturity. Inverse floaters have varying degrees of liquidity or illiquidity based primarily upon the inverse floater holders ability to sell the underlying bonds deposited in the TOB trust at an attractive price.
The Acquiring Fund may invest in inverse floating rate securities issued by TOB trusts in which the liquidity providers have recourse to the Fund pursuant to a separate shortfall and forbearance agreement. Such an agreement would require the Acquiring Fund to reimburse the liquidity provider, among other circumstances, upon termination of the TOB trust for the difference between the liquidation value of the bonds held in the trust and the principal amount and accrued interest due to the holders of floating rate securities issued by the trust. The Acquiring Fund will enter into such a recourse agreement (1) when the liquidity provider requires such a recourse agreement because the level of leverage in the TOB trust exceeds the level that the liquidity provider is willing to support absent such an agreement; and/or (2) to seek to prevent the liquidity provider from collapsing the trust in the event the municipal bond held in the trust has declined in value to the point where it may cease to exceed the face amount of outstanding short-term floaters. In an instance where the Acquiring Fund has entered such a recourse agreement, the Fund may suffer a loss that exceeds the amount of its original investment in the inverse floating rate securities; such loss could be as great as that original investment amount plus the face amount of the floating rate securities issued by the trust plus accrued interest thereon.
The Acquiring Fund will segregate or earmark liquid assets with its custodian in accordance with the 1940 Act to cover its obligations with respect to its investments in TOB trusts.
The Acquiring Fund may invest in both inverse floating rate securities and floating rate securities (as discussed below) issued by the same TOB trust.
Floating Rate Securities. The Acquiring Fund may also invest in floating rate securities, as described above, issued by special purpose trusts. Floating rate securities may take the form of short-term floating rate securities or the option period may be substantially longer. Generally, the interest rate earned will be based upon the market rates for municipal securities with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date of the underlying bond deposited in the trust, the Acquiring Fund, as the holder of the floating rate securities, relies upon the terms of the agreement with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of the trust provide for a liquidation of the municipal bond deposited in the trust and the application of the proceeds to pay off the floating rate securities. The trusts that are organized to issue both short-term floating rate securities and inverse floaters generally include liquidation triggers to protect the investor in the floating rate securities.
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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 generally are 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 generally are 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 Acquiring Fund may invest up to 100% of its total 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. Investment in taxable short-term investments would result in a portion of the dividends paid being subject to regular federal income tax and the federal alternative minimum tax applicable to individuals. 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) 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 and 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 Federal Deposit Insurance Corporation regulations, the maximum insurance payable as to any one certificate of deposit is $250,000; therefore, certificates of deposit purchased by the Acquiring Fund may not be fully insured.
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(3) Repurchase agreements, which involve purchases of debt securities. At the time the Acquiring 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 Acquiring 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 Acquiring Fund to invest temporarily available cash. The Acquiring 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 Acquiring 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 value of the collateral declines after the agreement is entered into, and if the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Acquiring Fund could incur a loss of both principal and interest. The Adviser 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. The Adviser 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 Acquiring Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Acquiring 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 Acquiring Fund and a corporation. There is no secondary market for such notes. However, they are redeemable by the Acquiring Fund at any time. The Adviser will consider the financial condition of the corporation (e.g., earning power, cash flow and other liquidity ratios) and will continuously monitor the corporations ability to meet all of its financial obligations because the Acquiring Funds liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in commercial paper will be limited to commercial paper rated in the highest categories by a major NRSRO and which matures within one year of the date of purchase or carries a variable or floating rate of interest.
Short-Term Tax-Exempt Fixed-Income Securities. Short-term tax-exempt fixed-income 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 fixed-income securities are defined to include, without limitation, the following:
(1) 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 issuers 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.
(2) 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 issuers capacity to raise taxes due to, among other things, a decline in its tax base or a rise in delinquencies could adversely affect the issuers ability to meet its obligations on outstanding TANs.
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(3) 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 issuers 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.
(4) 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.
(5) 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.
(6) 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 Acquiring 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.
When-Issued and Delayed Delivery Transactions
The Acquiring 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. On such transactions, the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment. Income generated by any liquid assets held to cover commitments to purchase securities on a when-issued and delayed-delivery basis which provide taxable income for federal income tax purposes is includable in the taxable income of the Acquiring Fund and, to the extent distributed, will be taxable to shareholders. The Acquiring 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 to mature within 60 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.
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Derivatives and Hedging Strategies
The Acquiring Fund may periodically engage in hedging transactions, and otherwise use various types of derivative instruments, described below, to reduce risk, to effectively gain particular market exposures, to seek to enhance returns, and to reduce transaction costs, among other reasons. In addition to inverse floating rate securities and structured notes, the Acquiring Fund may invest in certain other derivative instruments in pursuit of its investment objectives. Such instruments include financial futures contracts, swap contracts (including interest rate and credit default swaps), options on financial futures, options on swap contracts or other derivative instruments whose prices, in the Advisers and/or the Sub-Advisers opinion, correlate with the prices of the Acquiring Funds investments. The Adviser and/or the Sub-Adviser uses derivatives to shorten or lengthen the effective duration of the Acquiring Funds portfolio securities, and therefore the interest rate risk, and to adjust other aspects of the portfolios risk/return profile. The Acquiring Fund may use these instruments if the Fund deems it more efficient from a transaction cost, total return or income standpoint than investing in cash securities.
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.
A derivative is a financial contract whose value is based on (or derived from) a traditional security (such as a stock or a bond), an asset (such as a commodity like gold), or a market index (such as the Barclays Capital Municipal Bond Index). Some forms of derivatives may trade on exchanges, while non-standardized derivatives, which tend to be more specialized and complex, trade over-the-counter (OTC) or on a one-on-one basis. It may be desirable and possible in various market environments to partially hedge the portfolio against fluctuations in market value due to market interest rate or credit quality fluctuations, or instead to gain a desired investment exposure, by entering into various types of derivative transactions, including financial futures and index futures as well as related put and call options on such instruments, structured notes, or interest rate swaps on taxable or tax-exempt securities or indexes (which may be forward-starting), credit default swaps, and options on interest rate swaps, among others.
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 the Acquiring Fund may be greater than gains in the value of the securities in the Funds portfolio. In addition, futures and options markets may not be liquid in all circumstances. As a result, in volatile markets, the Acquiring 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. The Acquiring Fund will invest in these instruments only in markets believed by the Adviser and/or the Sub-Adviser to be active and sufficiently liquid. Net gains, if any, from hedging and other transactions in derivatives may generate taxable income which will be distributed as taxable distributions to shareholders.
The Adviser and/or the Sub-Adviser may use derivative instruments to seek to enhance return, to hedge some of the risk of the Acquiring Funds investments in municipal securities or as a substitute for a position in the underlying asset.
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There is no assurance that these derivative strategies will be available at any time or that the Adviser and/or the Sub-Adviser will determine to use them for the Acquiring Fund or, if used, that the strategies will be successful.
Swap Transactions. The Acquiring Fund may enter into total return, interest rate and credit default swap agreements and interest rate caps, floors and collars. The Acquiring Fund may also enter into options on the foregoing types of swap agreements (swap options).
The Acquiring Fund may enter into swap transactions for any purpose consistent with its investment objective, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets, as a duration management technique, to reduce risk arising from the ownership of a particular instrument, or to gain exposure to certain sectors or markets in the most economical way possible.
Swap agreements typically are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to several years. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or swapped between the parties are calculated with respect to a notional amount (e.g., the change in the value of a particular dollar amount invested at a particular interest rate, or in a basket of securities representing a particular index).
The notional amount of a swap agreement is the agreed-upon basis for calculating the obligations that the parties to a swap agreement have agreed to exchange. Under most swap agreements entered into by the Acquiring Fund, the obligations of the parties would be exchanged on a net basis. Consequently, the Acquiring Funds obligation (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement. See Segregation of Assets below.
The swap market has grown substantially in recent years with a large number of banking firms acting as both principals and agents using standardized swap documentation. As a result, the swap market has become relatively liquid. However, swap agreements may still be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. If a swap transaction is particularly large, or if the relevant market is illiquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. Caps, floors and collars are more recent innovations for which standardized documentation has not been fully developed and, accordingly, swaps with these features are less liquid.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) sets forth a regulatory framework for certain derivatives, such as swaps, in which the Acquiring Fund may be authorized to invest. The Dodd-Frank Act requires many swap transactions to be executed on registered exchanges or through swap execution facilities, cleared through a regulated clearinghouse and publicly reported. In addition, many market participants are now regulated as swap dealers or major swap participants and are subject to required business conduct standards and other regulatory burdens, and will be subject to certain minimum capital and margin requirements upon the adoption of final capital rules. The statutory requirements of the Dodd-Frank Act are being implemented primarily
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through rules and regulations adopted by the SEC and/or the Commodity Futures Trading Commission (CFTC). The CFTC is responsible for the regulation of most swaps, and it has completed most of its rules implementing the Dodd-Frank Act swap regulations. The SEC has jurisdiction over a small segment of the market referred to as security-based swaps, which includes swaps on single securities or credits, or narrow-based indices of securities or credits, but has not yet completed its rulemaking.
Cleared swaps are transacted through CFTC-registered futures commission merchants that are members of central clearinghouses with the clearinghouse serving as a central counterparty similar to transactions in futures contracts. Currently, central clearing is required only for certain categories of swaps, although central clearing for additional categories of swaps is expected to be implemented by the CFTC. The Acquiring Fund may face the indirect risk of the failure of another clearing member customer to meet its obligations to its clearing member. Such scenario could arise due to a default by the clearing member on its obligations to the clearinghouse, triggered by a customers failure to meet its obligations to the clearing member. In addition, the CFTC and bank regulators have imposed new margin requirements on uncleared OTC swaps that could adversely affect the Acquiring Funds ability to enter into swaps in the OTC market. The SEC is expected to adopt similar margin requirements for uncleared security based swaps. These requirements may increase the amount of collateral the Acquiring Fund is required to provide and the costs associated with providing it. These developments could cause the Acquiring Fund to terminate new or existing swap agreements or to realize amounts to be received under such instruments at an inopportune time. Until the mandated rulemaking and regulations are implemented completely, it will not be possible to determine the complete impact of the Dodd-Frank Act and related regulations on the Acquiring Fund, and the establishment of centralized clearinghouses and trading facilities for swap transactions may not result in swaps being easier to value or trade. However, it is expected that swap dealers, major market participants and swap counterparties will experience other new and/or additional regulations, requirements, compliance burdens and associated costs, and that such costs will be passed on to customers such as the Acquiring Fund. The rules that have been and will be promulgated may exert a negative effect on the Acquiring Funds ability to meet its investment objectives, either through limits or requirements imposed on the Acquiring Fund or its counterparties. The swap market could be disrupted or limited as a result of the new requirements, which may increase the cost of the Acquiring Funds investments and of doing business, which could adversely affect the Acquiring Funds ability to buy or sell derivatives. The overall impact of the Dodd-Frank Act on the Acquiring Fund remains highly uncertain and it is unclear how the swap markets will adapt to this regulatory regime, along with additional, sometimes overlapping, regulatory requirements imposed by non-U.S. regulators.
Interest Rate Swaps, Caps, Collars and Floors. Interest rate swaps are bilateral contracts in which each party agrees to make periodic payments to the other party based on different referenced interest rates (e.g., a fixed rate and a floating rate) applied to a specified notional amount. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate floor. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index rises above a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate cap. Interest rate collars involve selling a cap and purchasing a floor or vice versa to protect the Acquiring Fund against interest rate movements exceeding given minimum or maximum levels.
The use of interest rate transactions, such as interest rate swaps and caps, is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary
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portfolio security transactions. Depending on the state of interest rates in general, the Acquiring Funds use of interest rate swaps or caps could enhance or harm the overall performance of the Funds common shares. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline and could result in a decline in the net asset value of the common shares. In addition, if short-term interest rates are lower than the Acquiring Funds fixed rate of payment on the interest rate swap, the swap will reduce common-share net earnings. If, on the other hand, short-term interest rates are higher than the fixed rate of payment on the interest rate swap, the swap will enhance common-share net earnings. Buying interest rate caps could enhance the performance of the common shares by providing a maximum leverage expense. Buying interest rate caps could also decrease the net earnings of the common shares in the event that the premium paid by the Acquiring Fund to the counterparty exceeds the additional amount the Fund would have been required to pay had it not entered into the cap agreement.
Total Return Swaps. In a total return swap, one party agrees to pay the other the total return of a defined underlying asset during a specified period, in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying assets. A total return swap may be applied to any underlying asset but is most commonly used with equity indices, single stocks, bonds and defined baskets of loans and mortgages. The Acquiring Fund might enter into a total return swap involving an underlying index or basket of securities to create exposure to a potentially widely diversified range of securities in a single trade. An index total return swap can be used by the Adviser and/or the Sub-Adviser to assume risk, without the complications of buying the component securities from what may not always be the most liquid of markets.
In connection with the Acquiring Funds position in a swap contract, the Fund will segregate liquid assets or will otherwise cover its position in accordance with applicable SEC requirements. See Segregation of Assets below.
Credit Default Swaps. A credit default swap is a bilateral contract that enables an investor to buy or sell protection against a defined-issuer credit event. The Acquiring Fund may enter into credit default swap agreements either as a buyer or as a seller. The Acquiring Fund may buy protection to attempt to mitigate the risk of default or credit quality deterioration in an individual security or a segment of the fixed-income securities market to which it has exposure, or to take a short position in individual bonds or market segments which it does not own. The Acquiring Fund may sell protection in an attempt to gain exposure to the credit quality characteristics of particular bonds or market segments without investing directly in those bonds or market segments.
As the buyer of protection in a credit default swap, the Acquiring Fund would pay a premium (by means of an upfront payment or a periodic stream of payments over the term of the agreement) in return for the right to deliver a referenced bond or group of bonds to the protection seller and receive the full notional or par value (or other agreed-upon value) upon a default (or similar event) by the issuer(s) of the underlying referenced obligation(s). If no default occurs, the protection seller would keep the stream of payments and would have no further obligation to the Fund. Thus, the cost to the Acquiring Fund would be the premium paid with respect to the agreement. However, if a credit event occurs the Acquiring Fund may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no value. The Acquiring Fund bears the risk that the protection seller may fail to satisfy its payment obligations.
If the Acquiring Fund is a seller of protection in a credit default swap and no credit event occurs, the Fund would generally receive an up-front payment or a periodic stream of payments over
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the term of the swap. However, if a credit event occurs, generally the Acquiring Fund would have to pay the buyer the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no value. As the protection seller, the Acquiring Fund effectively adds economic leverage to its portfolio because, in addition to being subject to investment exposure on its total net assets, the Acquiring Fund is subject to investment exposure on the notional amount of the swap. See Segregation of Assets below. Thus, the Acquiring Fund bears the same risk as it would by buying the reference obligations directly, plus the additional risks related to obtaining investment exposure through a derivative instrument discussed below under Risks Associated with Swap Transactions.
Swap Options. A swap option is a contract that gives a counterparty the right (but not the obligation), in return for payment of a premium, to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement at some designated future time on specified terms. A cash-settled option on a swap gives the purchaser the right, in return for the premium paid, to receive an amount of cash equal to the value of the underlying swap as of the exercise date. The Acquiring Fund may write (sell) and purchase put and call swap options. Depending on the terms of the particular option agreement, the Acquiring Fund generally would incur a greater degree of risk when it writes a swap option than when it purchases a swap option. When the Acquiring Fund purchases a swap option, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when the Acquiring Fund writes a swap option, upon exercise of the option the Fund would become obligated according to the terms of the underlying agreement.
Risks Associated with Swap Transactions. The use of swap transactions is a highly specialized activity which involves strategies and risks different from those associated with ordinary portfolio security transactions. If the Adviser and/or the Sub-Adviser is incorrect in its forecasts of default risks, market spreads or other applicable factors or events, the investment performance of the Acquiring Fund would diminish compared with what it would have been if these techniques were not used. As the protection seller in a credit default swap, the Acquiring Fund effectively adds economic leverage to its portfolio because, in addition to being subject to investment exposure on its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. The Acquiring Fund generally may only close out a swap, cap, floor, collar or other two-party contract only with its particular counterparty, and generally it may only transfer a position only with the consent of that counterparty. In addition, the price at which the Acquiring Fund may close out such a two-party contract may not correlate with the price change in the underlying reference asset. If the counterparty defaults, the Acquiring Fund will have contractual remedies, but there can be no assurance that the counterparty will be able to meet its contractual obligations or that the Fund will succeed in enforcing its rights. It also is possible that developments in the derivatives market, including changes in government regulation, could adversely affect the Acquiring Funds ability to terminate existing swap or other agreements or to realize amounts to be received under such agreements.
Futures and Options on Futures Generally. A futures contract is an agreement between two parties to buy and sell a security, index or interest rate (each, a financial instrument) for a set price on a future date. Certain futures contracts, such as futures contracts relating to individual securities, call for making or taking delivery of the underlying financial instrument. However, these contracts generally are closed out before delivery by entering into an offsetting purchase or sale of a matching futures contract (same exchange, underlying financial instrument and delivery month). Other futures contracts, such as futures contracts on interest rates and indices, do not call for making or taking
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delivery of the underlying financial instrument, but rather are agreements pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the financial instrument at the close of the last trading day of the contract and the price at which the contract was originally written. These contracts also may be settled by entering into an offsetting futures contract.
Unlike when the Acquiring Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract. Initially, the Acquiring Fund will be required to deposit with the futures broker, known as a futures commission merchant (FCM), an amount of cash or securities equal to a varying specified percentage of the contract amount. This amount is known as initial margin. The margin deposit is intended to ensure completion of the contract. Minimum initial margin requirements are established by the futures exchanges and may be revised. In addition, FCMs may establish margin deposit requirements that are higher than the exchange minimums. Cash held in the margin account generally is not income producing. However, coupon-bearing securities, such as Treasury securities, held in margin accounts generally will earn income. Subsequent payments to and from the FCM, called variation margin, will be made on a daily basis as the price of the underlying financial instrument fluctuates, making the futures contract more or less valuable, a process known as marking the contract to market. Changes in variation margin are recorded by the Acquiring Fund as unrealized gains or losses. At any time prior to expiration of the futures contract, the Acquiring Fund may elect to close the position by taking an opposite position that will operate to terminate its position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid by or released to the Acquiring Fund, and the Fund realizes a gain or loss. In the event of the bankruptcy or insolvency of an FCM that holds margin on behalf of the Acquiring Fund, the Fund may be entitled to the return of margin owed to it only in proportion to the amount received by the FCMs other customers, potentially resulting in losses to the Fund. Futures transactions also involve brokerage costs, and the Acquiring Fund may have to segregate additional liquid assets in accordance with applicable SEC requirements. See Segregation of Assets below.
A futures option gives the purchaser of such option the right, in return for the premium paid, to assume a long position (call) or a short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the purchaser acquires a long position in the futures contract, and the writer is assigned the opposite short position. Upon the exercise of a put option, the opposite is true.
Bond Futures and Forward Contracts. Bond futures contracts are agreements in which one party agrees to deliver to the other an amount of cash equal to a specific dollar amount times the difference between the value of a specific bond at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of securities is made. Forward contracts are agreements to purchase or sell a specified security or currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers and are usually for less than one year, but they may be renewed. Forward contracts are generally purchased or sold in OTC transactions.
Under regulations of the CFTC currently in effect, which may change from time to time, with respect to futures contracts purchased by the Acquiring Fund, the Fund will set aside in a segregated account liquid securities with a value at least equal to the value of instruments underlying such futures contracts less the amount of initial margin on deposit for such contracts. The current view of the staff
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of the SEC is that the Acquiring Funds long and short positions in futures contracts must be collateralized with cash or certain liquid assets held in a segregated account or covered in order to counter the impact of any potential leveraging.
Parties to a futures contract must make initial margin deposits to secure performance of the contract. There are also requirements to make variation margin deposits from time to time as the value of the futures contract fluctuates.
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 cashrather than any securityequal 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 Acquiring 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 writers 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.
Limitations on the Use of Futures, Options on Futures and Swaps. The Adviser has claimed, with respect to the Acquiring Fund, the exclusion from the definition of commodity pool operator under the Commodity Exchange Act of 1936, as amended (CEA), provided by CFTC Regulation 4.5 and is therefore not currently subject to registration or regulation as such under the CEA with respect to the Acquiring Fund. In addition, the Sub-Adviser has claimed the exemption from registration as a commodity trading advisor provided by CFTC Regulation 4.14(a)(8) and is therefore not currently subject to registration or regulation as such under the CEA with respect to the Acquiring Fund. In February 2012, the CFTC announced substantial amendments to certain exemptions, and to the conditions for reliance on those exemptions, from registration as a commodity pool operator. Under amendments to the exemption provided under CFTC Regulation 4.5, if the Acquiring Fund uses futures, options on futures, or swaps other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums on these positions (after taking into account unrealized profits and unrealized losses on any such positions and excluding the amount by which options that are in-the-money at the time of purchase are in-the-money) may not exceed 5% of the Funds net asset value, or alternatively, the aggregate net notional value of those positions may not exceed 100% of the Funds net asset value (after taking into account unrealized profits and unrealized losses on any such positions). The CFTC amendments to Regulation 4.5 took effect on December 31,
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2012, and the Acquiring Fund intends to comply with amended Regulation 4.5s requirements such that the Adviser will not be required to register as a commodity pool operator with the CFTC with respect to the Fund. The Acquiring Fund reserves the right to employ futures, options on futures, and swaps to the extent allowed by CFTC regulations in effect from time to time and in accordance with the Funds policies. However, the requirements for qualification as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code), may limit the extent to which the Acquiring Fund may employ futures, options on futures, or swaps.
