Exhibit No. EX-99(1)(b)
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
Statement Establishing and Fixing the Rights and Preferences
Of Two Series of Municipal Income Preferred Shares
Voyageur Minnesota Municipal Income Fund II, Inc., a Minnesota corporation
(the "Corporation"), certifies to the Secretary of State of Minnesota that.
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by Article 5 of its Articles of Incorporation (which, as
hereafter restated or amended from time to time are, together with this
Statement, herein called the "Articles"), the Board of Directors has, by
resolution adopted at a meeting held on April 15, 1993, authorized the issuance
of two series of its authorized preferred stock, par value $.01 per share,
liquidation preference $50,000 per share, designated, respectively, "Municipal
Income Preferred Shares, Series A" and "Municipal Income Preferred Shares,
Series B" (such series of Municipal Income Preferred Shares are referred to in
this Statement individually as "Series A Preferred Shares" and "Series B
Preferred Shares," respectively, and collectively as the "Preferred Shares").
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the
Preferred Shares of each such series are as follows:
DESIGNATION
SERIES A: A series of 600 shares of preferred stock, par value $.01 per
share, liquidation preference $50,000 per share, is hereby designated "Municipal
Income Preferred Shares, Series A." Each Series A Preferred Share shall be
issued on May 14, 1993; have a dividend rate for its Initial Dividend Period
equal to 2.50% per annum; have an Initial Dividend Period ending June 3, 1993;
and have such other preferences, limitations and relative voting rights, in
addition to those required by applicable law or set forth in the Articles
applicable to preferred stock of the Corporation, as are set forth in Part I and
Part II of this Statement. The Series A Preferred Shares shall constitute a
separate series of preferred stock of the Corporation, and each Series A
Preferred Share shall be identical except as provided in Section 4 of Part I of
this Statement.
SERIES B: A series of 600 shares of preferred stock, par value $.01 per
share, liquidation preference $50,000 per share, is hereby designated "Municipal
Income Preferred Shares, Series B." Each Series B Preferred Share shall be
issued on May 14, 1993; have a dividend rate for its Initial Dividend Period
equal to 2.50% per annum; have an Initial Dividend Period ending June 15, 1993;
and have such other preferences, limitations and relative voting rights, in
addition to those required by applicable law or set forth in the Articles
applicable to preferred stock of the Corporation, as are set forth in Part I and
Part II of this Statement. The Series B Preferred Shares shall constitute a
separate series of preferred stock of the Corporation, and each Series B
Preferred Share shall be identical except as provided in Section 4 of Part I of
this Statement.
No holder of Preferred Shares shall, as such holder, have any right to
acquire, purchase or subscribe for any Preferred Shares, shares of Common Stock,
$.01 par value, of the Corporation or other securities of the Corporation which
it may hereafter issue or sell (whether out of the number of shares authorized
by the Articles, out of any shares acquired by the Corporation after the
issuance thereof, or otherwise).
PART I
1. Definitions
"AA Composite Commercial Paper Rate," on any date of determination, means
(a) the Interest Equivalent of the rate on commercial paper placed on behalf of
issuers whose corporate bonds are rated AA by S&P or Aa by Moody's or the
equivalent of such rating by another nationally recognized statistical rating
organization, as such rate is made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day immediately preceding
such date, or (b) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of the Interest
Equivalent of the rate on commercial paper placed on behalf of such issuers, as
quoted on a discount basis or otherwise by the Commercial Paper Dealers to the
Remarketing Agent for the close of business on the Business Day immediately
preceding such date. If one of the Commercial Paper Dealers does not quote a
rate required to determine the AA Composite Commercial Paper Rate, the AA
Composite Commercial Paper Rate will be determined on the basis of the quotation
or quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Corporation to provide such rate or
rates not being supplied by the Commercial Paper Dealer. If the number of
Dividend Period Days shall be (a) fewer than 49 days, such rate shall be the
Interest Equivalent of the 30-day rate on such commercial paper; (b) 49 or more
days but fewer than 70 days, such rate shall be the Interest Equivalent of the
60-day rate on such commercial paper; (c) 70 or more days but fewer than 85
days, such rate shall be the arithmetic average of the Interest Equivalent of
the 60-day and 90-day rates on such commercial paper; (d) 85 or more days but
fewer than 91 days, such rate shall be the Interest Equivalent of the 90-day
rate on such commercial paper; and (e) 91 days but less than one year, such rate
shall be the Interest Equivalent of the 180-day rate on such commercial paper.
"Additional Dividend" means payment to a Holder of Preferred Shares of an
amount which, after taking into account the Retroactive Taxable Allocations made
to such Holder with respect to the taxable year in question, would cause such
Holder's dividends in dollars (after federal and Minnesota personal income tax
consequences, as defined below) to be equal to the dollar amount of the
dividends which would have been received by such Holder if the Retroactive
Taxable Allocations had not been made. Such Additional Dividend shall be
calculated (a) without consideration being given to the time value of money, (b)
assuming that no Holder of Preferred Shares is subject to the federal or
Minnesota alternative minimum tax with respect to dividends received from the
Corporation, (c) assuming the portion of the dividend to which each Retroactive
Taxable Allocation applies would be taxable in the hands, of each Holder of
Preferred Shares at (i) in the case of an allocation of capital gains, the
maximum marginal combined regular federal and Minnesota income tax rate (taking
into account the federal income tax deductibility of state taxes paid or
incurred) on net capital gains applicable to individuals or corporations in
effect during the taxable year in question, whichever is greater, or (ii) in the
case of an allocation of ordinary income, the maximum marginal combined regular
federal and Minnesota income tax rate (taking into account the federal income
tax deductibility of state taxes paid or incurred) on ordinary income applicable
to individuals or corporations in effect during the taxable year in question,
whichever is greater, and (d) assuming the Additional Dividend will not be
subject to federal or state income tax.
"Administrator" means Mitchell Hutchins Asset Management Inc., a Delaware
corporation, and any additional or successor companies or entities which have
entered into an agreement with the Corporation to provide administrative
services to the Corporation.
"Adviser" means Voyageur Fund Managers, a Minnesota general partnership.
"Agent Member" means a designated member of the Securities Depository that
will maintain records for a beneficial owner of one or more Preferred Shares.
"Anticipation Notes" means the following obligations: tax anticipation
notes, revenue anticipation notes, and tax and revenue anticipation notes.
"Applicable Dividend Rate" for any series of Preferred Shares means, with
respect to the Initial Dividend Period for such series, the initial dividend
rate per annum described in the "Designation" of this Statement and, with
respect to any subsequent Dividend Period for such series, the dividend rate per
annum that (a) except for a Dividend Period commencing during a Non-Payment
Period, will be equal to the lower of the rate per annum that the Remarketing
Agent advises results on the Remarketing Date preceding the first day of such
Dividend Period from implementation of the remarketing procedures described
herein in Part II and the Maximum Dividend Rate, or (b) for each Dividend Period
commencing during a Non-Payment Period, will be equal to the Non-Payment Period
Rate.
"Applicable Percentage" means the percentage of the Reference Rate on each
Remarketing Date, which will be determined with reference to the lower of the
credit rating assigned on such date to the Preferred Shares by Moody's and S&P
(or, if Moody's or S&P, or both, shall not make such rating available, the
equivalent of either or both of such ratings by a Substitute Rating Agency or
two Substitute Rating Agencies or, in the event that only one such rating shall
be available, such rating), as follows:
Credit Ratings Applicable Percentage of Reference Rate
Moody's S&P
aa3 or higher AA- or higher 110%
a3 to a1 A- to A+ 125%
baa3 to baa1 BBB- to BB+ 150%
ba3 to ba1 BB- to BB+ 200%
below ba3 Below BB- 250%
;provided, however, that in the event the Corporation has notified the Paying
Agent and the Remarketing Agent of its intent to allocate income taxable for
federal income tax purposes to the Preferred Shares prior to the Remarketing
establishing the Applicable Dividend Rate for such shares, the applicable
percentage in the foregoing table shall be divided by the quantity 1 minus (a)
in the case of capital gains dividends, the maximum marginal combined regular
federal and Minnesota income tax rate (taking into account the federal income
tax deductibility of state taxes paid or incurred) on capital gains applicable
to individuals or corporations, whichever is greater, or (b) in the case of
ordinary income dividends, the maximum marginal combined regular federal and
Minnesota income tax rate (taking into account the federal income tax
deductibility of state taxes paid or incurred) on ordinary income applicable to
individuals or corporations, whichever is greater. If the ratings for the
Preferred Shares are split between two of the foregoing credit rating
categories, the lower rating will determine the prevailing rating.