Structured Notes
The Acquiring 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.
Inter-Fund Borrowing and Lending
The SEC has granted an exemptive order permitting the Nuveen registered open-end and closed-end funds, including the Acquiring Fund, to participate in an inter-fund lending facility whereby those funds may directly lend to and borrow money from each other for temporary purposes (e.g., to satisfy redemption requests or when a sale of securities fails, resulting in an unanticipated cash shortfall) (the Inter-Fund Program). The closed-end Nuveen funds will participate only as lenders, and not as borrowers, in the Inter-Fund Program because such closed-end funds rarely, if ever, need to borrow cash to meet redemptions. The Inter-Fund Program is subject to a number of conditions, including, among other things, the requirements that (1) no fund may borrow or lend money through the Inter-Fund Program unless it receives a more favorable interest rate than is typically available from a bank or other financial institution for a comparable transaction; (2) no fund may borrow on an unsecured basis through the Inter-Fund Program unless the funds outstanding borrowings from all sources immediately after the inter-fund borrowing total 10% or less of its total assets; provided that if the borrowing fund has a secured borrowing outstanding from any other lender, including but not limited to another fund, the inter-fund loan must be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value; (3) if a funds total outstanding borrowings immediately after an inter-fund borrowing would be greater than 10% of its total assets, the fund may borrow through the inter-fund loan on a secured basis only; (4) no fund may lend money if the loan would cause its aggregate outstanding loans through the Inter-Fund Program to exceed 15% of its net assets at the time of the loan; (5) a funds inter-fund loans to any one fund shall not exceed 5% of the lending funds net assets; (6) the duration of inter-fund loans will be limited to the time required to receive payment for securities sold, but in no event more than seven days; and (7) each inter-fund loan
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may be called on one business days notice by a lending fund and may be repaid on any day by a borrowing fund. In addition, a Nuveen fund may participate in the Inter-Fund Program only if and to the extent that such participation is consistent with the funds investment objective and investment policies. The Board of Trustees of the Nuveen Funds is responsible for overseeing the Inter-Fund Program. The limitations detailed above and the other conditions of the SEC exemptive order permitting the Inter-Fund Program are designed to minimize the risks associated with Inter-Fund Program for both the lending fund and the borrowing fund. However, no borrowing or lending activity is without risk. When a fund borrows money from another fund, there is a risk that the loan could be called on one days notice or not renewed, in which case the fund may have to borrow from a bank at a higher rate or take other actions to payoff such loan if an inter-fund loan is not available from another fund. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs.
Other Investment Companies
The Acquiring Fund may invest in securities of other open- or closed-end investment companies (including exchange-traded funds) that invest primarily in municipal securities of the types in which the Fund may invest directly. As a shareholder in another investment company, the Acquiring Fund will bear its ratable share of that investment companys expenses and would remain subject to payment of its own advisory and administrative fees with respect to assets so invested. Common shareholders would therefore be subject to duplicative expenses to the extent the Acquiring Fund invests in other investment companies. The Acquiring Fund will consider the investments of underlying investment companies when determining compliance with Rule 35d-1 under the 1940 Act and when determining compliance with its own concentration policy, in each case to the extent the Acquiring Fund has sufficient information about such investments after making a reasonable effort to obtain current information about the investments in underlying companies.
The Adviser and/or the Sub-Adviser 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 leverage risk. 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.
Segregation of Assets
As a closed-end investment company registered with the SEC, the Acquiring Fund is subject to the federal securities laws, including the 1940 Act, the rules thereunder, and various interpretive positions of the SEC and its staff. In accordance with these laws, rules and positions, the Acquiring Fund must maintain liquid assets (often referred to as asset segregation), or engage in other SEC or staff-approved measures, to cover open positions with respect to certain kinds of derivative instruments and financial agreements (such as reverse repurchase agreements). Generally, the Acquiring Fund will maintain an amount of liquid assets with its custodian in an amount at least equal to the amount of its obligations, including the value of unpaid past and future payment obligations, under derivative instruments and financial agreements, in accordance with SEC guidance. However, the Acquiring Fund also may cover certain obligations by other means such as through ownership of the underlying security or financial instrument. The Acquiring Fund also may enter into offsetting transactions with respect to certain obligations so that its combined position, coupled with any liquid
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assets maintained by its custodian, equals its net outstanding obligation in related derivatives or financial agreements. In the case of financial futures contracts that are not contractually required to cash settle, for example, the Acquiring Fund must set aside liquid assets equal to such contracts full notional value while the positions are open. With respect to financial futures contracts that are contractually required to cash settle, however, the Acquiring Fund is permitted to set aside liquid assets in an amount equal to the Funds daily marked-to-market net obligations (i.e., the Funds daily net liability) under the contracts, if any, rather than such contracts full notional value. If the Acquiring Fund writes credit default swaps, it will segregate the full notional amount of the payment obligation under the credit default swap that must be paid upon the occurrence of a credit event. The Acquiring Fund may invest in inverse floating rate securities issued by special purpose trusts. With respect to such investments, the Fund will segregate or earmark assets in an amount equal to at least 100% of the face amount of the floating rate securities issued by such trusts.
The Acquiring Fund reserves the right to modify its asset segregation policies in the future to comply with any changes in the positions from time to time articulated by the SEC or its staff regarding asset segregation.
The Acquiring Fund generally will use its assets to cover its obligations as required by the 1940 Act, the rules thereunder, and applicable positions of the SEC and its staff. As a result of their segregation, such assets may not be used for other operational purposes. The Adviser will monitor the Acquiring Funds use of derivatives and will take action as necessary for the purpose of complying with the asset segregation policy stated above. Such actions may include the sale of the Acquiring Funds portfolio investments.
Other Investment Policies and Techniques
Illiquid Securities. The Acquiring 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 only be resold 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 with maturities in excess of seven days.
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 Acquiring 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 Acquiring Fund might obtain a less favorable price than that which prevailed when it decided to sell. Illiquid securities will be priced at a fair value as determined in good faith by the Board or its delegatee.
Portfolio Trading and Turnover Rate. Portfolio trading may be undertaken to accomplish the investment objectives of the Acquiring Fund in relation to actual and anticipated movements in interest rates. In addition, a security may be sold and another of comparable quality purchased at approximately the same time to take advantage of what the Adviser and/or the Sub-Adviser believes to be a temporary price disparity between the two securities. Temporary price disparities between two comparable securities may result from supply and demand imbalances where, for example, a temporary oversupply of certain bonds may cause a temporarily low price for such bonds, as compared with other
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bonds of like quality and characteristics. The Acquiring 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 gain.
Subject to the foregoing, the Acquiring Fund will attempt to achieve its investment objectives by prudent selection of municipal securities with a view to holding them for investment. While there can be no assurance thereof, the Acquiring Fund anticipates that its annual portfolio turnover rate will generally not exceed 100%. However, the rate of turnover will not be a limiting factor when the Acquiring Fund deems it desirable to sell or purchase securities. Therefore, depending upon market conditions, the annual portfolio turnover rate of the Acquiring Fund may exceed 100% in particular years. A higher portfolio turnover rate would result in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Acquiring Fund. In addition, high portfolio turnover may result in the realization of net short-term capital gains by the Acquiring Fund which, when distributed to shareholders, will be taxable as ordinary income for federal income tax purposes or may result in greater amounts of net capital gain distributions. See Federal Income Tax Matters.
Repurchase Agreements. As temporary investments, the Acquiring Fund may invest in repurchase agreements. A repurchase agreement is a contractual agreement whereby the seller of securities (U.S. government securities or municipal bonds) 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 Acquiring Funds 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 is taxable to the Acquiring Fund and, to the extent distributed, will be taxable to shareholders. See Federal Income Tax Matters below. The Acquiring Fund will enter into repurchase agreements only with registered securities dealers or domestic banks that, in the opinion of the Adviser and/or the Sub-Adviser, present minimal credit risk. The risk to the Acquiring 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 Acquiring Fund might incur a loss if the value of the collateral declines, and it 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 Acquiring Fund may be delayed or limited. The Adviser and/or the Sub-Adviser will monitor the value of the collateral at the time the transaction is entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that such value always equals or exceeds the agreed-upon repurchase price. In the event the value of the collateral declines below the repurchase price, the Adviser will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price, including interest.
Zero Coupon Bonds and Other Original Issue Discount Instruments. A zero coupon bond is a bond that typically 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, the holder receives the par value of the zero coupon bond, which generates a return equal to 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. This original issue discount (OID) approximates the total amount of interest the security will
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accrue and compound prior to its maturity and reflects the payment deferral and credit risk associated with the instrument. Because zero coupon securities and other OID instruments do not pay cash interest at regular intervals, the instruments ongoing accruals require ongoing judgments concerning the collectability of deferred payments and the value of any associated collateral. As a result, these securities may be subject to greater value fluctuations and less liquidity in the event of adverse market conditions than comparably rated securities that pay cash on a current basis. Because zero coupon bonds, and OID instruments generally, allow an issuer to avoid or delay the need to generate cash to meet current interest payments, they may involve greater payment deferral and credit risk than coupon loans and bonds that pay interest currently or in cash. The Acquiring Fund generally will be required to distribute dividends to shareholders representing the income 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 Acquiring Fund may have to sell other investments, including when it may not be advisable to do so, and use the cash proceeds to make income distributions to its shareholders. For accounting purposes, these cash distributions to shareholders will not be treated as a return of capital.
Further, the Adviser collects management fees on the value of a zero coupon bond or OID instrument attributable to the ongoing noncash accrual of interest over the life of the bond or other instrument. As a result, the Adviser receives nonrefundable cash payments based on such noncash accruals while investors incur the risk that such noncash accruals ultimately may not be realized.
In addition to (1) each Funds investment objectives; (2) the Acquiring Funds policy to invest, under normal circumstances, at least 80% of its net assets, including assets attributable to any principal amount of any borrowings (including the issuance of commercial paper or notes) or any preferred shares outstanding, in municipal securities and other related investments, the income from which is exempt from regular federal, New York State and New York City income taxes; and (3) the Target Funds policy to invest, under normal circumstances, at least 80% of its net assets in municipal securities, the income from which is exempt from regular federal, New York State and New York City income taxes, the following investment restrictions are fundamental policies for the Funds and may not be changed without the approval of the holders of a majority of the outstanding common shares. For this purpose, a majority of the outstanding shares means the vote of (1) 67% or more of the voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or (2) more than 50% of the outstanding voting securities, whichever is less.
Except as described below, each Fund may not:
Acquiring Fund(1) |
Target Fund(1) |
|||
(1) | Issue senior securities, as defined in the 1940 Act, except to the extent such issuance might be involved with respect to borrowings described under subparagraph (2) below or with respect to transactions involving futures contracts or the writing of options within the limits described herein. | Issue senior securities, as defined in the Investment Company Act of 1940, as amended (the 1940 Act), except as otherwise described in the Prospectus. |
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Acquiring Fund(1) |
Target Fund(1) |
|||
(2) | Borrow money, except from banks for temporary or emergency purposes or for repurchase of its shares, and then only in an amount not exceeding one-third of the value of the Funds total assets including the amount borrowed. While any such borrowings exceed 5% of the Funds total assets, no additional purchases of investment securities will be made. | Borrow money, except as permitted by the 1940 Act and exemptive orders granted under the 1940 Act. | ||
(3) | Underwrite any issue of securities, except to the extent that the purchase of Municipal Obligations in accordance with its investment objectives, policies and limitations may be deemed to be an underwriting. | Act as underwriter of another issuers securities, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended (the Securities Act), in connection with the purchase and sale of portfolio securities. | ||
(4) | Invest more than 25% of its total assets in securities of issuers in any one industry; provided, however, that such limitation shall not be applicable to Municipal Obligations issued by governments or political subdivisions of governments, and obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. | 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. | ||
(5) | Purchase or sell real estate, but this shall not prevent the Fund from investing in Municipal Obligations secured by real estate or interests therein. | 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. | ||
(6) | 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). | 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). | ||
(7) | Make loans, except as permitted by the 1940 Act and exemptive orders granted under the 1940 Act. | Make loans, except as permitted by the 1940 Act and exemptive orders granted under the 1940 Act. |
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Acquiring Fund(1) |
Target Fund(1) |
|||
(8) | Invest more than 5% of its total assets in securities of any one issuer, except that this limitation shall not apply to securities of the United States government, its agencies and instrumentalities or to the investment of 25% of its total assets. | With respect to 50% of the value of the Funds total assets, purchase any securities (other than obligations issued or guaranteed by the U.S. government or by its agencies or instrumentalities), if as a result more than 5% of the Funds 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. | ||
(9) | Pledge, mortgage or hypothecate its assets, except that, to secure borrowings permitted by subparagraph (2) above, it may pledge securities having a market value at the time of pledge not exceeding 20% of the value of the Funds total assets. | | ||
(10) | Invest more than 10% of its total assets in repurchase agreements maturing in more than seven days. | | ||
(11) | Purchase or retain the securities of any issuer other than the securities of the Fund if, to the Funds knowledge, those directors of the Fund, or those officers and directors of the Adviser, who individually own beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such outstanding securities. | |
(1) |
This table presents the fundamental investment restrictions of each Fund as they appear in the respective Funds initial registration statement. Accordingly, the use of certain defined terms in the table does not necessarily correspond with defined terms used elsewhere in this SAI. |
For the purpose of applying the limitation set forth in subparagraph (8) above, a governmental issuer shall be deemed the single 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, 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 single 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
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restrictions do not limit the percentage of any Funds assets that may be invested in municipal securities insured by any given insurer.
Each Fund is diversified for purposes of the 1940 Act. Consequently, as to 75% of each Funds total assets, a Fund may not (1) purchase the securities of any one issuer (other than cash, securities of other investment companies and securities issued by the U.S. government or its agencies or instrumentalities) if immediately after such purchase, more than 5% of the value of the Funds total assets would be invested in securities of such issuer or (2) purchase more than 10% of the outstanding voting securities of such issuer.
Subject to certain exemptions under the 1940 Act, each Fund may invest up to 10% of its total assets in the aggregate in shares of other investment companies and up to 5% of its total assets in any one investment company, provided the investment does not represent more than 3% of the voting shares of beneficial interest of the acquired investment company at the time such shares are purchased. As a shareholder in any investment company, each Fund will bear its ratable share of that investment companys expenses, and will remain subject to payment of the Funds management, advisory and administrative fees with respect to assets so invested. Holders of common shares of each Fund 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 be leveraged and therefore will be subject to leverage risk.
In addition to the foregoing fundamental investment policies, the Funds are also subject to the following non-fundamental restrictions and policies that may be changed by the Boards of the Funds without prior shareholder notice.
Each Fund may not:
Acquiring Fund |
Target Fund |
|
Unsecured Obligations with Limited Operating History: |
Unsecured Obligations with Limited Operating History: |
|
Invest more than 5% of its total assets in unsecured obligations of issuers which, together with their predecessors, have been in operation for less than three years. |
|
|
Exercising Control: | Exercising Control: | |
Invest for the purpose of exercising control or management. | Purchase securities of companies for the purpose of exercising control, except as otherwise permitted in the Funds Prospectus and Statement of Additional Information. |
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Acquiring Fund |
Target Fund |
|
Unmarketable Securities: | Unmarketable Securities: | |
Invest more than 10% of its total assets in unmarketable securities (including repurchase agreements maturing in more than seven days). | | |
Short Selling: | Short Selling: | |
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. | 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. | |
Other Investment Companies: | Other Investment Companies: | |
| Purchase securities of open-end or closed-end investment companies except in compliance with the 1940 Act or any exemptive relief obtained thereunder. | |
Futures Contracts: | Futures Contracts: | |
The Fund may not enter into futures contracts or related options or forward contracts, if more than 30% of the Funds net assets would be represented by futures contracts or more than 5% of the Funds net assets would be committed to initial margin deposits and premiums on futures contracts and related options. | Enter into futures contracts or related options or forward contracts, if more than 30% of the Funds net assets would be represented by futures contracts or more than 5% of the Funds net assets would be committed to initial margin deposits and premiums on futures contracts and related options. |
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.
Although the Funds do not intend to issue debt securities or borrow money, if they do, the Funds may be subject to certain restrictions imposed by either guidelines of one or more NRSROs that may issue ratings for preferred shares, or, if issued, commercial paper or notes, or, if the Funds borrows from a lender, by the lender. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Funds by the 1940 Act. If these restrictions were to apply, it is not anticipated that these covenants or guidelines would impede the Adviser and/or the Sub-Adviser from managing the Funds portfolio in accordance with the Funds investment objectives and policies.
Portfolio Turnover
Each Fund may buy and sell municipal securities to accomplish its investment objectives in relation to actual and anticipated changes in interest rates. Each Fund also may sell one municipal bond and buy another of comparable quality at about the same time to take advantage of what the Adviser
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believes to be a temporary price disparity between the two bonds that may result from imbalanced supply and demand. Each Fund also may 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. Each Fund will attempt to achieve its investment objectives by prudent selection of municipal securities with a view to holding them for investment. While there can be no assurance, each Fund anticipates that its annual portfolio turnover rate will generally not exceed 100%.
For the fiscal years ended February 29, 2020 and February 28, 2019, the portfolio turnover rates of the Funds were as follows:
Fund |
2020 | 2019 | ||||||
Acquiring Fund |
7 | % | 17 | % | ||||
Target Fund |
17 | % | 34 | % |
There are no limits on the rate of portfolio turnover, and investments may be sold without regard to length of time held when investment considerations warrant such action. A higher portfolio turnover rate may result in correspondingly greater brokerage commissions and other transactional expenses that are borne by each Fund. In addition, high portfolio turnover may result in the realization of net short-term capital gains by a Fund which, when distributed to shareholders, will be taxable as ordinary income for federal income tax purposes or may result in greater amounts of net capital gain distributions.
Board Members and Officers
The management of the Funds, including general supervision of the duties performed for each Fund under its investment management agreement with Nuveen Fund Advisors (each, an Investment Management Agreement), is the responsibility of the Funds Board. (The same Board and officers oversee each Fund.) The number of Board Members is nine (9), none of whom is an interested person (as such term is defined in the 1940 Act) (referred to herein as Independent Board Members). None of the Independent Board Members has ever been a trustee, director or employee of, or a consultant to, Nuveen, LLC (Nuveen), Nuveen Fund Advisors, Nuveen Asset Management or their affiliates. Each Board currently has one vacancy due to the resignation of Margo L. Cook on February 27, 2020, who was considered an interested person of the Funds by reason of her position with Nuveen and/or certain of its subsidiaries.
The Board of each Fund is divided into three classes, Class I, Class II and Class III, with the Class I Board Members serving until the 2022 annual meeting, the Class II Board Members serving until the 2023 annual meeting and the Class III Board Members serving until the 2021 annual meeting, in each case until their respective successors are elected and qualified. Currently, William C. Hunter, Judith M. Stockdale, Carole E. Stone and Margaret L. Wolff are slated in Class I, John K. Nelson, Terence J. Toth and Robert L. Young are slated in Class II, and Jack B. Evans and Albin F. Moschner are slated in Class III. At its meeting held on August 4-6, 2020, the Board of each Fund appointed Matthew Thornton III as a new Board Member for each Fund designated as a Class III Board Member, effective November 16, 2020. The officers of the Funds serve annual terms and are elected on an annual basis.
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The names, business addresses and birthdates of the Board Members and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each Board Member oversees and other directorships they hold are set forth below.