"Articles" means the Articles of Incorporation, as amended, of the
Corporation, including this Statement Establishing and Fixing the Rights and
Preferences of Two Series of Municipal Income Preferred Shares, on file with the
Secretary of State of the State of Minnesota.
"Beneficial Owner" means a person who is listed as the beneficial owner of
one or more Preferred Shares on the records of the Paying Agent or, with respect
to any Preferred Shares not registered in the name of the Securities Depository
on the share transfer books of the Corporation, the person in whose name such
share is so registered.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
"Business Day" means a day on which the New York Stock Exchange, Inc. is
open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in the City of New York are authorized or obligated by law to close.
"Closing Transaction" means the termination of a futures contract or option
position by taking an equal position opposite thereto in the same delivery month
as such initial position being terminated.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Smith Barney, Harris Upham & Co.
Incorporated and such other dealers as the Corporation may from time to time
appoint or, in lieu of any thereof, their respective affiliates or successors.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common shares, par value $.01 per share, of the
Corporation.
"Date of Original Issue" means, with respect to any series of Preferred
Shares, the date on which the Corporation originally issued shares of such
series.
"Deposit Securities" has the meaning set forth in Part I, Section 7(c) of
this Statement.
"Discount Factor" means a Moody's Discount Factor or an S&P Discount
Factor, as the case may be.
"Discounted Value" of any asset of the Corporation means the market value
thereof, as determined by the Corporation in accordance with the Pricing
Service, discounted by the applicable Moody's Discount Factor or S&P Discount
Factor, as the case may be, in connection with the Corporation's receipt of
ratings on the Preferred Shares from Moody's and S&P, provided that with respect
to a Moody's Eligible Asset, Discounted Value shall not exceed the par value of
such asset at any time.
"Dividend Coverage Amount" has the meaning set forth in Part I, Section
7(c) of this Statement.
"Dividend Coverage Assets" has the meaning set forth in Part I, Section
7(c) of this Statement. "Dividend Payment Date" has the meaning described in
Part I, Section 3(e) of this Statement.
"Dividend Period," with respect to any series of Preferred Shares, means a
Seven-day Dividend Period, a 28-day Dividend Period or a Special Dividend
Period.
"DTC" means The Depository Trust Company, which will register the Preferred
Shares in the name of its nominee, Cede & Co.
"Eligible Assets" means Moody's Eligible Assets or S&P Eligible Assets, as
the case may be.
"Holder" of Preferred Shares means, unless the context otherwise requires,
a person who is listed in the records of the Paying Agent as the beneficial
owner of one or more Preferred Shares.
"Initial Dividend Period," with respect to Series A and Series B Preferred
Shares, means the period commencing on and including the Date of Original Issue
thereof and ending on June 3, 1993 and June 15, 1993, respectively.
"Initial Margin" means the amount of cash or securities deposited with a
futures commission merchant as a good faith deposit at the time of the
initiation of a purchase or sale position with respect to a futures contract or
a sale position with respect to an option position thereon.
"Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
"IRS" means the Internal Revenue Service.
"Mandatory Redemption Price" means $50,000 per Preferred Share plus an
amount equal to accumulated but unpaid dividends thereon to the date of
redemption (whether or not earned or declared).
"Marginal Tax Rate" means the maximum marginal regular federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation means the market value
thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service values portfolio
securities at the mean between the quoted bid and asked price or the yield
equivalent when quotations are readily available. Securities for which
quotations are not readily available are valued at fair value as determined by
the Pricing Service using methods which include consideration of: yields or
prices of municipal bonds of comparable quality, type of issue, coupon, maturity
and rating; indications as to value from dealers; and general market conditions.
The Pricing Service may employ electronic data processing techniques and/or a
matrix system to determine valuations. In the event the Pricing Service fails to
provide a valuation for a portfolio security or, in the judgment of the Adviser,
provides a valuation which is incorrect, Market Value of such security shall
mean the lower of two independent bid price quotations received from members of
the National Association of Securities Dealers, Inc. who make a market in such
security, one of which shall be in writing.
"Maximum Dividend Rate," with respect to any series of Preferred Shares,
means a maximum dividend rate for Preferred Shares of such series determined
with reference to the credit rating assigned to such shares and the duration of
the applicable Dividend Period. The Maximum Dividend Rate for any Dividend
Period at any date on which an Applicable Dividend Rate is determined will be
the Applicable Percentage of the Reference Rate.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date, and assuming such Additional Dividends are fully taxable.
"Minimum Liquidity Level" has the meaning set forth in Part I, Section 7(c)
of this Statement.
"Minnesota Municipal Obligations" means "Minnesota Municipal Obligations"
as defined in the Corporations Registration Statement on Form N-2 (File Nos.
33-60636 and 811-7420) on file with the Securities and Exchange Commission, as
such Registration Statement may be amended from time to time.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation,
and its successors.
"Moody's Discount Factor" means, for purposes of determining the Discounted
Value of any Moody's Eligible Asset, the percentage determined by reference to
the rating on such asset and the shortest period set forth opposite such rating
that is the same length as or is longer than the Moody's Exposure Period, in
accordance with the table set forth below:
Moody's Discount Factors
Rating Category
Exposure Period Aaa (1)Aa (1) A (1) Baa (1) Other (2) VMIG-1 (1) (3)(4) SP-1 + (3) (4)
7 weeks or less............................ 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than 7 weeks... 154% 164% 173% 205% 235% 137% 149%
9 weeks or less but greater than 8 weeks... 158% 169% 179% 209% 242% 138% 150%
___________________
(1) Moody's rating
(2) Municipal Obligations not rated by Moody's but rated BBB or BBB+ by S&P
(3) Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
(4) For the purposes of the definition of Moody's Eligible Assets, these
securities will have an assumed rating of A by Moody's.
Notwithstanding the foregoing, (a) no Moody's Discount Factor will be
applied to short-term Municipal Obligations so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's which mature or
have a demand feature at par exercisable within the Moody's Exposure Period and
the Moody's Discount Factor for such Municipal Obligations will be 125% so long
as such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable within the Moody's Exposure
Period; and (b) no Moody's Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold. "Receivables for Municipal
Obligations Sold," for purposes of calculating Moody's Eligible Assets as of any
Valuation Date, means no more than the aggregate of the following: (i) the book
value of receivables for Municipal Obligations sold as of or prior to such
Valuation Date if such receivables are due within the Moody's Exposure Period,
and if the trades which generated such receivables are (A) settled through
clearing house firms with respect to which the Corporation has received prior
written authorization from Moody's or (B) with counterparties having a Moody's
long-term debt rating of at least Baa3; and (ii) the Moody's Discounted Value of
Municipal Obligations sold as of or prior to such Valuation Date which generated
receivables, if such receivables are due within the Moody's Exposure Period but
do not comply with either of conditions (A) or (B).
"Moody's Eligible Assets" means cash or a Municipal Obligation that (a)
pays interest in cash, (b) is publicly rated Baa or better by Moody's or, if not
rated by Moody's but rated by S&P, is rated at least BBB by S&P (provided that,
for purposes of determining the Moody's Discount Factor applicable to any such
S&P-rated Municipal Obligation, such Municipal Obligation (excluding any
short-term Municipal Obligation) will be deemed to have a Moody's rating which
is one full rating category lower than its S&P rating), (c) does not have its
rating suspended, (d) is part of an issue of Minnesota Municipal Obligations of
at least $5,000,000 if rated Aaa, Aa or A by Moody's (or, if not rated by
Moody's, rated AAA or AA by S&P), or $10,000,000 if rated Baa by Moody's (or, if
not rated by Moody's rated A or BBB by S&P), or is part of an issue of Municipal
Obligations other than Minnesota Municipal Obligations of at least $10,000,000,
(e) is not a private placement, and (f) is not convertible. In addition,
Receivables for Municipal Obligations Sold (as defined under "Moody's Discount
Factor") shall constitute Moody's Eligible Assets. Municipal Obligations in the
Corporation's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:
Minimum Maximum Maximum Maximum
Issue Size Underlying Issue Type County
($ Millions) (2) Obligor (%) (3) Concentration (%) (3)(4)(5) Concentration (%) (3)(6)
Rating
Aaa................. 5 100 100 100
Aa.................. 5 20 60 60
A................... 5 10 40 40
Baa................. 10 6 20 20
Other (1) 10 4 12 12
__________________
(1) Municipal securities not rated by Moody's but rated BBB or BBB+ by S&P.