Name,
|
Position(s)
|
Term of
|
Principal
|
Number of
|
Other
|
|||||
Board Members who are not interested persons of the Funds | ||||||||||
Terence J. Toth
c/o Nuveen 333 West Wacker Drive Chicago, Illinois 60606 1959 |
Chairman of the Board, Board Member |
Term: Class II Board Member until 2023 annual shareholder meeting
Length of Service: Since 2008, Chairman of the Board since 2018 |
Formerly, Co-Founding Partner, Promus Capital (2008-2017); Director, Quality Control Corporation (since 2012); formerly, Director, Fulcrum IT Services, LLC (2010-2019); formerly Director, LogicMark LLC (2012-2016); formerly, Director, Legal & General Investment Management America, Inc. (2008-2013); formerly, CEO and President, Northern Trust Global Investments (2004-2007); Executive Vice President, Quantitative Management & Securities Lending (2000-2004); prior thereto, various positions with Northern Trust Company (since 1994); formerly, Member, Chicago Fellowship Board (2005-2016); Member, Catalyst Schools of Chicago Board (since 2008) and Mather Foundation Board (since 2012) and Chair of its Investment Committee; formerly, Member, Northern Trust Mutual Funds Board (2005-2007), Northern Trust Global Investments Board (2004-2007), Northern Trust Japan Board (2004-2007), Northern Trust Securities Inc. Board (2003-2007) and Northern Trust Hong Kong Board (1997-2004). | 155 | None |
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Name,
|
Position(s)
|
Term of
|
Principal
|
Number of
|
Other
|
|||||
Jack B. Evans
c/o Nuveen 333 West Wacker Drive Chicago, Illinois 60606 1948 |
Board Member |
Term: Class III Board Member until 2021 annual shareholder meeting
Length of Service: Since 1999 |
Chairman (since 2019), formerly, President (1996-2019), The Hall-Perrine Foundation, a private philanthropic corporation (since 1996); Director, Public Member (since 2015), American Board of Orthopaedic Surgery; Life Trustee of Coe College and Iowa College Foundation; formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm; formerly, Member and President Pro Tem of the Board of Regents for the State of Iowa University System; formerly, Director, The Gazette Company. | 155 | Director and Chairman, United Fire Group, a publicly held company; formerly, Director, Alliant Energy. | |||||
William C. Hunter
c/o Nuveen
|
Board Member |
Term: Annual or Class I Board Member until 2022 annual shareholder meeting
Length of Service: Since 2004 |
Dean Emeritus (since 2012), formerly, Dean (2006-2012), Henry B. Tippie College of Business, University of Iowa; past Director (2005-2015) and past President (2010-2014), Beta Gamma Sigma, Inc., The International Business Honor Society; formerly, Director (1997-2007), Credit Research Center at Georgetown University; formerly, Dean and Distinguished Professor of Finance, School of Business at the University of Connecticut (2003-2006); previously, Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago (1995-2003). | 155 | Director (since 2009) of Wellmark, Inc.; formerly, Director (2004-2018) of Xerox Corporation. |
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Name,
|
Position(s)
|
Term of
|
Principal
|
Number of
|
Other
|
|||||
Albin F. Moschner c/o Nuveen
333 West Wacker Drive Chicago, Illinois 60606 1952 |
Board Member |
Term: Class III Board Member until 2021 annual shareholder meeting
Length of Service: Since 2016 |
Founder and Chief Executive Officer, Northcroft Partners, LLC, a management consulting firm (since 2012); previously, held positions at Leap Wireless International, Inc., including Consultant (2011-2012), Chief Operating Officer (2008-2011), and Chief Marketing Officer (2004-2008); formerly, President, Verizon Card Services division of Verizon Communications, Inc. (2000-2003); formerly, President, One Point Services at One Point Communications (1999-2000); formerly, Vice Chairman of the Board, Diba, Incorporated (1996-1997); formerly, various executive positions with Zenith Electronics Corporation (1991-1996). | 155 | Chairman (since 2019) and Director (since 2012), USA Technologies, Inc., a provider of solutions and services to facilitate electronic payment transactions; formerly, Director, Wintrust Financial Corporation (1996-2016). |
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Name,
|
Position(s)
|
Term of
|
Principal
|
Number of
|
Other
|
|||||
John K. Nelson
c/o Nuveen 333 West Wacker Drive Chicago, Illinois 60606 1962 |
Board Member |
Term: Class II Board Member until 2023 annual shareholder meeting
Length of Service: Since 2013 |
Member of Board of Directors of Core12 LLC. (since 2008), a private firm which develops branding, marketing and communications strategies for clients; served on The Presidents Council, Fordham University (2010-2019) and previously was a Director of The Curran Center for Catholic American Studies (2009-2018); formerly, senior external advisor to the financial services practice of Deloitte Consulting LLP (2012-2014); formerly, Chairman of the Board of Trustees of Marian University (2010-2014 as trustee, 2011-2014 as Chairman); formerly, Chief Executive Officer of ABN AMRO N.V. North America and Global Head of the Financial Markets Division (2007-2008) and various executive leadership roles at ABN AMRO Bank N.V. (1996-2007). | 155 | None | |||||
Judith M. Stockdale c/o Nuveen
333 West Wacker Drive Chicago, Illinois 60606 1947 |
Board Member |
Term: Class I Board Member until 2022 annual shareholder meeting.
Length of Service: Since 1997 |
Board Member of the Land Trust Alliance (since 2013); formerly, Board Member of the U.S. Endowment for Forestry and Communities (2013-2019); formerly, Executive Director (1994-2012), Gaylord and Dorothy Donnelley Foundation; prior thereto, Executive Director, Great Lakes Protection Fund (1990-1994). | 155 | None |
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Name,
|
Position(s)
|
Term of
|
Principal
|
Number of
|
Other
|
|||||
Carole E. Stone
c/o Nuveen 333 West Wacker Drive Chicago, Illinois 60606 1947 |
Board Member |
Term: Class I Board Member until 2022 annual shareholder meeting.
Length of Service: Since 2007 |
Former Director, Chicago Board Options Exchange, Inc. (2006-2017) and C2 Options Exchange, Incorporated (2009-2017); formerly, Commissioner, New York State Commission on Public Authority Reform (2005-2010). | 155 | Formerly, Director, Cboe Global Markets, Inc. (2010-2020), (formerly named CBOE Holdings, Inc.). | |||||
Margaret L. Wolff
c/o Nuveen 333 West Wacker Drive Chicago, Illinois 60606 1955 |
Board Member |
Term: Class I Board Member until 2022 annual shareholder meeting.
Length of Service: Since 2016 |
Formerly, Of Counsel, Skadden, Arps, Slate, Meagher & Flom LLP (Mergers & Acquisitions Group) (2005-2014); Member of the Board of Trustees of New York-Presbyterian Hospital (since 2005); Member (since 2004) and Chair (since 2015) of the Board of Trustees of The John A. Hartford Foundation (a philanthropy dedicated to improving the care of older adults); formerly, Member (2005-2015) and Vice Chair (2011-2015) of the Board of Trustees of Mt. Holyoke College. | 155 | Formerly, Member of the Board of Directors (2013-2017) of Travelers Insurance Company of Canada and The Dominion of Canada General Insurance Company (each, a part of Travelers Canada, the Canadian operation of The Travelers Companies, Inc.). |
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Name,
|
Position(s)
|
Term of
|
Principal
|
Number of
|
Other
|
|||||
Robert L. Young
c/o Nuveen 333 West Wacker Drive Chicago, Illinois 60606 1963 |
Board Member |
Term: Class II Board Member until 2023 annual shareholder meeting
Length of Service: Since 2017 |
Formerly, Chief Operating Officer and Director, J.P. Morgan Investment Management Inc. (2010-2016); formerly, President and Principal Executive Officer (2013-2016), and Senior Vice President and Chief Operating Officer (2005-2010) of J.P. Morgan Funds; formerly, Director and various officer positions for J.P. Morgan Investment Management Inc. (formerly, JPMorgan Funds Management, Inc. and formerly, One Group Administrative Services) and JPMorgan Distribution Services, Inc. (formerly, One Group Dealer Services, Inc.) (1999-2017). | 155 | None |
(1) |
Length of Time Served indicates the year in which the individual became a Board Member of a fund in the Nuveen Fund complex. |
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The following table sets forth information with respect to each officer of the Funds. Officers receive no compensation from the Funds. The officers are elected by the Board on an annual basis to serve until successors are elected and qualified.
Name, Address and
|
Position(s) Held with
|
Term of Office and
|
Principal Occupation(s) During Past 5 Years(3) |
|||
David J. Lamb
333 West Wacker Drive Chicago, IL 60606 1963 |
Chief Administrative Officer |
Term: Annual
Length of Service:
|
Managing Director (since 2017), formerly, Senior Vice President of Nuveen (since 2006), Vice President prior to 2006. |
|||
Nathaniel T. Jones
333 West Wacker Drive Chicago, IL 60606 1979 |
Vice President and Treasurer |
Term: Annual
Length of Service: Since 2016 |
Managing Director (since 2017), formerly, Senior Vice President (2016-2017), formerly, Vice President (2011-2016) of Nuveen; Managing Director (since 2015) of Nuveen Fund Advisors, LLC; Chartered Financial Analyst. | |||
Walter M. Kelly
333 West Wacker Drive Chicago, IL 60606 1970 |
Chief Compliance Officer and Vice President |
Term: Annual
Length of Service: Since 2003 |
Managing Director (since 2017), formerly, Senior Vice President (2008-2017) of Nuveen. | |||
Tina M. Lazar
333 West Wacker Drive Chicago, IL 60606 1961 |
Vice President |
Term: Annual
Length of Service: Since 2002 |
Managing Director (since 2017), formerly, Senior Vice President (2014-2017) of Nuveen Securities, LLC. | |||
Brian J. Lockhart 333 West Wacker Drive Chicago, IL 60606 1974 |
Vice President |
Term: Annual
Length of Service: Since 2019 |
Managing Director (since 2019) of Nuveen Fund Advisors, LLC; Managing Director (since 2017), formerly, Vice President (2010-2017) of Nuveen; Head of Investment Oversight (since 2017), formerly, Team Leader of Manager Oversight (2015-2017). | |||
Jacques M. Longerstaey 8500 Andrew Carnegie Blvd. Charlotte, NC 28262 1963 |
Vice President |
Term: Annual
Length of Service: Since 2019 |
Senior Managing Director, Chief Risk Officer (since May 2019) of Nuveen; Senior Managing Director (since May 2019) of Nuveen Fund Advisors, LLC; formerly, Chief Investment and Model Risk Officer, Wealth & Investment Management Division, Wells Fargo Bank (NA) (from 2013-2019). |
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Name, Address and
|
Position(s) Held with
|
Term of Office and
|
Principal Occupation(s) During Past 5 Years(3) |
|||
Kevin J. McCarthy
333 West Wacker Drive Chicago, IL 60606 1966 |
Vice President and Assistant Secretary |
Term: Annual
Length of Service: Since 2007 |
Senior Managing Director (since 2017) and Secretary and General Counsel (since 2016) of Nuveen Investments, Inc., formerly, Executive Vice President (2016-2017) and Managing Director and Assistant Secretary (2008-2016); Senior Managing Director (since 2017) and Assistant Secretary (since 2008) of Nuveen Securities, LLC, formerly Executive Vice President (2016-2017) and Managing Director (2008-2016); Senior Managing Director (since 2017), Secretary (since 2016) and Co-General Counsel (since 2011) of Nuveen Fund Advisors, LLC, formerly, Executive Vice President (2016-2017), Managing Director (2008-2016) and Assistant Secretary (2007-2016); Senior Managing Director (since 2017), Secretary (since 2016) and Associate General Counsel (since 2011) of Nuveen Asset Management, LLC, formerly Executive Vice President (2016-2017) and Managing Director and Assistant Secretary (2011-2016); Senior Managing Director (since 2017) and Secretary (since 2016) of Nuveen Investments Advisers, LLC, formerly Executive Vice President (2016-2017); Vice President (since 2007) and Secretary (since 2016), formerly, Assistant Secretary, of NWQ Investment Management Company, LLC, Symphony Asset Management LLC, Santa Barbara Asset Management, LLC and Winslow Capital Management, LLC (since 2010); Senior Managing Director (since 2017) and Secretary (since 2016) of Nuveen Alternative Investments, LLC. |
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Name, Address and
|
Position(s) Held with
|
Term of Office and
|
Principal Occupation(s) During Past 5 Years(3) |
|||
Jon Scott Meissner TIAA 8500 Andrew Carnegie Boulevard Charlotte, NC 28262 1973 |
Vice President |
Term: Annual
Length of Service: Since 2019 |
Managing Director of Mutual Fund Tax and Financial Reporting (since 2017) of Nuveen; Managing Director (since 2019) of Nuveen Fund Advisors, LLC; Senior Director (since 2016) of Teachers Advisors, LLC and TIAA-CREF Investment Management, LLC; Senior Director, Mutual Fund Taxation (since 2015) of the TIAA-CREF Funds, the TIAA-CREF Life Funds, the TIAA Separate Account VA-1 and the CREF Accounts; has held various positions with TIAA since 2004. | |||
William T. Meyers
333 West Wacker Drive Chicago, IL 60606 1966 |
Vice President |
Term: Annual
Length of Service: Since 2018 |
Senior Managing Director (since 2017), formerly, Managing Director (2016-2017), Senior Vice President (2010-2016) of Nuveen Securities, LLC; Senior Managing Director (since 2016) of Nuveen Fund Advisors, LLC; Senior Managing Director (since 2017), formerly, Managing Director (2016-2017), Senior Vice President (2010-2016) of Nuveen, has held various positions with Nuveen since 1991. | |||
Deann D. Morgan 100 Park Avenue New York, NY 10016 1969 |
Vice President |
Term: Annual
Length of Service: Since 2020 |
Executive Vice President, Global Head of Product of Nuveen (since November 2019); Co-Chief Executive Officer of Nuveen Securities, LLC (since March 2020); Managing Member MDR Collaboratory LLC (since 2018); Managing Director, Head of Wealth Management Product Structuring & COO Multi Asset Investing, The Blackstone Group (2013-2017). | |||
Christopher M. Rohrbacher
333 West Wacker Drive Chicago, IL 60606 1971 |
Vice President and Assistant Secretary |
Term: Annual
Length of Service: Since 2008 |
Managing Director (since 2017) and Co-General Counsel (since 2019), formerly, Senior Vice President (2016-2017) and Assistant Secretary (2016-2019) of Nuveen Fund Advisors, LLC; Managing Director (since 2017) of Nuveen Securities, LLC; Managing Director (since 2017) and Associate General Counsel (since 2016), formerly, Senior Vice President (2012-2017) and Assistant General Counsel (2008-2016) of Nuveen. |
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Name, Address and
|
Position(s) Held with
|
Term of Office and
|
Principal Occupation(s) During Past 5 Years(3) |
|||
William A. Siffermann
333 West Wacker Drive Chicago, IL 60606 1975 |
Vice President |
Term: Annual
Length of Service: Since 2017 |
Managing Director (since 2017), formerly, Senior Vice President (2016-2017) and Vice President (2011-2016) of Nuveen. | |||
E. Scott Wickerham
TIAA 730 Third Avenue New York, NY 10017 1973 |
Vice President and Controller |
Term: Annual
Length of Service: Since 2019 |
Senior Managing Director, Head of Fund Administration of Nuveen (since 2019), formerly, Managing Director; Principal Financial Officer, Principal Accounting Officer and Treasurer (since 2017) to the TIAA-CREF Funds, the TIAA-CREF Life Funds, the TIAA Separate Account VA-1 and the Treasurer (since 2017) to the CREF Accounts; Senior Director, TIAA-CREF Fund Administration (2014-2015); has held various positions with TIAA since 2006. | |||
Mark L. Winget
333 West Wacker Drive Chicago, IL 60606 1968 |
Vice President and Assistant Secretary |
Term: Annual
Length of Service: Since 2008 |
Vice President and Assistant Secretary of Nuveen Securities, LLC (since 2008) and Nuveen Fund Advisors, LLC (since 2019); Vice President (since 2010) and Associate General Counsel (since 2016), formerly, Assistant General Counsel (2008-2016) of Nuveen. | |||
Gifford R. Zimmerman
333 West Wacker Drive Chicago, IL 60606 1956 |
Vice President and Secretary |
Term: Annual
Length of Service: Since 1988 |
Managing Director (since 2002) and Assistant Secretary of Nuveen Securities, LLC; Managing Director (since 2002), Assistant Secretary (since 1997) and Co-General Counsel (since 2011) of Nuveen Fund Advisors, LLC; Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.; Managing Director, Assistant Secretary and Associate General Counsel of Nuveen Asset Management, LLC (since 2011); Vice President (since 2017), formerly, Managing Director (2003-2017) and Assistant Secretary (since 2003) of Symphony Asset Management LLC; Managing Director and Assistant Secretary (since 2002) of Nuveen Investments Advisers, LLC; Vice President and Assistant Secretary of NWQ Investment Management Company, LLC, Santa Barbara Asset Management, LLC (since 2006) and of Winslow Capital Management, LLC (since 2010); Chartered Financial Analyst. |
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(1) |
Officers serve one-year terms through August of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Fund Complex. |
(2) |
Length of service indicates the year the individual became an officer of a fund in the Nuveen Fund complex. |
(3) |
Information as of September 30, 2020. |
BOARD LEADERSHIP STRUCTURE AND RISK OVERSIGHT
The Board of each Fund oversees the operations and management of the Fund, including the duties performed for the Fund by the Adviser. The Board has adopted a unitary board structure. A unitary board consists of one group of board members who serves on the board of every fund in the complex. In adopting a unitary board structure, the Board Members seek to provide effective governance through establishing a board, the overall composition of which will, as a body, possess the appropriate skills, independence and experience to oversee the Funds business. With this overall framework in mind, when the Board, through its Nominating and Governance Committee discussed below, seeks nominees for the Board, the Board Members consider not only the candidates particular background, skills and experience, among other things, but also whether such background, skills and experience enhance the Boards diversity and at the same time complement the Board given its current composition and the mix of skills and experiences of the incumbent Board Members. The Nominating and Governance Committee believes that the Board generally benefits from diversity of background, experience and views among its members, and considers this a factor in evaluating the composition of the Board, but has not adopted any specific policy on diversity or any particular definition of diversity.
The Board believes the unitary board structure enhances good and effective governance, particularly given the nature of the structure of the investment company complex. Funds in the same complex generally are served by the same service providers and personnel and are governed by the same regulatory scheme which raises common issues that must be addressed by the Board Members across the fund complex (such as compliance, valuation, liquidity, brokerage, trade allocation or risk management). The Board believes it is more efficient to have a single board review and oversee common policies and procedures which increases the Boards knowledge and expertise with respect to the many aspects of fund operations that are complex-wide in nature. The unitary structure also enhances the Boards influence and oversight over the Adviser and other service providers.
In an effort to enhance the independence of the Board, the Board also has a Chairman that is an Independent Board Member. The Board recognizes that a chairman can perform an important role in setting the agenda for the Board, establishing the boardroom culture, establishing a point person on behalf of the Board for Fund management, and reinforcing the Boards focus on the long-term interests of shareholders. The Board recognizes that a chairman may be able to better perform these functions without any conflicts of interests arising from a position with Fund management. Accordingly, the Board Members have elected Terence J. Toth as the independent Chairman of the Board. Specific responsibilities of the Chairman include: (i) presiding at all meetings of the Board and of the shareholders; (ii) seeing that all orders and resolutions of the Board Members are carried into effect; and (iii) maintaining records of and, whenever necessary, certifying all proceedings of the Board Members and the shareholders.
Although the Board has direct responsibility over various matters (such as advisory contracts, underwriting contracts and Fund performance), the Board also exercises certain of its oversight responsibilities through several committees that it has established and which report back to the full
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Board. The Board believes that a committee structure is an effective means to permit Board Members to focus on particular operations or issues affecting the Funds, including risk oversight. More specifically, with respect to risk oversight, the Board has delegated matters relating to valuation and compliance to certain committees (as summarized below) as well as certain aspects of investment risk. In addition, the Board believes that the periodic rotation of Board Members among the different committees allows the Board Members to gain additional and different perspectives of a Funds operations. The Board has established six standing committees: the Executive Committee, the Dividend Committee, the Audit Committee, the Compliance, Risk Management and Regulatory Oversight Committee, the Nominating and Governance Committee and the Closed-End Funds Committee. The Board may also from time to time create ad hoc committees to focus on particular issues as the need arises. The membership and functions of the standing committees are summarized below.
Executive Committee. The Executive Committee, which meets between regular meetings of the Board, is authorized to exercise all of the powers of the Board. The members of the Executive Committee are Terence J. Toth, Chair, Albin F. Moschner and Margaret L. Wolff. For each Fund, the Executive Committee did not hold a meeting during the fiscal year ended February 29, 2020.
Dividend Committee. The Dividend Committee is authorized to declare distributions on each Funds shares including, but not limited to, regular and special dividends, capital gains and ordinary income distributions. The members of the Dividend Committee are Robert L. Young, Chair, William C. Hunter, Albin F. Moschner and Margaret L. Wolff. For each Fund, during the fiscal year ended February 29, 2020, the Dividend Committee met four (4) times.
Audit Committee. The Board has an Audit Committee, in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (1934 Act), that is composed of Independent Board Members who are also independent as that term is defined in the listing standards pertaining to closed-end funds of the New York Stock Exchange (NYSE). The Audit Committee assists the Board in: the oversight and monitoring of the accounting and reporting policies, processes and practices of the Funds, and the audits of the financial statements of the Funds; the quality and integrity of the financial statements of the Funds; the Funds compliance with legal and regulatory requirements relating to the Funds financial statements; the independent auditors qualifications, performance and independence; and the pricing procedures of the Funds and the internal valuation group of Nuveen. It is the responsibility of the Audit Committee to select, evaluate and replace any independent auditors (subject only to Board and, if applicable, shareholder ratification) and to determine their compensation. The Audit Committee is also responsible for, among other things, overseeing the valuation of securities comprising the Funds portfolios. Subject to the Boards general supervision of such actions, the Audit Committee addresses any valuation issues, oversees the Funds pricing procedures and actions taken by Nuveens internal valuation group which provides regular reports to the Audit Committee, reviews any issues relating to the valuation of the Funds securities brought to its attention, and considers the risks to the Funds in assessing the possible resolutions of these matters. The Audit Committee may also consider any financial risk exposures for the Funds in conjunction with performing its functions.
To fulfill its oversight duties, the Audit Committee receives annual and semiannual reports and has regular meetings with the external auditors for the Funds and the internal audit group at Nuveen. The Audit Committee also may review, in a general manner, the processes the Board or other Board committees have in place with respect to risk assessment and risk management as well as compliance with legal and regulatory matters relating to the Funds financial statements. The Audit Committee
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operates under a written Audit Committee Charter (the Charter) adopted and approved by the Board, which Charter conforms to the listing standards of the NYSE. Members of the Audit Committee are independent (as set forth in the Charter) and free of any relationship that, in the opinion of the Board Members, would interfere with their exercise of independent judgment as an Audit Committee member. The members of the Audit Committee are Carole E. Stone, Chair, Jack B. Evans, William C. Hunter, John K. Nelson and Judith M. Stockdale, each of whom is an Independent Board Member of the Funds. A copy of the Charter is available at https://www.nuveen.com/fund-governance. For each Fund, during the fiscal year ended February 29, 2020, the Funds Audit Committee met four (4) times.
Compliance, Risk Management and Regulatory Oversight Committee. The Compliance, Risk Management and Regulatory Oversight Committee (the Compliance Committee) is responsible for the oversight of compliance issues, risk management and other regulatory matters affecting the Funds that are not otherwise under or within the jurisdiction of the other committees. The Board has adopted and periodically reviews policies and procedures designed to address the Funds compliance and risk matters. As part of its duties, the Compliance Committee: reviews the policies and procedures relating to compliance matters and recommends modifications thereto as necessary or appropriate to the full Board; develops new policies and procedures as new regulatory matters affecting the Funds arise from time to time; evaluates or considers any comments or reports from examinations from regulatory authorities and responses thereto; and performs any special reviews, investigations or other oversight responsibilities relating to risk management, compliance and/or regulatory matters as requested by the Board.
In addition, the Compliance Committee is responsible for risk oversight, including, but not limited to, the oversight of risks related to investments and operations. Such risks include, among other things, exposures to: particular issuers, market sectors, or types of securities; risks related to product structure elements, such as leverage; and techniques that may be used to address those risks, such as hedging and swaps. In assessing issues brought to the Compliance Committees attention or in reviewing a particular policy, procedure, investment technique or strategy, the Compliance Committee evaluates the risks to the Funds in adopting a particular approach or resolution compared to the anticipated benefits to the Funds and their shareholders. In fulfilling its obligations, the Compliance Committee meets on a quarterly basis, and at least once a year in person. The Compliance Committee receives written and oral reports from the Funds Chief Compliance Officer (CCO) and meets privately with the CCO at each of its quarterly meetings. The CCO also provides an annual report to the full Board regarding the operations of the Funds and other service providers compliance programs as well as any recommendations for modifications thereto. The Compliance Committee also receives reports from the investment services group of Nuveen regarding various investment risks. Notwithstanding the foregoing, the full Board also participates in discussions with management regarding certain matters relating to investment risk, such as the use of leverage and hedging. The investment services group therefore also reports to the full Board at its quarterly meetings regarding, among other things, Fund performance and the various drivers of such performance. Accordingly, the Board directly and/or in conjunction with the Compliance Committee oversees matters relating to investment risks. Matters not addressed at the committee level are addressed directly by the full Board. The Compliance Committee operates under a written charter adopted and approved by the Board. The members of the Compliance Committee are John K. Nelson, Chair, Albin F. Moschner, Terence J. Toth, Margaret L. Wolff and Robert L. Young. For each Fund, during the fiscal year ended February 29, 2020, the Funds Compliance Committee met five (5) times.
Nominating and Governance Committee. The Nominating and Governance Committee is responsible for seeking, identifying and recommending to the Board qualified candidates for election
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or appointment to the Board. In addition, the Nominating and Governance Committee oversees matters of corporate governance, including the evaluation of Board performance and processes, the assignment and rotation of committee members, and the establishment of corporate governance guidelines and procedures, to the extent necessary or desirable, and matters related thereto. Although the unitary and committee structure has been developed over the years and the Nominating and Governance Committee believes the structure has provided efficient and effective governance, the Nominating and Governance Committee recognizes that, as demands on the Board evolve over time (such as through an increase in the number of funds overseen or an increase in the complexity of the issues raised), the Nominating and Governance Committee must continue to evaluate the Board and committee structures and their processes and modify the foregoing as may be necessary or appropriate to continue to provide effective governance. Accordingly, the Nominating and Governance Committee has a separate meeting each year to, among other things, review the Board and committee structures, their performance and functions, and recommend any modifications thereto or alternative structures or processes that would enhance the Boards governance over the Funds business.
In addition, the Nominating and Governance Committee, among other things: makes recommendations concerning the continuing education of Board Members; monitors performance of legal counsel and other service providers; establishes and monitors a process by which security holders are able to communicate in writing with Board Members; and periodically reviews and makes recommendations about any appropriate changes to Board Member compensation. In the event of a vacancy on the Board, the Nominating and Governance Committee receives suggestions from various sources, including shareholders, as to suitable candidates. Suggestions should be sent in writing to William Siffermann, Manager of Fund Board Relations, Nuveen, 333 West Wacker Drive, Chicago, Illinois 60606. The Nominating and Governance Committee sets appropriate standards and requirements for nominations for new Board Members and each nominee is evaluated using the same standards. However, the Nominating and Governance Committee reserves the right to interview any and all candidates and to make the final selection of any new Board Members. In considering a candidates qualifications, each candidate must meet certain basic requirements, including relevant skills and experience, time availability (including the time requirements for due diligence site visits to internal and external sub-advisers and service providers) and, if qualifying as an Independent Board Member candidate, independence from the Adviser, sub-advisers, underwriters or other service providers, including any affiliates of these entities. These skill and experience requirements may vary depending on the current composition of the Board, since the goal is to ensure an appropriate range of skills, diversity and experience, in the aggregate. Accordingly, the particular factors considered and weight given to these factors will depend on the composition of the Board and the skills and backgrounds of the incumbent Board Members at the time of consideration of the nominees. All candidates, however, must meet high expectations of personal integrity, independence, governance experience and professional competence. All candidates must be willing to be critical within the Board and with management and yet maintain a collegial and collaborative manner toward other Board Members. The Nominating and Governance Committee operates under a written charter adopted and approved by the Board, a copy of which is available on the Funds website at https://www.nuveen.com/fund-governance, and is composed entirely of Independent Board Members, who are also independent as defined by NYSE listing standards. The members of the Nominating and Governance Committee are Terence J. Toth, Chair, Jack B. Evans, William C. Hunter, Albin F. Moschner, John K. Nelson, Judith M. Stockdale, Carole E. Stone, Margaret L. Wolff and Robert L. Young. For each Fund, during the fiscal year ended February 29, 2020, the Funds Nominating and Governance Committee met five (5) times.
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Closed-End Funds Committee. The Closed-End Funds Committee is responsible for assisting the Board in the oversight and monitoring of the Nuveen funds that are registered as closed-end management investment companies (Closed-End Funds). The Closed-End Funds Committee may review and evaluate matters related to the formation and the initial presentation to the Board of any new Closed-End Fund and may review and evaluate any matters relating to any existing Closed-End Fund. The Closed-End Funds Committee receives updates on the secondary closed-end fund market and evaluates the premiums and discounts of the Nuveen closed-end funds, including the Funds, at each quarterly meeting. The Closed-End Funds Committee, reviews, among other things, the premium and discount trends in the broader closed-end fund market, by asset category and by closed-end fund; the historical total return performance data for the Nuveen closed-end funds, including the Funds, based on net asset value and price over various periods; the volatility trends in the market; the use of leverage by the Nuveen closed-end funds, including the Funds; the distribution data of the Nuveen closed-end funds, including the Funds, and as compared to peer averages; and a summary of common share issuances, if any, and share repurchases, if any, during the applicable quarter. The Closed-End Funds Committee regularly engages in more in-depth discussions of premiums and discounts of the Nuveen closed-end funds. Additionally, the Closed-End Funds Committee members participate in in-depth workshops to explore, among other things, actions to address discounts of the Nuveen closed-end funds, potential share repurchases and available leverage strategies and their use. The Closed-End Funds Committee operates under a written charter adopted and approved by the Board. The members of the Closed-End Funds Committee are Jack B. Evans, Chair, Carole E. Stone, Terence J. Toth, Margaret L. Wolff and Robert L. Young. For each Fund, during the fiscal year ended February 29, 2020, the Closed-End Funds Committee met four (4) times.
Board Member Attendance. During the fiscal year ended February 29, 2020, the Board held six (6) regular meetings and nine (9) special meetings. During the last fiscal year, each Board Member attended 75% or more of each Funds Board meetings and the committee meetings (if a member thereof) held during the period for which such Board Member was a Board Member. The policy of the Board relating to attendance by Board Members at annual meetings of the Funds and the number of Board Members who attended the last annual meeting of shareholders of each Fund is posted on the Funds website at https://www.nuveen.com/fund-governance.
Board Diversification and Board Member Qualifications
In determining that a particular Board Member was qualified to serve on the Board, the Board considered each Board Members background, skills, experience and other attributes in light of the composition of the Board with no particular factor controlling. The Board believes that Board Members need to have the ability to critically review, evaluate, question and discuss information provided to them, and to interact effectively with Fund management, service providers and counsel, in order to exercise effective business judgment in the performance of their duties, and the Board believes each Board Member satisfies this standard. An effective Board Member may achieve this ability through his or her educational background; business, professional training or practice; public service or academic positions; experience from service as a board member or executive of investment funds, public companies or significant private or not-for-profit entities or other organizations; and/or other life experiences. Accordingly, set forth below is a summary of the experiences, qualifications, attributes and skills that led to the conclusion, as of the date of this document, that each Board Member should serve in that capacity. References to the experiences, qualifications, attributes and skills of Board Members are pursuant to requirements of the SEC, do not constitute holding out the Board or any
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Board Member as having any special expertise or experience and shall not impose any greater responsibility or liability on any such person or on the Board by reason thereof.
Jack B. Evans
Mr. Evans has served as Chairman since 2019 and President (1996-2019) of The Hall-Perrine Foundation, a private philanthropic corporation. Mr. Evans was formerly President and Chief Operating Officer of the SCI Financial Group, Inc., a regional financial services firm headquartered in Cedar Rapids, Iowa. Formerly, he was a member of the Board of the Federal Reserve Bank of Chicago as well as a Director of Alliant Energy and President Pro Tem of the Board of Regents for the State of Iowa University System. Mr. Evans is Chairman of the Board of United Fire Group, a Life Trustee of Coe College and formerly served on the Board of The Gazette Company. He has a Bachelor of Arts from Coe College and an M.B.A. from the University of Iowa. Mr. Evans joined the Board in 1999.
William C. Hunter
Dr. Hunter became Dean Emeritus of the Henry B. Tippie College of Business at the University of Iowa in 2012, after having served as Dean of the College since July 2006. He had been Dean and Distinguished Professor of Finance at the University of Connecticut School of Business from 2003 to 2006. From 1995 to 2003, he was the Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago. He has held faculty positions at Emory University, Atlanta University, the University of Georgia and Northwestern University. He has consulted with numerous foreign central banks and official agencies in Europe, Asia, Central America and South America. He has been a Director of Wellmark, Inc. since 2009. He is a past Director (2005-2015) and a past President (2010-2014) of Beta Gamma Sigma, Inc., The International Business Honor Society and a past Director (2004-2018) of the Xerox Corporation. Dr. Hunter joined the Board in 2004.
Albin F. Moschner
Mr. Moschner is a consultant in the wireless industry and, in July 2012, founded Northcroft Partners, LLC, a management consulting firm that provides operational, management and governance solutions. Prior to founding Northcroft Partners, LLC, Mr. Moschner held various positions at Leap Wireless International, Inc., a provider of wireless services, where he was a consultant from February 2011 to July 2012, Chief Operating Officer from July 2008 to February 2011, and Chief Marketing Officer from August 2004 to June 2008. Before he joined Leap Wireless International, Inc., Mr. Moschner was President of the Verizon Card Services division of Verizon Communications, Inc. from 2000 to 2003, and President of One Point Services at One Point Communications from 1999 to 2000. Mr. Moschner also served at Zenith Electronics Corporation as Director, President and Chief Executive Officer from 1995 to 1996, and as Director, President and Chief Operating Officer from 1994 to 1995. Mr. Moschner has been Chairman of the Board (since 2019) and a member of the Board of Directors (since 2012) of USA Technologies, Inc. and, from 1996 until 2016, he was a member of the Board of Directors of Wintrust Financial Corporation. In addition, he is emeritus (since 2018) of the Advisory Boards of the Kellogg School of Management (1995-2018) and the Archdiocese of Chicago Financial Council (2012-2018). Mr. Moschner received a Bachelor of Engineering degree in Electrical Engineering from The City College of New York in 1974 and a Master of Science degree in Electrical Engineering from Syracuse University in 1979. Mr. Moschner joined the Board in 2016.
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John K. Nelson
Mr. Nelson is currently on the Board of Directors of Core12, LLC. (since 2008), a private firm which develops branding, marketing, and communications strategies for clients. Mr. Nelson has extensive experience in global banking and markets, having served in several senior executive positions with ABN AMRO Holdings N.V. and its affiliated entities and predecessors, including LaSalle Bank Corporation from 1996 to 2008, ultimately serving as Chief Executive Officer of ABN AMRO N.V. North America. During his tenure at the bank, he also served as Global Head of its Financial Markets Division, which encompassed the banks Currency, Commodity, Fixed Income, Emerging Markets, and Derivatives businesses. He was a member of the Foreign Exchange Committee of the Federal Reserve Bank of the United States and during his tenure with ABN AMRO served as the banks representative on various committees of The Bank of Canada, European Central Bank, and The Bank of England. Mr. Nelson previously served as a senior, external advisor to the financial services practice of Deloitte Consulting LLP (2012-2104). At Fordham University, he served as a director of The Presidents Council (2010- 2019) and previously served as a director of The Curran Center for Catholic American Studies (2009-2018). He served as a trustee and Chairman of The Board of Trustees of Marian University (2011-2013). Mr. Nelson is a graduate of Fordham University and holds a BA in Economics (1984) and an MBA in Finance (1991). Mr. Nelson joined the Board in 2013.
Judith M. Stockdale
Ms. Stockdale retired at the end of 2012 as Executive Director of the Gaylord and Dorothy Donnelley Foundation, a private foundation working in land conservation and artistic vitality in the Chicago region and the Low Country of South Carolina. She is currently a board member of the Land Trust Alliance (since 2013). Her previous positions include Executive Director of the Great Lakes Protection Fund, Executive Director of Openlands, and Senior Staff Associate at the Chicago Community Trust. She has served on the Advisory Council of the National Zoological Park, the Governors Science Advisory Council (Illinois) and the Nancy Ryerson Ranney Leadership Grants Program. She has served on the Boards of Brushwood Center, Forefront f/k/a Donors Forum and the U.S. Endowment for Forestry and Communities. Ms. Stockdale, a native of the United Kingdom, has a Bachelor of Science degree in geography from the University of Durham (UK) and a Master of Forest Science degree from Yale University. Ms. Stockdale joined the Board in 1997.
Carole E. Stone
Ms. Stone recently retired from the Board of Directors of the Cboe Global Markets, Inc. (formerly, CBOE Holdings, Inc.) having served from 2010-2020. She previously served on the Boards of the Chicago Board Options Exchange and C2 Options Exchange, Incorporated. Ms. Stone retired from the New York State Division of the Budget in 2004, having served as its Director for nearly five years and as Deputy Director from 1995 through 1999. She has also served as the Chair of the New York Racing Association Oversight Board, as Chair of the Public Authorities Control Board, as a Commissioner on the New York State Commission on Public Authority Reform and as a member of the boards of directors of several New York State public authorities. Ms. Stone has a Bachelor of Arts in Business Administration from Skidmore College. Ms. Stone joined the Board in 2007.
Matthew Thornton III
Mr. Thornton has over 40 years of broad leadership and operating experience from his career with FedEx Corporation (FedEx), which, through its portfolio of companies, provides transportation,
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e-commerce and business services. In November 2019, Mr. Thornton retired as Executive Vice President and Chief Operating Officer of FedEx Freight Corporation (FedEx Freight), a subsidiary of FedEx, where, from May 2018 until his retirement, he had been responsible for day-to-day operations, strategic guidance, modernization of freight operations and delivering innovative customer solutions. From September 2006 to May 2018, Mr. Thornton served as Senior Vice President, U.S. Operations at Federal Express Corporation (FedEx Express), a subsidiary of FedEx. Prior to September 2006, Mr. Thornton held a range of positions of increasing responsibility with FedEx, including various management positions. In addition, Mr. Thornton currently (since 2014) serves on the Board of Directors of The Sherwin-Williams Company, where he is a member of the Audit Committee and the Nominating and Corporate Governance Committee. Formerly (2012-2018), he was a member of the Board of Directors of Safe Kids Worldwide®, a non-profit organization dedicated to the prevention of childhood injuries. Mr. Thornton is a member (since 2014) of the Executive Leadership Council (ELC), the nations premier organization of global black senior executives. He is also a member of the National Association of Corporate Directors (NACD). Mr. Thornton has been recognized by Black Enterprise on its 2017 list of the Most Powerful Executives in Corporate America and by Ebony on its 2016 Power 100 list of the worlds most influential and inspiring African Americans. Mr. Thornton received a B.B.A. degree from the University of Memphis in 1980 and an M.B.A. from the University of Tennessee in 2001. Mr. Thornton was appointed to the Board effective November 16, 2020.
Terence J. Toth
Mr. Toth, the Boards Independent Chair, was a Co-Founding Partner of Promus Capital (2008 to 2017). From 2010 to 2019, he was a Director of Fulcrum IT Services, LLC and from 2008 to 2013, he served as a Director of Legal & General Investment Management America, Inc. From 2004 to 2007, he was Chief Executive Officer and President of Northern Trust Global Investments, and Executive Vice President of Quantitative Management & Securities Lending from 2000 to 2004. He also formerly served on the Board of the Northern Trust Mutual Funds. He joined Northern Trust in 1994 after serving as Managing Director and Head of Global Securities Lending at Bankers Trust (1986 to 1994) and Head of Government Trading and Cash Collateral Investment at Northern Trust from 1982 to 1986. He currently serves on the Boards of Quality Control Corporation (since 2012) and Catalyst Schools of Chicago (since 2008). He is on the Mather Foundation Board (since 2012) and is Chair of its Investment Committee. Mr. Toth graduated with a Bachelor of Science degree from the University of Illinois, and received his MBA from New York University. In 2005, he graduated from the CEO Perspectives Program at Northwestern University. Mr. Toth joined the Board in 2008.
Margaret L. Wolff
Ms. Wolff retired from Skadden, Arps, Slate, Meagher & Flom LLP in 2014 after more than 30 years of providing client service in the Mergers & Acquisitions Group. During her legal career, Ms. Wolff devoted significant time to advising boards and senior management on U.S. and international corporate, securities, regulatory and strategic matters, including governance, shareholder, fiduciary, operational and management issues. From 2013 to November 2017, she was a board member of Travelers Insurance Company of Canada and The Dominion of Canada General Insurance Company (each of which is a part of Travelers Canada, the Canadian operation of The Travelers Companies, Inc.). Ms. Wolff has been a trustee of New York-Presbyterian Hospital since 2005 and, since 2004, she has served as a trustee of The John A. Hartford Foundation (a philanthropy dedicated to improving the care of older adults) where she currently is the Chair. From 2005 to 2015, she was a trustee of Mt. Holyoke College and served as Vice Chair of the Board from 2011 to 2015. Ms. Wolff received her
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Bachelor of Arts from Mt. Holyoke College and her Juris Doctor from Case Western Reserve University School of Law. Ms. Wolff joined the Board in 2016.
Robert L. Young
Mr. Young has more than 30 years of experience in the investment management industry. From 1997 to 2017, he held various positions with J.P. Morgan Investment Management Inc. (J.P. Morgan Investment) and its affiliates (collectively, J.P. Morgan). Most recently, he served as Chief Operating Officer and Director of J.P. Morgan Investment (from 2010 to 2016) and as President and Principal Executive Officer of the J.P. Morgan Funds (from 2013 to 2016). As Chief Operating Officer of J.P. Morgan Investment, Mr. Young led service, administration and business platform support activities for J.P. Morgans domestic retail mutual fund and institutional commingled and separate account businesses, and co-led these activities for J.P. Morgans global retail and institutional investment management businesses. As President of the J.P. Morgan Funds, Mr. Young interacted with various service providers to these funds, facilitated the relationship between such funds and their boards, and was directly involved in establishing board agendas, addressing regulatory matters, and establishing policies and procedures. Before joining J.P. Morgan, Mr. Young, a former Certified Public Accountant (CPA), was a Senior Manager (Audit) with Deloitte & Touche LLP (formerly, Touche Ross LLP), where he was employed from 1985 to 1996. During his tenure there, he actively participated in creating, and ultimately led, the firms midwestern mutual fund practice. Mr. Young holds a Bachelor of Business Administration degree in Accounting from the University of Dayton and, from 2008 to 2011, he served on the Investment Committee of its Board of Trustees. Mr. Young joined the Board in 2017.