(2) Applicable to Minnesota Municipal Obligations only. Municipal Obligations
other than Minnesota Municipal Obligations must be part of an issue of at
least $10,000,000.
(3) The referenced percentages represent cumulative totals for the related
rating category and each lower rating category.
(4) For purposes of the issue type concentration requirement, Municipal
Obligations will be classified within one of the following categories:
health care issues, housing issues, educational facilities (public and
private schools) issues, student loan issues, resource recovery issues,
transportation issues, industrial revenue and pollution control bond
issues, utility issues (including water, sewer and electric), general
obligation issues, lease obligations and certificates of participation,
escrowed bonds and other issues ("Other Issues") including special
obligations to crossover, excise and sales tax revenue, recreation revenue,
special assessments, and telephone revenue bonds only. The following issue
types will be further limited as follows for all rating categories listed:
student loan issues-10%; resource recovery issues-10%; Other Issues-10%.
(5) Does not apply to general obligation Municipal Obligations.
(6) Applicable to general obligation Municipal Obligations only.
For purposes of the maximum underlying obligor requirement described above,
any Municipal Obligation backed by the guaranty, letter of credit or insurance
issued by a third party will be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating of
such Municipal Obligation. In the event any of the Moody's Eligible Assets in
the Corporation's portfolio consist of Municipal Obligations other than
Minnesota Municipal Obligations, then such Municipal Obligations shall be
subject to the following requirements regarding the maximum percentage of
Moody's Eligible Assets that may be invested in Municipal Obligations of issuers
located in a particular state of United States territory: such Municipal
Obligations rated BBB or BBB+ by S&P may comprise no more than 12% of total
Moody's Eligible Assets; such BBB or BBB+ rated Municipal Obligations, if any,
together with any such Municipal Obligations rated Baa by Moody's or A by S&P,
may comprise no more than 20% of total Moody's Eligible Assets; such BBB, BBB+,
Baa and A-rated Municipal Obligations, if any, together with any such Municipal
Obligations rated A by Moody's or AA by S&P, may comprise no more than 40% of
total Moody's Eligible Assets; and such BBB, BBB+, Baa, A and AA-rated Municipal
Obligations, if any, together with any such Municipal Obligations rated Aa by
Moody's or AAA by S&P, may comprise no more than 60% of total Moody's Eligible
Assets; provided, however, that, notwithstanding the foregoing, no more than an
aggregate of 10% of the Moody's Eligible Assets may consist of Municipal
Obligations of issuers located in United States Territories, other than Puerto
Rico. For purposes of applying the foregoing requirements, Municipal Obligations
rated MIG-1 or VMIG-1 or, if not rated by Moody's, rated SP-1+ by S&P, which do
not mature or have a demand feature at par exercisable in 30 days and which do
not have a long-term rating, will be considered to have a long-term rating of A.
For purposes of calculation of Minimum Issue Size, Underlying Obligor,
Maximum Issue Type and Maximum County Concentration, Moody's Eligible Assets
shall be calculated without including cash and Municipal Obligations rated MIG-1
or VMIG-1 or, if not rated by Moody's, rated SP-1+ by S&P, which either mature
or have a demand feature at par exercisable with the Moody's Exposure Period.
Where the Corporation sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Moody's Eligible
Asset and the amount the Corporation is required to pay upon repurchase of such
asset will count as a liability for the purposes of the Preferred Share Basic
Maintenance Amount. Where the Corporation purchases an asset and agrees to sell
it to a third party in the future, cash receivable by the Corporation thereby
will constitute a Moody's Eligible Asset if the long-term debt of such other
party is rated at least A2 by Moody's and such agreement has a term of 30 days
or less; otherwise the Discounted Value of such asset will constitute a Moody's
Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if (a) it is subject to any material lien, mortgage, pledge,
security interest or security agreement of any kind (collectively, "Liens"),
except for (i) Liens which are being contested in good faith by appropriate
proceedings and which Moody's has indicated to the Corporation will not affect
the status of such assets as a Moody's Eligible Asset, (ii) Liens for taxes that
are not then due and payable or that can be paid thereafter without penalty,
(iii) Liens to secure payment for services rendered or cash advanced to the
Corporation by the Adviser, the Paying Agent, the Administrator or the
Remarketing Agent and (iv) Liens by virtue of any repurchase agreement; or (b)
it is irrevocably deposited by the Corporation for the payment of any amounts
set forth in (a)(i) through (a)(vii) under "Preferred Share Basic Maintenance
Amount."