Board Member Terms
Pursuant to the organizational documents of the Acquiring Fund, the Board is divided into three classes, Class I, Class II and Class III, to be elected by the holders of the outstanding common shares and any outstanding preferred shares, voting together as a single class, to serve until the third succeeding annual meeting subsequent to their election or thereafter, in each case until their successors have been duly elected and qualified. These provisions could delay for up to two years the replacement of a majority of the Board. See the Joint Proxy Statement/Prospectus under Certain Provisions in the Acquiring Funds Articles of Incorporation.
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Share Ownership
The following table sets forth for each Board Member the dollar range of equity securities beneficially owned in each Fund and in all Nuveen funds overseen by the Board Member as of September 30, 2020:
Dollar Range of Equity Securities
Name of Board Member |
Acquiring Fund | Target Fund |
Family
of
Investment Companies(1) |
|||||||||
Jack B. Evans |
none | none | Over $ | 100,000 | ||||||||
William C. Hunter |
none | none | Over $ | 100,000 | ||||||||
Albin F. Moschner |
none | none | Over $ | 100,000 | ||||||||
John K. Nelson |
none | none | Over $ | 100,000 | ||||||||
Judith M. Stockdale |
none | none | Over $ | 100,000 | ||||||||
Carole E. Stone |
none | none | Over $ | 100,000 | ||||||||
Terence J. Toth |
none | none | Over $ | 100,000 | ||||||||
Margaret L. Wolff |
none | none | Over $ | 100,000 | ||||||||
Robert L. Young |
none | none | Over $ | 100,000 |
(1) |
The amounts reflect the aggregate dollar range of equity securities beneficially owned by the Board Member in the Funds and in all Nuveen funds overseen by the Board Member. |
No Board Member or his or her immediate family member owns, beneficially or of record, any security of Nuveen Fund Advisors, Nuveen Asset Management, Nuveen Investments or any person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with Nuveen Fund Advisors, Nuveen Asset Management or Nuveen Investments.
As of September 30, 2020, Board Members and executive officers as a group beneficially owned approximately 1.08 million shares of all funds managed by the Adviser (including shares held by the Board Members through the Deferred Compensation Plan for Independent Board Members and by executive officers in Nuveens 401(k)/profit sharing plan). As of September 30, 2020, the Board Members and officers of each Fund as a group beneficially owned less than 1% of the total outstanding common shares of such Fund.
Compensation
Effective January 1, 2020, each Independent Board Member receives a $195,000 annual retainer, increased from $190,000 as of January 1, 2019, plus: (a) a fee of $6,750 per day, which was increased from $6,500 per day as of January 1, 2019, for attendance in person or by telephone at regularly scheduled meetings of the Board; (b) a fee of $3,000 per meeting for attendance in person or by telephone at special, non-regularly scheduled meetings of the Board where in-person attendance is required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance is not required; (c) a fee of $2,500 per meeting for attendance in person or by telephone at Audit Committee meetings where in-person attendance is required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance is not required; (d) a fee of $5,000 per meeting, which was increased from $2,500 per day as of January 1, 2019, for attendance in person or by telephone at Compliance, Risk Management and Regulatory Oversight Committee meetings where in-person attendance is required and $2,000 per meeting for attendance by
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telephone or in person at such meetings where in-person attendance is not required; (e) a fee of $1,000 per meeting for attendance in person or by telephone at Dividend Committee meetings; (f) a fee of $2,500 per meeting for attendance in person or by telephone at Closed-End Funds Committee meetings where in-person attendance is required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance is not required; and (g) a fee of $500 per meeting for attendance in person or by telephone at all other committee meetings ($1,000 for shareholder meetings) where in-person attendance is required and $250 per meeting for attendance by telephone or in person at such committee meetings (excluding shareholder meetings) where in-person attendance is not required, and $100 per meeting when the Executive Committee acts as pricing committee for IPOs; plus, in each case, expenses incurred in attending such meetings, provided that no fees are received for meetings held on days on which regularly scheduled Board meetings are held. In addition to the payments described above, the Chairman of the Board receives $90,000, and the chairpersons of the Audit Committee; the Dividend Committee; the Compliance, Risk Management and Regulatory Oversight Committee; the Closed-End Funds Committee; and the Nominating and Governance Committee receive $15,000 each as annual retainers. Independent Board Members also receive a fee of $3,000 per day for site visits to entities that provide services to the Nuveen funds on days on which no Board meeting is held. When ad hoc committees are organized, the Nominating and Governance Committee will at the time of formation determine compensation to be paid to the members of such committee; however, in general, such fees will be $1,000 per meeting for attendance in person or by telephone at ad hoc committee meetings where in-person attendance is required and $500 per meeting for attendance by telephone or in person at such meetings where in-person attendance is not required. The annual retainer, fees and expenses are allocated among the Nuveen funds on the basis of relative net assets, although management may, in its discretion, establish a minimum amount to be allocated to each fund. In certain instances fees and expenses will be allocated only to those Nuveen funds that are discussed at a given meeting. In certain circumstances, such as during the COVID-19 pandemic, the Board may hold in-person meetings by telephonic or videographic means and be compensated at the in-person rate.
The Funds do not have retirement or pension plans. Certain Nuveen funds (the Participating Funds) participate in a deferred compensation plan (the Deferred Compensation Plan) that permits an Independent Board Member to elect to defer receipt of all or a portion of his or her compensation as an Independent Board Member. The deferred compensation of a participating Independent Board Member is credited to a book reserve account of the Participating Fund when the compensation would otherwise have been paid to such Independent Board Member. The value of an Independent Board Members 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 an Independent Board Members deferral account, the Independent Board Member may elect to receive distributions in a lump sum or over a period of five years. The Participating Fund will not be liable for any other funds obligations to make distributions under the Deferred Compensation Plan.
The Funds have no employees. The officers of the Funds and the Board Members of each Fund who are not Independent Board Members serve without any compensation from the Funds.
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The table below shows, for each Independent Board Member, the aggregate compensation paid by each Fund to the Board Member for its last fiscal year:
Aggregate Compensation from the Funds(*)
Fund |
Jack B.
Evans |
William C.
Hunter |
Albin F.
Moschner |
John K.
Nelson |
Judith M.
Stockdale |
Carole E.
Stone |
Terence J.
Toth |
Margaret L.
Wolff |
Robert L.
Young |
|||||||||||||||||||||||||||
Acquiring Fund |
$406 | $423 | $374 | $425 | $389 | $403 | $499 | $374 | $379 | |||||||||||||||||||||||||||
Target Fund |
98 | 102 | 90 | 102 | 94 | 97 | 120 | 90 | 91 | |||||||||||||||||||||||||||
Total Compensation from Nuveen Funds Paid to Board Members |
$400,437 | $420,625 | $376,050 | $420,625 | $388,232 | $409,035 | $490,225 | $384,667 | $363,189 |
(*) |
Includes deferred fees. Pursuant to a deferred compensation agreement with certain of the Funds, deferred amounts are treated as though an equivalent dollar amount has been invested in shares of one or more Participating Funds. Total deferred fees for the Funds (including the return from the assumed investment in the Participating Funds) payable are: |
Fund |
Jack B.
Evans |
William C.
Hunter |
Albin F.
Moschner |
John K.
Nelson |
Judith M.
Stockdale |
Carole E.
Stone |
Terence J.
Toth |
Margaret L.
Wolff |
Robert L.
Young |
|||||||||||||||||||||||||||
Acquiring Fund |
| | | | | | | | | |||||||||||||||||||||||||||
Target Fund |
| | | | | | | | |
INVESTMENT ADVISER AND SUB-ADVISER
Investment Adviser
Nuveen Fund Advisors is the investment adviser to each Fund and is responsible for overseeing each Funds overall investment strategy, including the use of leverage, and its implementation. Nuveen Fund Advisors also is responsible for the ongoing monitoring of any sub-adviser to the Funds, managing each Funds business affairs and providing certain clerical, bookkeeping and other administrative services to the Funds. Nuveen Fund Advisors is located at 333 West Wacker Drive, Chicago, Illinois 60606.
Pursuant to the Investment Management Agreement, each Fund has agreed to pay an annual management fee for the overall advisory and administrative services and general office facilities provided by Nuveen Fund Advisors. Each Funds management fee is separated into two components a complex-level component, based on the aggregate amount of Nuveen-branded closed- and open-end registered investment companies organized in the U.S., and a specific fund-level component, based only on the amount of assets within the Fund. This pricing structure enables Nuveen Fund shareholders to benefit from growth in the assets within each individual fund as well as from growth in the amount of complex-wide assets managed by Nuveen Fund Advisors.
Unless earlier terminated as described below, each Funds Investment Management Agreement with Nuveen Fund Advisors will remain in effect until August 1, 2021. Each Investment Management Agreement continues in effect from year to year so long as such continuation is approved at least annually by: (1) the Board or the vote of a majority of the outstanding voting securities of the Fund; and (2) a majority of the Board Members 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. Each Investment Management Agreement may be terminated at any time, without penalty, by either the Fund or Nuveen Fund Advisors upon 60 days written notice and is automatically terminated in the event of its assignment, as defined in the 1940 Act.
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Nuveen Fund Advisors, a registered investment adviser, is a subsidiary of Nuveen, the investment management arm of Teachers Insurance and Annuity Association of America (TIAA). TIAA is a life insurance company founded in 1918 by the Carnegie Foundation for the Advancement of Teaching and is the companion organization of College Retirement Equities Fund. As of June 30, 2020, Nuveen managed approximately $1.05 trillion in assets, of which approximately $144.4 billion was managed by Nuveen Fund Advisors.
The total dollar amounts paid to Nuveen Fund Advisors by each Fund under each Funds Investment Management Agreement for each Funds last three fiscal years are as follows:
Acquiring Fund |
2020 | 2019 | 2018 | |||||||||
Gross Advisory Fees |
$ | 737,996 | $ | 718,989 | $ | 735,451 | ||||||
Waiver |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net Advisory Fees |
$ | 737,996 | $ | 718,989 | $ | 735,451 | ||||||
|
|
|
|
|
|
|||||||
Target Fund |
2020 | 2019 | 2018 | |||||||||
Gross Advisory Fees |
$ | 207,510 | $ | 199,356 | $ | 204,159 | ||||||
Waiver |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net Advisory Fees |
$ | 207,510 | $ | 199,356 | $ | 204,159 | ||||||
|
|
|
|
|
|
Sub-Adviser
Nuveen Fund Advisors has selected Nuveen Asset Management to serve as sub-adviser to each Fund. Nuveen Fund Advisors compensates Nuveen Asset Management for the portfolio management services it provides to the Funds from the management fees paid by the Funds. Nuveen Fund Advisors and Nuveen Asset Management retain the right to reallocate investment advisory responsibilities and fees between themselves in the future.
For the services provided pursuant to the Acquiring Funds Sub-Advisory Agreement, Nuveen Fund Advisors pays Nuveen Asset Management a portfolio management fee, payable monthly, equal to 71.4286% of the asset-based portion of the management fee (net of applicable breakpoints, waivers and reimbursements) paid by the Fund to Nuveen Fund Advisors. For the services provided pursuant to the Target Funds Sub-Advisory Agreement, Nuveen Fund Advisors pays Nuveen Asset Management a portfolio management fee, payable monthly, equal to 41.6667% of the management fee (net of applicable breakpoints, waivers and reimbursements) paid by the Fund to Nuveen Fund Advisors.
The total dollar amounts paid to Nuveen Asset Management by Nuveen Fund Advisors during each Funds last three fiscal years are as follows:
Acquiring Fund |
2020 | 2019 | 2018 | |||||||||
Sub-Advisory Fees |
$ | 339,388 | $ | 329,447 | $ | 335,742 | ||||||
Target Fund |
2020 | 2019 | 2018 | |||||||||
Sub-Advisory Fees |
$ | 86,463 | $ | 83,065 | $ | 85,066 |
Unless otherwise indicated, the information below is provided as of the date of this SAI.
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Portfolio Management. Scott R. Romans, PhD, is the portfolio manager of each Fund. Mr. Romans will manage the combined fund upon completion of the Reorganization.
In addition to managing the Funds, the portfolio manager is also primarily responsible for the day-to-day portfolio management of the following accounts, as of February 29, 2020:
Portfolio Manager |
Type of Account Managed |
Number
of Accounts |
Assets* | |||||||
Scott R. Romans | Registered Investment Company | 12 | $15.58 billion | |||||||
Other Pooled Investment Vehicles | 0 | $0 | ||||||||
Other Accounts | 2 | $3.99 million |
* |
None of the assets in these accounts is subject to an advisory fee based on performance. |
Compensation
Portfolio manager compensation consists primarily of base pay, an annual cash bonus and long-term incentive payments.
Portfolio managers are compensated through a combination of base salary and variable components consisting of (i) a cash bonus; (ii) a long-term performance award; and (iii) participation in a profits interest plan.
Base salary. A portfolio managers base salary is determined based upon an analysis of the portfolio managers general performance, experience and market levels of base pay for such position.
Cash bonus. A portfolio manager is eligible to receive an annual cash bonus that is based on three variables: risk-adjusted investment performance relative to benchmark generally measured over the most recent three and five year periods (unless the portfolio managers tenure is shorter), ranking versus Morningstar peer funds generally measured over the most recent three and five year periods (unless the portfolio managers tenure is shorter), and management and peer reviews.
Long-term performance award. A portfolio manager is eligible to receive a long-term performance award that vests after three years. The amount of the award when granted is based on the same factors used in determining the cash bonus. The value of the award at the completion of the three-year vesting period is adjusted based on the risk-adjusted investment performance of Fund(s) managed by the portfolio manager during the vesting period and the performance of the TIAA organization as a whole.
Profits interest plan. Portfolio managers are eligible to receive profits interests in Nuveen Asset Management and its affiliate, Teachers Advisors, LLC, which vest over time and entitle their holders to a percentage of the firms annual profits. Profits interests are allocated to each portfolio manager based on such persons overall contribution to the firms.
There are generally no differences between the methods used to determine compensation with respect to the Funds and the other accounts shown in the table above.
Potential Material Conflicts of Interest
Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one account. More specifically, portfolio
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managers who manage multiple accounts are presented with a number of potential conflicts, including, among others, those discussed below.
The management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. Nuveen Asset Management seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most accounts managed by a portfolio manager in a particular investment strategy are managed using the same investment models.
If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one account, an account may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible accounts. To deal with these situations, Nuveen Asset Management has adopted procedures for allocating limited opportunities across multiple accounts.
With respect to many of its clients accounts, Nuveen Asset Management determines which broker to use to execute transaction orders, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts, Nuveen Asset Management may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Nuveen Asset Management may place separate, non-simultaneous transactions for a Fund and other accounts which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of a Fund or the other accounts.
Some clients are subject to different regulations. As a consequence of this difference in regulatory requirements, some clients may not be permitted to engage in all the investment techniques or transactions or to engage in these transactions to the same extent as the other accounts managed by the portfolio manager. Finally, the appearance of a conflict of interest may arise where Nuveen Asset Management has an incentive, such as a performance-based management fee, which relates to the management of some accounts, with respect to which a portfolio manager has day-to-day management responsibilities.
Nuveen Asset Management has adopted certain compliance procedures which are designed to address these types of conflicts common among investment managers. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
Conflicts of interest may also arise when the Sub-Adviser invests one or more of its client accounts in different or multiple parts of the same issuers capital structure, including investments in public versus private securities, debt versus equity, or senior versus junior/subordinated debt, or otherwise where there are different or inconsistent rights or benefits. Decisions or actions such as investing, trading, proxy voting, exercising, waiving or amending rights or covenants, workout activity, or serving on a board, committee or other involvement in governance may result in conflicts of interest between clients holding different securities or investments. Generally, individual portfolio managers will seek to act in a manner that they believe serves the best interest of the accounts they manage. In cases where a portfolio manager or team faces a conflict among its client accounts, it will seek to act in a manner that it believes best reflects its overall fiduciary duty, which may result in relative advantages or disadvantages for particular accounts.
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Beneficial Ownership of Securities. The following table sets forth the dollar range of equity securities beneficially owned by the Funds portfolio manager as of February 29, 2020:
Portfolio Manager |
Dollar Range of
Equity Securities Beneficially Owned in the Acquiring Fund |
Dollar Range of
Equity Securities Beneficially Owned in the Target Fund |
||||||
Scott R. Romans |
$ | 0 | $ | 0 |
Code of Ethics
The Fund, Nuveen Fund Advisors, Nuveen Asset Management, Nuveen and other related entities have adopted codes of ethics (the Code of Ethics) that essentially prohibit certain of their personnel, including the Portfolio Manager, from engaging in personal investments that compete or interfere with, or attempt to take advantage of a clients, including the Funds, 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. Personnel subject to the Code of Ethics may purchase shares of the Fund and may generally invest in securities in which the Fund may also invest subject to the restrictions set forth in the Code of Ethics. Text-only versions of the Code of Ethics of the Fund, Nuveen Fund Advisors, Nuveen Asset Management and Nuveen can be viewed online or downloaded from the EDGAR Database on the SECs Internet web site at www.sec.gov. In addition, copies of those codes of ethics may be obtained, after mailing the appropriate duplicating fee, by writing to the SECs Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549 or by e-mail request at publicinfo@sec.gov.
Proxy Voting Policies
The Funds invest primarily in municipal securities. On rare occasions a 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 issuers credit problem. In the course of exercising control of a distressed municipal issuer, Nuveen Asset Management may pursue the Funds 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 Asset Management does not consider such activities proxy voting for purposes of Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended, but nevertheless provides reports to a Funds Board on its control activities on a quarterly basis.
In the rare event that a municipal issuer held by a Fund were to issue a proxy, or that the Fund were to receive a proxy issued by a cash management security, Nuveen Asset Management 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 Board or its representative. In the case of a conflict of interest, the proxy would be submitted to the Board to determine how the proxy should be voted. A member of Nuveen Asset Managements 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 SEC on Form N-PX, and the results were provided to the Board and made available to
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shareholders as required by applicable rules. Nuveen Asset Managements proxy voting policies and procedures are attached hereto as Appendix C. If applicable, information regarding how a Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling (800) 257-8787 or from the Funds website at http://www.nuveen.com, and on the SECs website at http://www.sec.gov.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Board and Nuveen Fund Advisors, Nuveen Asset Management is responsible for decisions to purchase and sell securities for the Funds, the negotiation of the prices to be paid and the allocation of transactions among various dealer firms. Transactions on stock exchanges involve the payment by the Funds of brokerage commissions. There generally is no stated commission in the case of securities traded in the OTC market, but the prices paid by the Funds usually include an undisclosed dealer commission or mark-up. Transactions in the OTC market can also be placed with broker-dealers who act as agents and charge brokerage commissions for effecting OTC transactions. Each Fund may place its OTC transactions either directly with principal market makers, or with broker-dealers if that is consistent with Nuveen Asset Managements obligation to obtain best qualitative execution. In certain instances, the Funds may make purchases of underwritten issues at prices that include underwriting fees.
Portfolio securities may be purchased directly from an underwriter or in the OTC 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 Investments or its affiliates or affiliates of Nuveen Asset Management except in compliance with the 1940 Act.
It is Nuveen Asset Managements policy to seek the best execution under the circumstances of each trade. Nuveen Asset Management will evaluate 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 Asset Managements practice to select dealers that, in addition, furnish research information (primarily credit analyses of issuers and general economic reports) and statistical and other services to Nuveen Asset Management. 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 Asset Managements own research efforts, the receipt of research information is not expected to reduce significantly Nuveen Asset Managements expenses. While Nuveen Asset Management will be primarily responsible for the placement of the business of the Funds, Nuveen Asset Managements policies and practices in this regard must be consistent with the foregoing and will, at all times, be subject to review by the Board of the Funds.
Nuveen Asset Management may manage other investment accounts and investment companies for other clients that may invest in the same types of securities as the Funds and that may have investment objectives similar to those of the Funds. Nuveen Asset Management seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell assets or securities by each Fund and another advisory account. If an aggregated order cannot be filled completely, allocations will generally be made on a pro rata basis. An order may not be allocated on a pro rata basis where, for example (i) consideration is given to portfolio managers who have been instrumental in developing or negotiating a particular investment; (ii) consideration is given to an account with specialized investment policies that coincide with the particulars of a specific investment; (iii) pro rata allocation would result in odd-lot or de minimis amounts being allocated to a portfolio or
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other client; or (iv) Nuveen Asset Management reasonably determines that departure from a pro rata allocation is advisable. There may also be instances where a Fund will not participate at all in a transaction that is allocated among other accounts. While these allocation procedures 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 that the benefits available from Nuveen Asset Managements management outweigh any disadvantage that may arise from Nuveen Asset Managements larger management activities and its need to allocate securities.