"Moody's Exposure Period" on a given Valuation Date means the period
commencing on such date and ending 47 days thereafter, as such exposure period
may be modified by the Board of the Corporation; provided, however, that the
Corporation shall have received confirmation in writing -from Moody's that any
such modification shall not adversely affect the then-current Moody's rating of
the Preferred Shares.
"Moody's Hedging Transactions" means options on securities, futures
contracts based on the Municipal Index or Treasury Bonds and options on such
futures contracts.
"Moody's Volatility Factor" means 272% (or 302% where notice of a Special
Dividend Period of greater than 28 days but less than 50 days has been given but
not yet exercised) as long as there has been no increase enacted to the Marginal
Tax Rate. If such an increase is enacted but not yet implemented, the Moody's
Volatility Factor shall be as follows:
Moody's Moody's
% Change in Marginal Volatility Volatility
Tax Rate Factor Factor*
Less than or equal to 5%............... 292% 232%
Greater than 5% but less than 10%...... 313% 347%
Greater than 10% but less than 15%..... 338% 373%
Greater than 15% but less than 20%..... 364% 402%
Greater than 20% but less than 25%..... 396% 436%
Greater than 25% but less than 30%..... 432% 474%
Greater than 30% but less than 35%..... 472% 518%
Greater than 35% but less than 40%..... 520% 570%
___________________
* Applicable where a notice of Special Dividend Period greater than 28 days
but less than 50 days has been given but not yet exercised.
"Municipal Index" means The Bond Buyer Municipal Bond Index.
"Municipal Obligations" means "Municipal Obligations" as defined in the
Corporation's Registration Statement on Form N-2 (File Nos. 33-60636 and
811-7420) on file with the Securities and Exchange Commission, as such
Registration Statement may be amended from time to time.
"1940 Act" means the Investment Company Act of 1940, as amended from time
to time.
"1940 Act Asset Coverage" means asset coverage (determined in accordance
with Section 18 of the 1940 Act) of at least 200% with respect to senior
securities which are stock, including the Preferred Shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are stock of a closed-end
investment company as a condition of paying dividends on its common stock).
"1940 Act Cure Date" means the last Business Day of the calendar month
following the failure by the Corporation to maintain the 1940 Act Asset Coverage
as of the last Business Day of any calendar month in which any Preferred Shares
are Outstanding.
"Non-Call Period" has the meaning described in "Specific Redemption
Provisions," below. "Non-Payment Period" has the meaning set forth in Part I,
Section 3(g) of this Statement. "Non-Payment Period Rate" has the meaning set
forth in Part I, Section 3(g) of this Statement "Notice of Redemption" has the
meaning set forth in Part I, Section 4(d) of this Statement.
"Optional Redemption Price," with respect to any series of Preferred
Shares, shall mean (a) $50,000 per Preferred Share of such series in the case of
a seven-day Dividend Period, a 28-day Dividend Period or a Special Dividend
Period of less than 365 days applicable to such series, or (b) with respect to a
Special Dividend Period applicable to such series of 365 days or more, the
redemption price set forth in the Specific Redemption Provisions in connection
therewith; in each case plus an amount equal to accumulated but unpaid dividends
thereon to the date of redemption (whether or not earned or declared).
"Outstanding," with respect to any series of Preferred Shares, shall mean,
as of "any date, Preferred Shares of such series theretofore issued by the
Corporation except, without duplication, (a) any of the Preferred Shares of such
series theretofore canceled or redeemed by the Corporation, or with respect to
which the Corporation has given notice of redemption and irrevocably deposited
with the Paying Agent sufficient funds to redeem such Preferred Shares, (b) any
Preferred Shares of such series as to which the Corporation or any affiliate
thereof is a Holder, and (c) any Preferred Shares of such series represented by
any certificate in lieu of which a new certificate has been executed and
delivered by the Corporation; provided, however, that for so long as Moody's is
rating the Preferred Shares, any Preferred Shares as to which any affiliate of
the Corporation is a Holder shall be considered Outstanding for purposes of
determining the Preferred Share Basic Maintenance Amount.