The information in the table below reflects the aggregate brokerage commission paid by the Acquiring Fund and the Target Fund for the last three fiscal years:
2020 | 2019 | 2018 | ||||||||||
Acquiring Fund |
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Target Fund |
| | |
During the 2020 fiscal year, the Funds did not pay commissions in return for research services or hold any securities of its regular broker-dealers.
Under the 1940 Act, each Fund may not purchase portfolio securities from any underwriting syndicate of which Nuveen Securities, LLC is a member except under certain limited conditions set forth in Rule 10f-3. The Rule sets forth requirements relating to, among other things, the terms of a security purchased by the Funds, the amount of securities that may be purchased in any one issue and the assets of the Funds that may be invested in a particular issue. In addition, purchases of securities made pursuant to the terms of the Rule must be approved at least quarterly by each Funds Board, including a majority of the independent trustees.
REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND
The Acquiring 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 Funds 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, 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 Acquiring Funds Board 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. However, there can be no assurance that the Board will decide to take any of these actions, or that share repurchases or tender offers, if undertaken, will reduce market discount.
Subject to its investment limitations, the Acquiring 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 Funds net income. Any share repurchase, tender offer or borrowing that might be approved by the Board would have to comply with the Securities Exchange Act of 1934 and the 1940 Act and the rules and regulations thereunder.
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Although the decision to take action in response to a discount from net asset value will be made by the Board at the time it considers such issue, it is the Boards current 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 NYSE, or (b) impair the Funds status as a regulated investment company under the Code (which would make the Fund a taxable entity, causing the Funds taxable income to be taxed at the fund 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 Funds investment objectives and policies in order to repurchase shares; or (3) there is, in the Boards 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 NYSE, (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 non-U.S. 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 that would have a material adverse effect (including any adverse tax effect) on the Acquiring Fund or its shareholders if shares were repurchased. The Board may in the future modify these conditions in light of experience.
The repurchase by the Acquiring Fund of its shares at prices below net asset value will 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 will result in the Funds shares trading at a price equal to their net asset value. Nevertheless, the fact that the Funds 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 investment company, may reduce any spread between market price and net asset value that might otherwise exist.
In addition, a purchase by the Acquiring Fund of its common shares will decrease the Funds total assets, which would likely have the effect of increasing the Funds expense ratio.
Conversion to an open-end company would require the approval of the holders of at least two-thirds of the Acquiring Funds common shares, unless the conversion has been approved by the requisite vote of the Board Members, in which case a majority vote of the requisite holders would be required. See the Joint Proxy Statement/Prospectus under Certain Provisions in the Acquiring Funds Articles of Incorporation for a discussion of voting requirements applicable to conversion of the Fund to an open-end investment company. If the Fund converted to an open-end investment company, the Funds common shares would no longer be listed on the NYSE. In contrast to a closed-end investment company, 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 or rules thereunder) 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 investment companies typically engage in a continuous offering of their shares. Open-end investment companies are thus subject to periodic asset in-flows and out-flows that can complicate portfolio management. The Board may at any time propose conversion of the Fund to an open-end investment company depending upon its judgment as to the advisability of such action in light of circumstances then prevailing.
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Before deciding whether to take any action if the Acquiring Funds common shares trade below net asset value, the Board will consider all relevant factors, including the extent and duration of the discount, the liquidity of the Funds 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 Funds shares should trade at a discount, the Board may determine that, in the interest of the Fund and its shareholders, no action should be taken.
The following is a general summary of certain U.S. federal income tax consequences that may be relevant to a shareholder that acquires, holds and/or disposes of shares of the Acquiring Fund. Substantially similar consequences would be relevant to a shareholder that acquires, holds and/or disposes of shares of the Target Fund. This discussion addresses only U.S. federal income tax consequences to U.S. shareholders who hold their shares as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to particular shareholders in light of their individual circumstances. This discussion also does not address the tax consequences to shareholders who are subject to special rules, including, without limitation, shareholders with large positions in the Acquiring Fund, financial institutions, insurance companies, dealers in securities or foreign currencies, foreign holders, persons who hold their shares as or in a hedge against currency risk, a constructive sale, conversion transaction or other integrated transaction, holders who are subject to the federal alternative minimum tax (except as discussed below), investors with applicable financial statements within the meaning of section 451(b) of the Internal Revenue Code of 1986, as amended (the Code) or tax-exempt or tax-advantaged plans, accounts, or entities. In addition, the discussion does not address any state, local or foreign tax consequences. The discussion reflects applicable federal income tax laws of the United States as of the date of this SAI, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (IRS) retroactively or prospectively. No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting the Acquiring Fund and its shareholders, and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers to determine the specific tax consequences to them of investing in the Acquiring Fund, including the applicable federal, state, local and foreign tax consequences to them and the effect of possible changes in tax laws.
If a partnership holds shares of the Acquiring Fund, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. The discussion below may not be applicable to an investor who is a partner in a partnership holding Acquiring Fund shares. Such investors should consult their own tax adviser regarding the tax consequences of acquiring, owning and disposing of shares of the Acquiring Fund.
The Acquiring Fund has elected to be treated, and intends to continue to qualify each year, as a regulated investment company under Subchapter M of the Code and to satisfy conditions which enable its dividends that are attributable to interest on municipal securities 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 for the favorable U.S. federal income tax treatment generally accorded to regulated investment companies, the Acquiring Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains
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from the sale or other disposition of stock, securities or non-U.S. currencies, other income derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly traded partnerships, as defined in the Code; (b) diversify its holdings so that, at the end of each quarter of each taxable year, (i) at least 50% of the value of the Acquiring Funds assets is represented by cash and cash items (including receivables), U.S. government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Acquiring Funds total assets and not greater than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities (other than U.S. government securities or the securities of other regulated investment companies) of a single issuer, or two or more issuers that the Acquiring Fund controls and are engaged in the same, similar or related trades or businesses, or the securities of one or more qualified publicly traded partnerships; and (c) distribute each year an amount equal to or greater than the sum of 90% of its investment company taxable income (as that term is defined in the Code, but without regard to the deduction for dividends paid) and 90% of its net tax-exempt interest.
If the Acquiring Fund failed to qualify as a regulated investment company in any taxable year, the Acquiring Fund would be taxed in the same manner as a regular corporation on its taxable income (even if such income were distributed to its shareholders), and distributions to shareholders would not be deductible by the Acquiring Fund in computing its taxable income. Additionally, all distributions out of earnings and profits (including distributions from net capital gains and net tax-exempt interest) would be taxed to shareholders as ordinary dividend income. Such distributions generally would be eligible (i) to be treated as qualified dividend income, as discussed below in the case of noncorporate shareholders, and (ii) for the dividends-received deduction under section 243 of the Code (the Dividends Received Deduction) in the case of corporate shareholders.
The Acquiring Fund intends to continue to qualify to pay exempt-interest dividends, as defined in the Code, 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 state and local bonds. Exempt-interest dividends are dividends or any part thereof (other than a capital gain dividend) paid by the Acquiring Fund which are attributable to interest on state and local bonds that pay interest exempt from regular federal income tax and are so reported by the Acquiring Fund. Exempt-interest dividends will be exempt from U.S. federal income tax, subject to the possible application of the federal alternative minimum tax.
As a regulated investment company, the Acquiring Fund generally will not be subject to U.S. federal income tax on its investment company taxable income and net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, that it distributes to shareholders. The Acquiring Fund may retain for investment its net capital gains. However, if the Acquiring Fund retains any net capital gains or any investment company taxable income, it will be subject to tax at regular corporate rates on the amount retained. If the Acquiring Fund retains any net capital gains, it may designate the retained amount as undistributed capital gains in a notice to its shareholders who, if subject to U.S. federal income tax on long-term capital gains, (i) will be required to include in income for U.S. federal income tax purposes, as long-term capital gains, their share of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the federal income tax paid by the Acquiring Fund on such undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. For U.S. federal income tax purposes, the basis of shares owned by a shareholder of the Acquiring Fund will be increased by an
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amount equal to the difference between the amount of undistributed capital gains included in the shareholders gross income and the federal income tax deemed paid by the shareholder under clause (ii) of the preceding sentence. The Acquiring Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income (determined without regard to the deduction for dividends paid) and the net capital gains not otherwise retained by the Acquiring Fund.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% federal excise tax. To prevent imposition of the excise tax, the Acquiring Fund must distribute during each calendar year an amount at least equal to the sum of (1) 98% of its ordinary taxable income (not taking into account any capital gains or losses) for the calendar year, (2) 98.2% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the one-year period ending October 31 of the calendar year, and (3) any ordinary taxable income and capital gains for previous years that were not distributed during those years and on which the Acquiring Fund paid no U.S. federal income tax. To prevent application of the excise tax, the Acquiring Fund intends to make distributions in accordance with the calendar year distribution requirement.
The Acquiring Fund may acquire municipal obligations and other debt securities that are market discount bonds. A market discount bond is a security acquired in the secondary market at a price below its redemption value (or its adjusted issue price if it is also an original-issue discount bond). If the Acquiring Fund invests in a market discount bond, it will be required to treat any gain recognized on the disposition of such market discount bond as ordinary taxable income to the extent of the accrued market discount unless the Acquiring Fund elects to include the market discount in taxable income as it accrues.
If the Acquiring Fund invests in certain pay-in-kind securities, zero coupon securities, deferred interest securities or, in general, any other securities with original-issue discount (or with market discount if the Acquiring Fund elects to include market discount in income currently), the Acquiring Fund must accrue income on such investments for each taxable year, which generally will be prior to the receipt of the corresponding cash payments. However, the Acquiring Fund must distribute to shareholders, at least annually, all or substantially all of its investment company taxable income (determined without regard to the deduction for dividends paid) and net tax-exempt interest, including such income it is required to accrue, to continue to qualify as a regulated investment company and (with respect to taxable income) to avoid federal income and excise taxes. Therefore, the Acquiring Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or it may have to leverage itself by borrowing the cash, to satisfy these distribution requirements.
The Acquiring Funds investment in lower rated or unrated debt securities may present issues for the Acquiring Fund if the issuers of these securities default on their obligations because the federal income tax consequences to a holder of such securities are not certain.
A portion of the Acquiring Funds expenditures that would otherwise be deductible may not be allowed as deductions by reason of the Acquiring Funds investment in municipal securities (with such disallowed portion, in general, being the same percentage of the Acquiring Funds aggregate expenses as the percentage of the Acquiring Funds aggregate income (other than capital gain income) that constitutes exempt-interest income). A similar disallowance rule also applies to interest expense paid or incurred by the Acquiring Fund, if any. Such disallowed deductions, if any, will reduce the amount
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that the Acquiring Fund can report as exempt-interest dividends by the disallowed amount. Income distributions by the Acquiring Fund in excess of the amount of the Acquiring Funds exempt-interest dividends may be taxable as ordinary income.
Section 163(j) of the Code provides a limitation on the deductibility of business interest. Generally, the provision limits the deduction for net business interest expenses to 30% of a taxpayers adjusted taxable income (50% for taxable years beginning in 2019 or 2020). The deduction for interest expenses is not limited to the extent of any business interest income, which is interest income attributable to a trade or business and not investment income. The IRS has issued proposed regulations clarifying that all interest expense and interest income of a RIC is treated as properly allocable to a trade or business for purposes of the limitation on the deductibility of business interest. As a result, this limitation may impact the Funds ability to use leverage (e.g., borrow money, issue debt securities, etc.).
Distributions to shareholders of net investment income received by the Acquiring Fund from investments that generate taxable income, if any, and of net short-term capital gains realized by the Acquiring Fund, if any, will be taxable to its shareholders as ordinary income. Distributions by the Acquiring Fund of net capital gains (i.e., the excess of net long-term capital gains over net short-term capital losses), if any, are taxable as long-term capital gains, 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 Acquiring Funds shares will depend upon the amount of such income realized by the Acquiring Fund, but it is not generally expected to be significant. Taxable distributions are subject to federal income tax whether reinvested in additional shares of the Acquiring Fund or paid in cash.
Distributions, if any, in excess of the Acquiring Funds earnings and profits will first reduce the adjusted tax basis of a shareholders 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). Qualified dividend income received by noncorporate shareholders is taxed for federal income tax purposes at rates equivalent to long-term capital gains tax rates, which reach a maximum of 20%. Qualified dividend income generally includes dividends from domestic corporations and dividends from non-U.S. corporations that meet certain specified criteria. As long as the Acquiring Fund qualifies as a regulated investment company under the Code, it is not expected that any part of its distributions to shareholders from its investments will qualify for the Dividends Received Deduction available to corporate shareholders or as qualified dividend income in the case of noncorporate shareholders.
If the Acquiring Fund utilizes leverage through borrowings, or otherwise, asset coverage limitations imposed by the 1940 Act as well as additional restrictions that may be imposed by certain lenders on the payment of dividends or distributions potentially could limit or eliminate the Acquiring Funds ability to make distributions on its common shares and/or preferred shares, if any, until the asset coverage is restored. These limitations could prevent the Acquiring Fund from distributing at least 90% of its investment company taxable income and tax-exempt interest as is required under the Code and therefore might jeopardize the Acquiring Funds qualification as a regulated investment company and/or might subject the Acquiring Fund to a nondeductible 4% federal excise tax. Upon any failure to meet the asset coverage requirements imposed by the 1940 Act, the Acquiring Fund may, in its sole discretion and to the extent permitted under the 1940 Act, purchase or redeem its outstanding preferred shares, if any, in order to maintain or restore the requisite asset coverage and avoid the adverse consequences to the Acquiring Fund and its shareholders of failing to meet the distribution
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requirements. However, there can be no assurance that any such action would achieve these objectives. The Acquiring Fund endeavors to avoid restrictions on its ability to distribute dividends.
The Code provides that interest on indebtedness incurred or continued to purchase or carry the Acquiring Funds 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 Acquiring 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.
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 Acquiring Fund (and received by the shareholders) on December 31 of the year declared.
Certain of the Acquiring Funds 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 Acquiring Fund, affect the holding period of securities held by the Acquiring Fund and alter the character of the gains or losses realized by the Acquiring Fund. These provisions may also require the Acquiring 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 federal income and excise taxes. The Acquiring 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 Acquiring Fund as a regulated investment company.
The sale, exchange or redemption of shares of the Acquiring Fund normally will result in capital gains or losses to shareholders who hold their shares as capital assets. Generally, a shareholders gain or loss will be long-term capital gains or losses if the shares have been held for more than one year, even though the increase in value in such shares is attributable to tax-exempt interest income. The gain or loss on shares held for one year or less will generally be treated as short-term capital gains or losses. Current federal income tax law taxes both long-term and short-term capital gains of corporations at the same rates applicable to ordinary income. However, for noncorporate taxpayers, long-term capital gains are currently taxed at a maximum federal income tax rate of 20%, while short-term capital gains are currently taxed at ordinary income rates. Any loss on the sale of
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shares that have been held for six months or less will be disallowed to the extent of any distribution of exempt-interest dividends received with respect to such shares, unless the shares are of a regulated investment company that declares exempt-interest dividends on a daily basis in an amount equal to at least 90% of its net tax-exempt interest and distributes such dividends on a monthly or more frequent basis. If a shareholder sells or otherwise disposes of shares before holding them for more than six months, any loss on the sale or disposition will be treated as a long-term capital loss to the extent of any net capital gain dividends received by the shareholder with respect to such shares. Any loss realized on a sale or exchange of shares of the Acquiring Fund will be disallowed to the extent those shares of the Acquiring Fund are replaced by other substantially identical shares of the Acquiring Fund or other substantially identical stock or securities (including through reinvestment of dividends) 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 stock or securities will be adjusted to reflect the disallowed loss. The deductibility of capital losses is subject to limitation.
Federal income tax law imposes an alternative minimum tax with respect to individuals, trusts and estates. Interest on certain private activity bonds is included as an item of tax preference in determining the amount of a taxpayers alternative minimum taxable income. To the extent that the Acquiring Fund receives income from municipal securities subject to the federal alternative minimum tax, a portion of the dividends paid by the Acquiring Fund, although otherwise exempt from U.S. federal income tax, would be taxable to its shareholders to the extent that their tax liability is determined under the federal alternative minimum tax. The Acquiring Fund will annually provide a report indicating the percentage of the Acquiring Funds income attributable to municipal securities subject to the federal alternative minimum tax applicable to individuals.
Certain noncorporate shareholders are subject to an additional 3.8% tax on some or all of their net investment income, which includes items of gross income that are attributable to interest, original-issue discount and market discount (but not including tax-exempt interest), as well as net gain from the disposition of certain property. This tax generally applies to the extent net investment income, when added to other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or a surviving spouse) or $125,000 for a married individual filing a separate return. Shareholders should consult their tax advisers regarding the applicability of this tax in respect of their shares.
Tax-exempt income, including exempt-interest dividends paid by the Acquiring 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 Acquiring Fund may be required to withhold U.S. federal income tax at a rate of 24% from all distributions (including exempt-interest dividends) and redemption proceeds payable to shareholders who fail to provide the Acquiring Fund with their correct taxpayer identification number or to make required certifications, or who have been notified (or the Acquiring Fund has been notified) by the IRS that they are subject to backup withholding. Corporate shareholders and certain other shareholders specified in the Code generally are exempt from such backup withholding. This withholding is not an additional tax. Any amounts withheld may be credited against the shareholders federal income tax liability, provided the required information is furnished to the IRS.
The Foreign Account Tax Compliance Act (FATCA) generally requires the Acquiring Fund to obtain information sufficient to identify the status of each of its shareholders. If a shareholder fails to
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provide this information or otherwise fails to comply with FATCA, the Acquiring Fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on Acquiring Fund dividends and distributions and redemption proceeds. The Acquiring Fund may disclose the information that it receives from (or concerning) its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA, related intergovernmental agreements or other applicable laws or regulations. Investors are urged to consult their own tax advisers regarding the applicability of FATCA and any other reporting requirements with respect to the investors own situation, including investments through an intermediary.
Pursuant to recently proposed regulations, the Treasury Department has indicated its intent to eliminate the requirements under FATCA of withholding on gross proceeds from the sale, exchange, maturity or other disposition of relevant financial instruments (including redemption of stock). The Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization.
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 Acquiring Fund.
The audited financial statements and financial highlights and related independent registered public accounting firms report for the Acquiring Fund contained in the Acquiring Funds Annual Report for the fiscal year ended February 29, 2020 (File No. 811-05238), and the audited financial statements and financial highlights and related independent registered public accounting firms report for the Target Fund contained in the Target Funds Annual Report for the fiscal year ended February 29, 2020 (File No. 811-22271) are incorporated by reference herein. The financial statements of the Acquiring Fund and the Target Fund have been audited by KPMG LLP (KPMG), independent registered public accounting firm, as set forth in their reports thereon. Such financial statements are incorporated by reference herein in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. KPMG provides auditing services to the Acquiring Fund and the Target Fund. The principal business address of KPMG is 200 East Randolph Street, Chicago, Illinois 60601.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The custodian of the assets of each Fund is State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111. The custodian performs custodial, fund accounting and portfolio accounting services. Each Funds transfer, shareholder services and dividend disbursing agent is Computershare Inc. and Computershare Trust Company, N.A., 150 Royall Street, Canton, Massachusetts 02021.
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The unaudited pro forma financial information set forth below is for informational purposes only and does not purport to be indicative of the financial condition that actually would have resulted if the Reorganization had been consummated. The closing of the Reorganization is contingent upon certain conditions being satisfied or waived, including that shareholders of each Fund, voting
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separately, must approve the Reorganization for their Fund. If one Fund does not obtain the requisite approval or other closing conditions are not satisfied or waived, the closing of the Reorganization will not occur. The pro forma financial information has been prepared in good faith based on information regarding the Target Fund and the Acquiring Fund as of February 29, 2020. The unaudited pro forma financial information should be read in conjunction with the historical financial statements of the Target Fund and the Acquiring Fund, which are available in their respective annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Reorganization
Note 1 Reorganization
The unaudited pro forma information has been prepared to give effect to the proposed reorganization of the Target Fund into the Acquiring Fund pursuant to an Agreement and Plan of Reorganization (the Plan) as of the beginning of the period indicated in the table below.
Target Fund |
Acquiring Fund |
12 Month Period Ended | ||
Nuveen New York Municipal Value Fund 2 (Target Fund) | Nuveen New York Municipal Value Fund, Inc. (Acquiring Fund) |
February 29,
2020 |
Note 2 Basis of Pro Forma
The Reorganization will be accounted for as a tax-free reorganization of investment companies for federal income purposes; therefore, no gain or loss will be recognized by the Acquiring Fund or its shareholders as a direct result of the Reorganization. The Reorganization will be accounted for as a business combination for financial reporting purposes. The Target Fund and the Acquiring Fund are registered closed-end management investment companies. The Reorganization will be accomplished by the acquisition of substantially all of the assets and the assumption of substantially all of the liabilities of the Target Fund by the Acquiring Fund in exchange for shares of the Acquiring Fund and the distribution of such shares to the Target Funds shareholders in complete liquidation of the Target Fund. The pro forma financial information has been adjusted to reflect the Reorganization costs discussed in Note 4 and the assumption that the Target Fund will make tax basis accumulated net realized gain distributions of $65,050 to its shareholders prior to the Reorganization. The table below shows the common shares that shareholders of the Target Fund would have received if the Reorganization were to have taken place on the period end date in Note 1.