"Paying Agent" means Bankers Trust Company, or any successor company or
entity, which has entered into a Paying Agent Agreement with the Corporation to
act, among other things, as the transfer agent, registrar, dividend and
redemption price disbursing agent, settlement agent and agent for certain
notifications for the Corporation in connection with the Preferred Shares in
accordance with such agreement.
"Paying Agent Agreement" means an agreement to be entered into between the
Corporation and the Paying Agent.
"Preferred Share Basic Maintenance Amount" as of any Valuation Date means
the dollar amount equal to (a) the sum of (i) the product of the number of
Preferred Shares Outstanding on such date multiplied by $50,000, (ii) the
aggregate amount of dividends (whether or not earned or declared) that will have
accumulated to (but not including) the next Dividend Payment Date that follows
such Valuation Date or a date 47 days after such Valuation Date, whichever is
sooner, at the Applicable Dividend Rate, (iii) the amount equal to the Projected
Dividend Amount (based upon the number of Preferred Shares Outstanding on such
date); (iv) the amount of anticipated Corporation expenses for the 90 days
subsequent to such Valuation Date, (v) the premium, if any, resulting from the
designation of a Premium Call Period, (vi) the amount of the Corporation's
Maximum Potential Additional Dividend Liability as of such Valuation Date, and
(vii) any current liabilities as of such Valuation Date, including but not
limited to liabilities relating to the payment of the redemption price for
Preferred Shares for which the Corporation has given notice of redemption, to
the extent not reflected in any of (a)(i) through (a)(vi) (including, without
limitation, any amounts described below as required to be treated as liabilities
in connection with the Corporation's transactions in futures and options and
including payables for Municipal Obligations purchased as of such Valuation
Date); less (b) either (1) the face value of any Corporation assets irrevocably
deposited by the Corporation for the payment of any of (a)(i) through (a)(vii)
if, with respect to any such liability, such assets mature by the payment date
for such liability or by a date 47 days after such Valuation Date, whichever is
sooner, and are either securities issued or guaranteed by the United States
Government or have a rating assigned by Moody's of P-1, VMIG1 or MIG-1 (or, with
respect to S&P, SP-1+ or A-1+) or (2) the Discounted Value of such assets.
For purposes of the Preferred Share Basic Maintenance Amount in connection
with S&P's rating of the Preferred Shares, with respect to any transactions by
the Corporation in futures contracts, the Corporation shall include as
liabilities (a) 30% of the aggregate settlement value, as marked to market, of
any outstanding futures contracts based on the Municipal Index which are owned
by the Corporation plus (b) 25% of the aggregate settlement value, as marked to
market, of any outstanding futures contracts based on Treasury Bonds which
contracts are owned by the Corporation.
For purposes of the Preferred Share Basic Maintenance Amount in connection
with Moody's rating of the Preferred Shares, with respect to any transactions by
the Corporation in futures contracts, options on futures contracts and
securities options, the Corporation shall include as liabilities (a) 10% of the
exercise price of a call option written by the Corporation and (b) the exercise
price of any written put option.
"Preferred Share Basic Maintenance Cure Date" means the third Business Day
after a failure by the Corporation to have Eligible Assets with an aggregate
Discounted Value at least equal to the Preferred Share Basic Maintenance Amount
on any Valuation Date.
"Preferred Share Provisions" means the rights and preferences of the
Preferred Shares established by this Statement establishing the Preferred
Shares.
"Premium Call Period" has the meaning described in "Specific Redemption
Provisions," below.
"Pricing Service" means Kenny Information Systems Inc. or such other
pricing service as may be designated from time to time by the Board of
Directors, provided that, for so long as Preferred Shares are rated by Moody's
and S&P, no pricing service shall be so designated without the prior consent of
Moody's and S&P.