Shares Exchanged |
3,620,086 |
The Reorganization will be accounted for as a tax-free reorganization for federal income tax purposes. In accordance with accounting principles generally accepted in the United States of America, the Reorganization will be accounted for as a business combination for financial reporting purposes. For financial reporting purposes, the historical cost basis of the investments received from the Target Fund will be carried forward to align ongoing reporting of the realized and unrealized gains and losses of the surviving fund (which will be the Acquiring Fund) with amounts distributable to shareholders for tax purposes.
Fund |
Net Assets Applicable
to Common Shares |
As-of Date | ||||||
Acquiring Fund |
$ | 159,251,972 | February 29, 2020 | |||||
Target Fund |
$ | 38,329,069 | February 29, 2020 | |||||
Nuveen New York Municipal Value Fund, Inc. Pro Forma |
$ | 197,070,991 | February 29, 2020 |
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Note 3 Pro Forma Expense Adjustments
The table below reflects adjustments to annual expenses made to the Pro Forma financial information as if the Reorganization had taken place on the first day of the period as disclosed in Note 1. The pro forma information has been derived from the books and records used in calculating daily net asset values of the Target Fund and the Acquiring Fund and has been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect this information. Pro forma expenses do not include the expenses to be allocated to the Funds in connection with the Reorganization. Percentages presented below are the increase (decrease) in expenses divided by the Nuveen New York Municipal Value Fund, Inc. Pro Forma Net Assets Applicable to Common Shares presented in Note 2. Actual results could differ from those estimates. No other significant pro forma effects are expected to result from the Reorganization.
Fee and Expense
Increase (Decrease) |
||||||||
Net Expense Category |
Dollar Amount | Percentage | ||||||
Management fees(1) |
$ | (39,205 | ) | (0.02 | )% | |||
Professional fees(2) |
(22,998 | ) | (0.01 | )% | ||||
Custodian fees(2) |
(13,670 | ) | (0.01 | )% | ||||
Other expenses(2) |
(6,029 | ) | (0.00 | )%(3) | ||||
Stock exchange listing fees(2) |
(6,896 | ) | (0.00 | )%(3) | ||||
Shareholder reporting expenses(2) |
(5,778 | ) | (0.00 | )%(3) | ||||
|
|
|
|
|||||
Total Pro Forma Net Expense Adjustment |
$ | (94,576 | ) | (0.05 | )% | |||
|
|
|
|
(1) |
Reflects the impact of applying the Acquiring Funds fund-level management fee formula to the combined fund. |
(2) |
Reflects the anticipated reduction of certain duplicative expenses eliminated as a result of the Reorganization. |
(3) |
Rounds to less than (0.01)%. |
No significant accounting policies will change as a result of the Reorganization, specifically policies regarding security valuation or compliance with Subchapter M of the Internal Revenue Code of 1986, as amended. No significant changes to any existing contracts of the Acquiring Fund are expected as a result of the Reorganization.
Note 4 Reorganization Costs
The Reorganization costs (whether or not the Reorganization is consummated) will be allocated between the Funds. The costs of the Reorganization are estimated to be $445,000. These costs represent the estimated nonrecurring expenses of the Funds in carrying out their obligations under the Plan and consist of managements estimate of professional service fees, printing costs and mailing charges related to the proposed Reorganization. The Target Fund is expected to be allocated approximately $420,000 and the Acquiring Fund is expected to be allocated approximately $25,000 of expenses in connection with the Reorganization. The Combined Fund Pro Forma financial information included in Note 2 has been adjusted for costs related to the Reorganization to be allocated between the Funds. Reorganization costs do not include any commissions or transaction costs that would be incurred due to portfolio realignment, if any.
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If the Reorganization had occurred as of February 29, 2020, the Acquiring Fund would not have been required to dispose of securities of the Target Fund in order to comply with its investment policies and restrictions, and would not have sold any material portion (i.e., more than 5% of the Target Funds assets) of the securities in the Target Funds portfolio solely as a result of the Reorganization.
Note 5 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio management team, portfolio composition, strategies, investment objectives, expense structure and policies/restrictions of the Acquiring Fund.
Note 6 Capital Loss Carryforward
As of February 29, 2020, the Funds had unused capital loss carryforwards available for federal income tax purposes to be applied against future capital gains, if any, per the table below.
Acquiring Fund | Target Fund | |||||||
Capital losses to be carried forward not subject to expiration |
$ | 1,070,031 | $ | |
A Registration Statement on Form N-14, including amendments thereto, relating to the common shares of the Acquiring Fund offered hereby, has been filed by the Acquiring Fund with the SEC. The Joint Proxy Statement/Prospectus and this SAI 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 Acquiring Fund and the common shares offered hereby, reference is made to the Acquiring Funds Registration Statement. Statements contained in the Joint Proxy Statement/ Prospectus and this SAI as to the contents of any contract or other document referred to herein 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 SECs principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the SEC upon the payment of certain fees prescribed by the SEC.
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RATINGS OF INVESTMENTS
Standard & Poors CorporationA brief description of the applicable Standard & Poors Financial Services LLC, a subsidiary of The McGraw-Hill Companies (Standard & Poors or S&P), rating symbols and their meanings (as published by S&P) follows:
A Standard & Poors issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects Standard & Poors view of the obligors capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.
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 daysincluding commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based in varying degrees, on S&Ps analysis of the following considerations:
1. |
Likelihood of paymentcapacity 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. |
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
AAA |
An obligation rated AAA has the highest rating assigned by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is extremely strong. |
AA |
An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitment on the obligation is very strong. |
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 obligors 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. |
A-1
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 obligors 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 obligors 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. The CC rating is used when a default has not yet occurred, but Standard & Poors expects default to be a virtual certainty, regardless of the anticipated time to default. |
C |
An obligation rated C is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared to obligations that are rated higher. |
D |
An obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an obligation are not made on the date due, unless Standard & Poors believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligations rating is lowered to D if it is subject to a distressed exchange offer |
N.R. |
This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poors does not rate a particular obligation as a matter of policy. |
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.
SHORT-TERM ISSUE CREDIT RATINGS
A-1 |
A short-term obligation rated A-1 is rated in the highest category by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitment on these obligations is extremely strong. |
A-2
A-2 |
A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligors capacity to meet its financial commitment on the obligation is satisfactory. |
A-3 |
A short-term obligation rated A-3 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. |
B |
A short-term obligation rated B is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligors inadequate capacity to meet its financial commitments. |
C |
A short-term obligation rated C 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. |
D |
A short-term obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an obligation are not made on the date due, unless Standard & Poors believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligations rating is lowered to D if it is subject to a distressed exchange offer. |
MUNICIPAL SHORT-TERM NOTE RATINGS DEFINITIONS
A Standard & Poors U.S. municipal note rating reflects Standard & Poors opinion about the liquidity factors and market access risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating.
In determining which type of rating, if any, to assign, Standard & Poors analysis will review the following considerations:
1. Amortization schedulethe larger the final maturity relative to other maturities, the more likely it will be treated as a note; and
2. Source of paymentthe 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-3
Moodys Investors Service, Inc.A brief description of the applicable Moodys Investors Service, Inc. (Moodys) rating symbols and their meanings (as published by Moodys) follows:
LONG-TERM OBLIGATION RATINGS
Moodys long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default.
Aaa |
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk. |
Aa |
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk. |
A |
Obligations rated A are judged to be upper-medium grade and are subject to low credit risk. |
Baa |
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics. |
Ba |
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk. |
B |
Obligations rated B are considered speculative and are subject to high credit risk. |
Caa |
Obligations rated Caa are judged to be speculative, of poor standing, and are subject to very high credit risk. |
Ca |
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. |
C |
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest. |
Note: Moodys appends numerical modifiers 1,2, and 3 to each generic rating classification from Aaa 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 OBLIGATION RATINGS
Moodys short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect the likelihood of a default on contractually promised payments. Moodys employs the following designations to indicate the relative repayment ability of rated issuers:
P-1 |
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations. |
P-2 |
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations. |
P-3 |
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations. |
NP |
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories. |
A-4
U.S. MUNICIPAL SHORT-TERM OBLIGATION RATINGS
The Municipal Investment Grade (MIG) scale is used to rate U.S. municipal bond anticipation notes of up to three years maturity. Municipal notes rated on the MIG scale may be secured by either pledged revenues or proceeds of a take-out financing received prior to note maturity. MIG ratings expire at the maturity of the obligation, and the issuers long-term rating is only one consideration in assigning the MIG rating. MIG ratings are divided into three levelsMIG 1 through MIG 3while speculative grade short-term obligations are designated SG.
MIG1 |
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. |
MIG2 |
This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group. |
MIG3 |
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. |
Fitch Ratings, Inc.A brief description of the applicable Fitch Ratings, Inc. (Fitch) ratings symbols and meanings (as published by Fitch) follows:
Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns and insurance companies, are generally assigned Issuer Default Ratings (IDRs). IDRs opine on an entitys relative vulnerability to default on financial obligations. The threshold default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts, although the agency recognizes that issuers may also make pre-emptive and therefore voluntary use of such mechanisms.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agencys view of their relative vulnerability to default, rather than a prediction of a specific percentage likelihood of default. For historical information on the default experience of Fitch-rated issuers, please consult the transition and default performance studies available from the Fitch Ratings website.
LONG-TERM CREDIT RATINGS
AAA |
Highest credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. |
AA |
Very high credit quality. AA ratings denote expectations of a very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. |
A |
High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings. |
BBB |
Good credit quality. BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity. |
A-5
BB |
Speculative. BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments. |
B |
Highly speculative. B ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment. |
CCC |
Substantial credit risk. Default is a real possibility. |
CC |
Very high levels of credit risk. Default of some kind appears probable. |
C |
Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative of a C category rating for an issuer include: |
a. |
the issuer has entered into a grace or cure period following non-payment of a material financial obligation; |
b. |
the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or |
c. |
Fitch Ratings otherwise believes a condition of RD or D to be imminent or inevitable, including through the formal announcement of a distressed debt exchange. |
RD |
Restricted default. RD ratings indicate an issuer that in Fitch Ratings opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased business. This would include: |
a. |
the selective payment default on a specific class or currency of debt; |
b. |
the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation; |
c. |
the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or |
d. |
execution of a distressed debt exchange on one or more material financial obligations. |
D |
Default. D ratings indicate an issuer that in Fitch Ratings opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, or which has otherwise ceased business. Default ratings are not assigned prospectively to entities or their obligations; within this context, nonpayment on an instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a distressed debt exchange. |
Imminent default typically refers to the occasion where a payment default has been intimated by the issuer, and is all but inevitable. This may, for example, be where an issuer has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has formally announced a distressed debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.
In all cases, the assignment of a default rating reflects the agencys opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuers financial obligations or local commercial practice.
A-6
Note: The modifiers + 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 IDR category, or to Long-Term IDR categories below B.
Specific limitations relevant to the issuer credit rating scale include:
|
The ratings do not predict a specific percentage of default likelihood over any given time period. |
|
The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change. |
|
The ratings do not opine on the liquidity of the issuers securities or stock. |
|
The ratings do not opine on the possible loss severity on an obligation should an issuer default. |
|
The ratings do not opine on the suitability of an issuer as counterparty to trade credit. |
|
The ratings do not opine on any quality related to an issuers business, operational or financial profile other than the agencys opinion on its relative vulnerability to default. |
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
SHORT-TERM OBLIGATION RATINGS
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security stream and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as short term based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1 |
Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added + to denote any exceptionally strong credit feature. |
F2 |
Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments. |
F3 |
Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate. |
B |
Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near-term adverse changes in financial and economic conditions. |
C |
High short-term default risk. Default is a real possibility. |
RD |
Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only. |
D |
Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation. |
Specific limitations relevant to the Short-Term Ratings scale include:
|
The ratings do not predict a specific percentage of default likelihood over any given time period. |
A-7
|
The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change. |
|
The ratings do not opine on the liquidity of the issuers securities or stock. |
|
The ratings do not opine on the possible loss severity on an obligation should an obligation default. |
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
RATING WATCHES AND RATING OUTLOOKS
Rating Watch
Rating Watches indicate that there is a heightened probability of a rating change and the likely direction of such a change. These are designated as Positive, indicating a potential upgrade, Negative, for a potential downgrade, or Evolving, if ratings may be raised, lowered or affirmed. However, ratings that are not on Rating Watch can be raised or lowered without being placed on Rating Watch first, if circumstances warrant such an action.
A Rating Watch is typically event-driven and, as such, it is generally resolved over a relatively short period. The event driving the Watch may be either anticipated or have already occurred, but in both cases, the exact rating implications remain undetermined. The Watch period is typically used to gather further information and/or subject the information to further analysis. Additionally, a Watch may be used where the rating implications are already clear, but where a triggering event (e.g. shareholder or regulatory approval) exists. The Watch will typically extend to cover the period until the triggering event is resolved or its outcome is predictable with a high enough degree of certainty to permit resolution of the Watch.
Rating Watches can be employed by all analytical groups and are applied to the ratings of individual entities and/or individual instruments. At the lowest categories of speculative grade (CCC, CC and C) the high volatility of credit profiles may imply that almost all ratings should carry a Watch. Watches are nonetheless only applied selectively in these categories, where a committee decides that particular events or threats are best communicated by the addition of the Watch designation.
Rating Outlook
Rating Outlooks indicate the direction a rating is likely to move over a one- to two-year period. They reflect financial or other trends that have not yet reached the level that would trigger a rating action, but which may do so if such trends continue. The majority of Outlooks are generally Stable, which is consistent with the historical migration experience of ratings over a one- to two-year period. Positive or Negative rating Outlooks do not imply that a rating change is inevitable and, similarly, ratings with Stable Outlooks can be raised or lowered without a prior revision to the Outlook, if circumstances warrant such an action. Occasionally, where the fundamental trend has strong, conflicting elements of both positive and negative, the Rating Outlook may be described as Evolving.
Outlooks are currently applied on the long-term scale to issuer ratings in corporate finance (including sovereigns, industrials, utilities, financial institutions and insurance companies) and public finance outside the U.S.; to issue ratings in public finance in the U.S.; to certain issues in project finance; to Insurer Financial Strength Ratings; to issuer and/or issue ratings in a number of National Rating scales; and to the ratings of structured finance transactions. Outlooks are not applied to ratings assigned on the short-term scale and are applied selectively to ratings in the CCC, CC and C categories. Defaulted ratings typically do not carry an Outlook.
A-8
Deciding When to Assign Rating Watch or Outlook
Timing is informative but not critical to the choice of a Watch rather than an Outlook. A discrete event that is largely clear and the terms of which are defined, but which will not happen for more than six monthssuch as a lengthy regulatory approval processwould nonetheless likely see ratings placed on Watch rather than a revision to the Outlook. An Outlook revision may, however, be deemed more appropriate where a series of potential event risks has been identified, none of which individually warrants a Watch but which cumulatively indicate heightened probability of a rating change over the following one to two years.
A revision to the Outlook may also be appropriate where a specific event has been identified, but where the conditions and implications of that event are largely unclear and subject to high execution risk over an extended periodfor example a proposed, but politically controversial, privatization.
STANDARD RATING ACTIONS
Affirmed* |
The rating has been reviewed and no change has been deemed necessary. |
|
Confirmed | Action taken in response to an external request or change in terms. Rating has been reviewed in either context, and no rating change has been deemed necessary. | |
Downgrade* |
The rating has been lowered in the scale. |
|
Matured*/Paid-In-Full |
a. MaturedThis action is used when an issue has reached the end of its repayment term and rating coverage is discontinued. Denoted as NR. b. Paid-In-FullThis action indicates that the issue has been paid in full. As the issue no longer exists, it is therefore no longer rated. Denoted as PIF. |
|
New Rating* | Rating has been assigned to a previously unrated issue primarily used in cases of shelf issues such as MTNs or similar programs. | |
Prerefunded* | Assigned to long-term US Public Finance issues after Fitch assesses refunding escrow. | |
Publish* | Initial public announcement of rating on the agencys website, although not necessarily the first rating assigned. This action denotes when a previously private rating is published. | |
Upgrade* | The rating has been raised in the scale. | |
Withdrawn* | The rating has been withdrawn and the issue or issuer is no longer rated by Fitch Ratings. Indicated in rating databases with the symbol WD. | |
Rating Modifier Actions | Modifiers include Rating Outlook, Rating Watch, and Recovery Rating. | |
Rating Watch Maintained* | The issue or issuer has been reviewed and remains on active Rating Watch status. | |
Rating Watch On* | The issue or issuer has been placed on active Rating Watch status. | |
Rating Watch Revision* | Rating Watch status has changed. | |
Support Floor Rating Revision | Applicable only to Support ratings related to Financial Institutions, which are amended only with this action. | |
Under Review* | Applicable to ratings that may undergo a change in scale not related to changes in fundamental credit quality. Final action will be Revision Rating | |
Revision Outlook* | The Rating Outlook status has changed independent of a full review of the underlying rating. |
* |
A rating action must be recorded for each rating in a required cycle to be considered compliant with Fitch policy concerning aging of ratings. Not all Ratings or Data Actions, or changes in rating modifiers, will meet this requirement. Actions that meet this requirement are noted with an * in the above definitions. |
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TAXABLE EQUIVALENT YIELD TABLE
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 Funds 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 income tax rates for 2020 listed below. This table should not be considered a representation or guarantee of future results.
2020 Taxable Equivalent of Tax-Free Yields*
Single-Return
|
Joint-Return
Bracket |
Federal
Tax Rate |
4.00% | 4.50% | 5.00% | 5.50% | 6.00% | 6.50% | 7.00% | 7.50% | ||||||||||||||||||||||||||||
0-$9,875 |
0-$19,750 | 10 | % | 4.44 | % | 5.00 | % | 5.56 | % | 6.11 | % | 6.67 | % | 7.22 | % | 7.78 | % | 8.33 | % | |||||||||||||||||||
$9,876-$40,125 |
$19,751-$80,250 | 12 | % | 4.55 | % | 5.11 | % | 5.68 | % | 6.25 | % | 6.82 | % | 7.39 | % | 7.95 | % | 8.52 | % | |||||||||||||||||||
$40,126-$85,525 |
$80,251-$171,050 | 22 | % | 5.13 | % | 5.77 | % | 6.41 | % | 7.05 | % | 7.69 | % | 8.33 | % | 8.97 | % | 9.62 | % | |||||||||||||||||||
$85,526-$163,300 |
$171,051-$326,600 | 24 | % | 5.26 | % | 5.92 | % | 6.58 | % | 7.24 | % | 7.89 | % | 8.55 | % | 9.21 | % | 9.87 | % | |||||||||||||||||||
$163,301-$207,350 |
$326,601-$414,700 | 32 | % | 5.88 | % | 6.62 | % | 7.35 | % | 8.09 | % | 8.82 | % | 9.56 | % | 10.29 | % | 11.03 | % | |||||||||||||||||||
$207,351-$518,400 |
$414,701-$622,050 | 35 | % | 6.15 | % | 6.92 | % | 7.69 | % | 8.46 | % | 9.23 | % | 10.00 | % | 10.77 | % | 11.54 | % | |||||||||||||||||||
Over $518,400 |
Over $622,050 | 37 | % | 6.35 | % | 7.14 | % | 7.94 | % | 8.73 | % | 9.52 | % | 10.32 | % | 11.11 | % | 11.90 | % |
* |
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 regular federal individual income taxes. |
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NUVEEN ASSET MANAGEMENT PROXY VOTING POLICIES
Nuveen Asset Management, LLC
Proxy Voting Policies and Procedures
Effective Date: January 1, 2011, as last amended March 05, 2020
I. General Principles
A. Nuveen Asset Management, LLC (NAM) is an investment sub-adviser for certain of the Nuveen Funds (the Funds) and investment adviser for institutional and other separately managed accounts (collectively, with the Funds, Accounts). As such, Accounts may confer upon NAM complete discretion to vote proxies.1
B. When NAM has proxy voting authority, it is NAMs duty to vote proxies in the best interests of its clients (which may involve affirmatively deciding that voting the proxies may not be in the best interests of certain clients on certain matters). In voting proxies, NAM also seeks to enhance total investment return for its clients.
C. If NAM contracts with another investment adviser to act as a sub-adviser for an Account, NAM may delegate proxy voting responsibility to the sub-adviser. Where NAM has delegated proxy voting responsibility, the sub-adviser will be responsible for developing and adhering to its own proxy voting policies, subject to oversight by NAM.
D. NAMs Proxy Voting Committee (PVC) provides oversight of NAMs proxy voting policies and procedures, including (1) providing an administrative framework to facilitate and monitor the exercise of such proxy voting and to fulfill the obligations of reporting and recordkeeping under the federal securities laws; and (2) approving the proxy voting policies and procedures.
II. Policies
The PVC after reviewing and concluding that such policies are reasonably designed to vote proxies in the best interests of clients, has approved and adopted the proxy voting policies (Policies) of Institutional Shareholder Services, Inc. (ISS), a leading national provider of proxy voting administrative and research services.i As a result, such Policies set forth NAMs positions on recurring proxy issues and criteria for addressing non-recurring issues. These Policies are reviewed periodically by ISS, and therefore are subject to change. Even though it has adopted the Policies as drafted by ISS, NAM maintains the fiduciary responsibility for all proxy voting decisions.
III. Procedures
A. Supervision of Proxy Voting. Day-to-day administration of proxy voting may be provided internally or by a third-party service provider, depending on client type, subject to the ultimate oversight of the PVC. The PVC shall supervise the relationships with NAMs proxy voting services, ISS. ISS apprises Nuveen Global
1 |
NAM does not vote proxies where a client withholds proxy voting authority, and in certain non- discretionary and model programs NAM votes proxies in accordance with its Policies in effect from time to time. Clients may opt to vote proxies themselves, or to have proxies voted by an independent third party or other named fiduciary or agent, at the clients cost. i ISS has separate polices for Taft Hartley plans and it is NAMs policy to apply the Taft Hartley polices to accounts that are Taft Hartley plans and have requested the application of such policies. |
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Operations (NGO) of shareholder meeting dates, and casts the actual proxy votes. ISS also provides research on proxy proposals and voting recommendations. ISS serves as NAMs proxy voting record keepers and generate reports on how proxies were voted. NGO periodically reviews communications from ISS to determine whether ISS voted the correct amount of proxies, whether the votes were cast in a timely manner, and whether the vote was in accordance with the Policies or NAMs specific instructions
B. General Avoidance of Conflicts of Interest.
1. NAM believe that most conflicts of interest faced by NAM in voting proxies can be avoided by voting in accordance with the Policies. Examples of such conflicts of interest are as follows:2
a. The issuer or proxy proponent (e.g., a special interest group) is TIAA- CREF, the ultimate principal owner of NAM, or any of its affiliates.
b. The issuer is an entity in which an executive officer of NAM or a spouse or domestic partner of any such executive officer is or was (within the past three years of the proxy vote) an executive officer or director.
c. The issuer is a registered or unregistered fund or other client for which NAM or another affiliated adviser has a material relationship as investment adviser or sub-adviser (e.g., Nuveen Funds and TIAA Funds) or an institutional separate account.
d. Any other circumstances that NAM is aware of where NAMs duty to serve its clients interests, typically referred to as its duty of loyalty, could be materially compromised.
2. To further minimize this risk, Compliance will review ISS conflict avoidance policy at least annually to ensure that it adequately addresses both the actual and perceived conflicts of interest ISS may face.
3. In the event that ISS faces a material conflict of interest with respect to a specific vote, the PVC shall direct ISS how to vote. The PVC shall receive voting direction from appropriate investment personnel. Before doing so, the PVC will consult with Legal to confirm that NAM faces no material conflicts of its own with respect to the specific proxy vote.
4. Where ISS is determined to have a conflict of interest, or NAM determines to override the Policies and is determined to have a conflict, the PVC will recommend to NAMs Compliance Committee or designee a course of action designed to address the conflict. Such actions could include, but are not limited to:
a. Obtaining instructions from the affected client(s) on how to vote the proxy;
b. Disclosing the conflict to the affected client(s) and seeking their consent to permit NAM to vote the proxy;
c. Voting in proportion to the other shareholders;
d. Recusing the individual with the actual or potential conflict of interest from all discussion or consideration of the matter, if the material conflict is due to such persons actual or potential conflict of interest; or
e. Following the recommendation of a different independent third party.
5. In addition to all of the above-mentioned and other conflicts, the Head of Equity Research, NGO and any member of the PVC must notify NAMs Chief Compliance Officer (CCO) of any direct, indirect
2 |
A conflict of interest shall not be considered material for the purposes of these Policies and Procedures with respect to a specific vote or circumstance if the matter to be voted on relates to a restructuring of the terms of existing securities or the issuance of new securities or a similar matter arising out of the holding of securities, other than common equity, in the context of a bankruptcy or threatened bankruptcy of the issuer. |
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or perceived improper influence exerted by any employee, officer or director of TIAA or its subsidiaries with regard to how NAM should vote proxies. NAM Compliance will investigate any such allegations and will report the findings to the PVC and, if deemed appropriate, to NAMs Compliance Committee. If it is determined that improper influence was attempted, appropriate action shall be taken. Such appropriate action may include disciplinary action, notification of the appropriate senior managers, or notification of the appropriate regulatory authorities. In all cases, NAM will not consider any improper influence in determining how to vote proxies, and will vote in the best interests of clients.
C. Proxy Vote Override. From time to time, a portfolio manager of an account (a Portfolio Manager) may initiate action to override the Policies recommendation for a particular vote. Any such override by a NAM Portfolio Manager (but not a sub-adviser Portfolio Manager) shall be reviewed by NAMs Legal Department for material conflicts. If the Legal Department determines that no material conflicts exist, the approval of one member of the PVC shall authorize the override. If a material conflict exists, the conflict and, ultimately, the override recommendation will be rejected and will revert to the original Policies recommendation or will be addressed pursuant to the procedures described above under Conflicts of Interest.
In addition, the PVC may determine from time to time that a particular recommendation in the Policies should be overridden based on a determination that the recommendation is inappropriate and not in the best interests of shareholders. Any such determination shall be reflected in the minutes of a meeting of the PVC at which such decision is made.
D. Securities Lending.
1. In order to generate incremental revenue, some clients may participate in a securities lending program. If a client has elected to participate in the lending program then it will not have the right to vote the proxies of any securities that are on loan as of the shareholder meeting record date. A client, or a Portfolio Manager, may place restrictions on loaning securities and/or recall a security on loan at any time. Such actions must be affected prior to the record date for a meeting if the purpose for the restriction or recall is to secure the vote.
2. Portfolio Managers and/or analysts who become aware of upcoming proxy issues relating to any securities in portfolios they manage, or issuers they follow, will consider the desirability of recalling the affected securities that are on loan or restricting the affected securities prior to the record date for the matter. If the proxy issue is determined to be material, and the determination is made prior to the shareholder meeting record date the Portfolio Manager(s) will contact the Securities Lending Agent to recall securities on loan or restrict the loaning of any security held in any portfolio they manage, if they determine that it is in the best interest of shareholders to do so.
E. Proxy Voting Records. As required by Rule 204-2 of the Investment Advisers Act of 1940, NAM shall make and retain five types of records relating to proxy voting; (1) NAMs Policies; (2) proxy statements received for securities in client accounts; (3) records of proxy votes cast by NAM on behalf of clients accounts; (4) records of written requests from clients about how NAM voted their proxies, and written responses from NAM to either a written or oral request by clients; and (5) any documents prepared by the adviser that were material to making a proxy voting decision or that memorialized the basis for the decision. NAM relies on ISS to make and retain on NAMs behalf certain records pertaining to Rule 204-2.
F. Fund of Funds Provision. In instances where NAM provides investment advice to a fund of funds that acquires shares of affiliated funds or three percent or more of the outstanding voting securities of an unaffiliated fund, the acquiring fund shall vote the shares in the same proportion as the vote of all other shareholders of the acquired fund. If compliance with this procedure results in a vote of any shares in a manner different than the Policies recommendation, such vote will not require compliance with the Proxy Vote Override procedures set forth above.
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G. Legacy Securities. To the extent that NAM receives proxies for securities that are transferred into an accounts portfolio that were not recommended or selected by it and are sold or expected to be sold promptly in an orderly manner (legacy securities), NAM will generally refrain from voting such proxies. In such circumstances, since legacy securities are expected to be sold promptly, voting proxies on such securities would not further NAMs interest in maximizing the value of client investments. NAM may agree to an accounts special request to vote a legacy security proxy, and would vote such proxy in accordance with the Policies.
H. Terminated Accounts. Proxies received after the termination date of an account generally will not be voted. An exception will be made if the record date is for a period in which an account was under NAMs discretionary management or if a separately managed account (SMA) custodian failed to remove the accounts holdings from its aggregated voting list.
I. Non-votes. NGO shall be responsible for obtaining reasonable assurance from ISS that it voted proxies on NAMs behalf, and that any special instructions from NAM about a given proxy or proxies are submitted to ISS in a timely manner. It should not be considered a breach of this responsibility if NGO or NAM does not receive a proxy from ISS or a custodian with adequate time to analyze and direct to vote or vote a proxy by the required voting deadline.
NAM may determine not to vote proxies associated with the securities of any issuer if as a result of voting such proxies, subsequent purchases or sales of such securities would be blocked. However, NAM may decide, on an individual security basis that it is in the best interests of its clients to vote the proxy associated with such a security, taking into account the loss of liquidity. In addition, NAM may determine not to vote proxies where the voting would in NAMs judgment result in some other financial, legal, regulatory disability or burden to the client (such as imputing control with respect to the issuer) or to NAM or its affiliates.
NAM may determine not to vote securities held by SMAs where voting would require the transfer of the security to another custodian designated by the issuer. Such transfer is generally outside the scope of NAMs authority and may result in significant operational limitations on NAMs ability to conduct transactions relating to the securities during the period of transfer. From time to time, situations may arise (operational or otherwise) that prevent NAM from voting proxies after reasonable attempts have been made.
J. Review and Reports.
1. The PVC shall maintain a review schedule. The schedule shall include reviews of the Policies and the policies of any Sub-adviser engaged by NAM, the proxy voting record, account maintenance, and other reviews as deemed appropriate by the PVC. The PVC shall review the schedule at least annually.
2. The PVC will report to NAMs Compliance Committee with respect to all identified conflicts and how they were addressed. These reports will include all accounts, including those that are sub-advised. NAM also shall provide the Funds that it sub-advises with information necessary for preparing Form N-PX.
K. Vote Disclosure to Clients. NAMs institutional and SMA clients can contact their relationship manager for more information on NAMs Policies and the proxy voting record for their account. The information available includes name of issuer, ticker/CUSIP, shareholder meeting date, description of item and NAMs vote.
IV. Responsible Parties
PVC
NGO
NAM Compliance
Legal Department
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PART C
OTHER INFORMATION
Item 15. Indemnification
Article EIGHTH of the Registrants Articles of Incorporation provides as follows:
EIGHTH: To the maximum extent permitted by the Minnesota Business Corporation Act, as from time to time amended, the Corporation shall indemnify its currently acting and its former directors, officers, employees and agents, and those persons who, at the request of the Corporation, serve or have served another corporation, partnership, joint venture, trust or other enterprise in one or more such capacities. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may otherwise be entitled.
Expenses (including attorneys fees) incurred in defending a civil or criminal action, suit or proceeding (including costs connected with the preparation of a settlement) may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding, if authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay that amount of the advance which exceeds the amount which it is ultimately determined that he is entitled to receive from the Corporation by reason of indemnification as authorized herein; provided, however, that prior to making any such advance at least one of the following conditions shall have been met: (1) the indemnitee shall provide a security for his undertaking, (2) the Corporation shall be insured against losses arising by reason of any lawful advances, or (3) a majority of a quorum of the disinterested, non-party directors of the Corporation, or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts, that there is reason to believe that the indemnitee ultimately will be found entitled to indemnification.
Nothing in these Articles of Incorporation or in the By-Laws shall be deemed to protect or provide indemnification to any director or officer of the Corporation against any liability to the Corporation or to its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office (disabling conduct), and the Corporation shall not indemnify any of its officers or directors against any liability to the Corporation or to its security holders unless a determination shall have been made in the manner provided hereafter that such liability has not arisen from such officers or directors disabling conduct. A determination that an officer or director is entitled to indemnification shall have been properly made if it is based upon (1) a final decision on the merits by a court or other body before whom the proceeding was brought that the indemnitee was not liable by reason of disabling conduct or, (2) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the indemnitee was not liable by reason of disabling conduct, by (a) the vote of a majority of a quorum of directors who are neither interested persons of the Corporation as defined in the Investment Company Act of 1940 nor parties to the proceeding, or (b) an independent legal counsel in a written opinion.
The trustees and officers of the Registrant are covered by joint errors and omissions insurance policies against liability and expenses of claims of wrongful acts arising out of their position with the Registrant and other Nuveen funds, subject to such policies coverage limits, exclusions and deductibles.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the 1933 Act), may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the Declaration of Trust of the Registrant, 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 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the
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Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
Item 16. Exhibits.
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(13 | )(a) | Transfer Agency and Service Agreement, dated June 15, 2017 between Registrant and Computershare Inc. and Computershare Trust Company, N.A.(4) | ||
(13 | )(b) | Amendment and Schedule A to Transfer Agency and Service Agreement, dated September 7, 2017. (4) | ||
(13 | )(c) | Second Amendment and updated Schedule A, dated February 26, 2018, to the Transfer Agency and Service Agreement dated June 15, 2017 between the Registrant and Computershare Inc. and Computershare Trust Company, N.A.(8) | ||
(13 | )(d) | Third Amendment and updated Schedule A, dated May 11, 2020 to the Transfer Agency and Service Agreement dated June 15, 2017 between the Registrant and Computershare Inc. and Computershare Trust Company, N.A.(8) | ||
(14 | ) | Consent of Independent Auditor is filed herewith. | ||
(15 | ) | Not applicable. | ||
(16 | ) | Powers of Attorney.(7) | ||
(17 | ) | Form of Proxy is filed herein and appears following the Joint Proxy Statement/Prospectus constituting Part A of the Registration Statement. |
(1) |
Filed on August 23, 1995 as an exhibit to the Registrants Registration Statement on Form N-14 (File No. 033-62051) and incorporated by reference herein. |
(2) |
Filed on March 11, 2016 as an exhibit to the Nuveen AMT-Free Quality Municipal Income Funds Registration Statement on Form N-14 (File No. 333-210113) and incorporated by reference herein. |
(3) |
Filed on December 13, 2016 as an exhibit to Nuveen Preferred & Income Opportunities Funds Registration Statement on Form N-14 (File No. 333-215072) and incorporated by reference herein. |
(4) |
Filed on November 16, 2017 as an exhibit to Post-Effective Amendment No. 1 to Nuveen California AMT-Free Quality Municipal Income Funds Registration Statement on Form N-2 (File No. 333-184971) and incorporated by reference herein. |
(5) |
Filed on October 1, 2018 as an exhibit to Post-Effective Amendment No. 1 to Nuveen Dow 30SM Dynamic Overwrite Funds Registration Statement on Form N-2 (File No. 333-226218) and incorporated by reference herein. |
(6) |
Filed on March 11, 2020 as an exhibit to Pre-Effective Amendment No. 1 to Nuveen California AMT-Free Quality Municipal Income Funds Registration Statement on Form N-14 (File No. 333-225399) and incorporated by reference herein. |
(7) |
Filed on August 24, 2020 as an exhibit to the Registrants Registration Statement on Form N-14 (File No. 333-248305) and incorporated by reference herein. |
(8) |
Filed on September 1, 2020 as an exhibit to Post-Effective Amendment No. 1 to Nuveen AMT-Free Municipal Value Funds Registration Statement on Form N-2 (File No. 333-223524) and incorporated by reference herein. |
* |
To be filed by amendment. |
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act, each post-effective amendment shall be
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deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees that executed opinions of counsel supporting the tax matters discussed in the Joint Proxy Statement/Prospectus will be filed with the Securities and Exchange Commission following the closing of the Reorganization.
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SIGNATURES
As required by the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Chicago and the State of Illinois, on the 13th day of October, 2020.
Nuveen New York Municipal Value Fund, Inc. | ||
By: |
/s/ Gifford R. Zimmerman |
|
Gifford R. Zimmerman | ||
Vice President and Secretary |
As required by the Securities Act of 1933, this Registrants registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Capacity |
Date |
||||
/s/ David J. Lamb |
Chief Administrative Officer | October 13, 2020 | ||||
David J. Lamb | (principal executive officer) | |||||
/s/ E. Scott Wickerham |
Vice President and Controller | October 13, 2020 | ||||
E. Scott Wickerham |
(principal financial and
accounting officer) |
|||||
|
||||||
Terence J. Toth* | Chairman of the Board and Director | ) | ||||
|
) | |||||
Jack B. Evans* | Director | ) |
By: /s/ Gifford R. Zimmerman |
|||
|
) | Gifford R. Zimmerman | ||||
William C. Hunter* | Director | ) | Attorney-in-Fact | |||
|
) | October 13, 2020 | ||||
Albin F. Moschner* | Director | ) | ||||
|
) | |||||
John K. Nelson* | Director | ) | ||||
|
) | |||||
Judith M. Stockdale* | Director | ) | ||||
|
) | |||||
Carole E. Stone* | Director | ) | ||||
|
) | |||||
Margaret L. Wolff* | Director | ) | ||||
|
) | |||||
Robert L. Young* | Director | ) |
* |
An original power of attorney authorizing, among others, Kevin J. McCarthy, Mark L. Winget and Gifford R. Zimmerman to execute this registration statement, and any amendments hereto, for each of the directors of the Registrant on whose behalf this registration statement is filed, has been executed and is incorporated by reference herein. |
EXHIBIT INDEX
Exhibit No. |
Name of Exhibit |
|
(11) | Opinion and Consent of Counsel. | |
(14) | Consent of Independent Auditor. |
October 13, 2020
Nuveen New York Municipal Value Fund, Inc.
333 West Wacker Drive
Chicago, Illinois 60606
Re: |
Nuveen New York Municipal Value Fund, Inc. |
Registration Statement on Form N-14 |
Ladies and Gentlemen:
We have acted as special local counsel to Nuveen New York Municipal Value Fund, Inc., a Minnesota corporation (the Acquiring Fund), in rendering the opinions hereinafter set forth with respect to the authorization and issuance of shares of the Acquiring Funds common stock, par value $.01 per share (the Shares), pursuant to the Agreement (as defined below).
We understand that the Shares will be issued pursuant to an Agreement and Plan of Reorganization (the Agreement), to be entered into between the Acquiring Fund and Nuveen New York Municipal Value Fund 2, a Massachusetts business trust (the Target Fund), pursuant to which the Acquiring Fund will acquire substantially all of the assets of the Target Fund in exchange for the Shares and the assumption by the Acquiring Fund of substantially all of the liabilities of the Target Fund. We also understand that the Shares are being registered under the Securities Act of 1933, as amended, pursuant to the Acquiring Funds Registration Statement on Form N-14, which is being filed on or about the date of this opinion letter (the Registration Statement). In rendering the opinions hereinafter expressed, we have reviewed the corporate proceedings taken by the Acquiring Fund in connection with the authorization and issuance of the Shares and the authorization of the Agreement, and we have reviewed such questions of law and examined copies of such corporate records of the Acquiring Fund, certificates of public officials and of responsible officers of the Acquiring Fund, and such other documents as we have deemed necessary as a basis for such opinions. As to the various matters of fact material to such opinions, we have, when such facts were not independently established, relied to the extent we deemed proper upon certificates of public officials and of a responsible officer of the Acquiring Fund. In connection with such review and examination, we have assumed that all copies of documents provided to us conform to the originals and that all signatures are genuine.
In addition, in rendering the opinions hereinafter expressed, we have assumed, with the concurrence of the Acquiring Fund, that the Agreement will be executed and delivered by the parties thereto in substantially the form approved by the Acquiring Funds board of directors and filed with the Registration Statement; that the Shares will be issued and delivered upon the terms, in the manner and upon satisfaction of the conditions set forth in the Agreement and the Registration Statement; that the Acquiring Fund will not issue Shares in excess of the numbers authorized in the Acquiring Funds articles of incorporation as in effect at the date of issuance; and that the Acquiring Fund will maintain its corporate existence and good standing under the
Nuveen New York Municipal Value Fund, Inc.
October 13, 2020
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laws of the State of Minnesota in effect at all times from the date of this opinion letter through the date the Shares are issued and delivered pursuant to the Agreement.
Based on the foregoing, it is our opinion that:
1. The Acquiring Fund is a corporation validly existing and in good standing under the laws of the State of Minnesota.
2. The Shares, when issued and delivered by the Acquiring Fund pursuant to, and upon satisfaction of the conditions set forth in, the Agreement, will be legally issued and fully paid and non-assessable.
In rendering the foregoing opinions, we express no opinion as to the laws of any jurisdiction other than the State of Minnesota. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement.
Very truly yours,
JVH
Consent of Independent Registered Public Accounting Firm
The Board of Directors/Trustees
Nuveen New York Municipal Value Fund, Inc.
Nuveen New York Municipal Value Fund 2:
We consent to the use of our reports incorporated herein by reference dated April 27, 2020, with respect to the financial statements of Nuveen New York Municipal Value Fund, Inc. and Nuveen New York Municipal Value Fund 2, and to the references to our firm under the headings Experts and Financial Highlights in the Joint Proxy Statement/Prospectus and Experts in the Statement of Additional Information filed on Form N-14.
/s/ KPMG LLP
Chicago, Illinois
October 13, 2020