"Projected Dividend Amount" means, with respect to the Preferred Shares, on
any Valuation Date the aggregate amount of dividends that would accumulate
during the period beginning on the next Dividend Payment Date that follows such
Valuation Date and ending on a date 47 days after such Valuation Date at a
dividend rate equal to the Maximum Dividend Rate for a Dividend Period of 28
days or less (or at the Non-Payment Period Rate if such calculation is made
during a Non-Payment Period) multiplied by the larger of the Moody's Volatility
Factor or the S&P Volatility Factor determined from time to time by Moody's and
S&P, respectively.
A "record holder" of Preferred Shares shall mean the Securities Depository
or its nominee or such other person or persons listed in the stock transfer
books of the Corporation as the registered holder of one or more Preferred
Shares.
"Reference Rate" means (a) with respect to any Dividend Period of less than
one year, the higher of the applicable AA Composite Commercial Paper Rate and
the Taxable Equivalent of the Short-Term Municipal Bond Rate, and (b) with
respect to any Special Dividend Period of one year or longer, the Treasury Rate.
"Remarketing" means each periodic operation of the process for remarketing
each series of Preferred Shares, as described in Part II of this Statement.
"Remarketing Agent" means Smith Barney, Harris Upham & Co. Incorporated and
any additional or successor companies or entities which have entered into an
agreement with the Corporation to follow the remarketing procedures for the
purposes of determining the Applicable Dividend Rate.
"Remarketing Agreement" means the agreement entered into between the
Corporation and the Remarketing Agent which provides, among other things, that
the Remarketing Agent will follow certain procedures for remarketing each series
of Preferred Shares on behalf of the Holders as provided in the Preferred Share
Provisions for the purpose of determining the Applicable Dividend Rate that will
enable the Remarketing Agent to remarket Preferred Shares of such series
tendered to it at $50,000 per share for the next applicable Dividend Period.
"Remarketing Date," with respect to any series of Preferred Shares, means
the last Business Day of a Dividend Period for such series.
"Retroactive Taxable Allocation" has the meaning set forth in Part I,
Section 3(i) of this Statement.
"S&P" means Standard & Poor's Corporation, a New York corporation, and its
successors.
"S&P Discount Factor" means, for purposes of calculating the Discounted
Value of any S&P Eligible Asset, the percentage determined by reference to the
rating on such asset and the shortest S&P Exposure Period set forth opposite
such rating that is the same length as or is longer than the S&P Exposure Period
on the date of such determination, in accordance with the table set forth below:
S&P Discount Factors
Rating Category
Exposure Period AAA AA A BBB
40 Business Days....... 205% 210% 225% 265%
22 Business Days....... 185 190 205 245
10 Business Days....... 170 175 190 230
7 Business Days........ 165 170 185 225
3 Business Days........ 145 150 165 205
Notwithstanding the foregoing, (a) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, provided such Municipal Obligations must be
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable in 30
days or less, or 125% if such Municipal Obligations are not rated by S&P but are
rated VMIG-1, P-1 or MIG-1 by Moody's and mature or have a demand feature
exercisable in 30 days or less; provided, however, that any such Moody's-rated
short-term Municipal Obligations which have demand features exercisable within
30 days or less must be backed by a letter of credit, liquidity facility or
guarantee from a bank or other financial institution and such bank or
institution must have a short-term rating of at least A-1+ from S&P ; and further
provided that such Moody's-rated short-term Municipal Obligations may comprise
no more than 50% of short-term Municipal Obligations that qualify as S&P
Eligible Assets, and (b) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold. For purposes of the foregoing,
Anticipation Notes rated SP-1+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by
Moody's, which do not mature or have a demand feature at par exercisable in 30
days and which do not have a long-term rating, shall be considered to be
short-term Municipal Obligations. "Receivables for Municipal Obligations Sold,"
for purposes of calculating S&P Eligible Assets as of any Valuation Date, means
the book value of receivables for Municipal Obligations sold as of or prior to
such Valuation Date if such receivables are due within five business days of
such Valuation Date.
"S&P Eligible Assets" means cash (excluding any cash irrevocably deposited
by the Corporation for the payment of any liabilities within the meaning of
Preferred Share Basic Maintenance Amount), Receivables for Municipal Obligations
Sold (as defined above under "S&P Discount Factor") or a Municipal Obligation
that is: (a) issued by any of the 50 states, U.S. territories, and their
subdivisions, counties, cities, towns, villages, school districts, and agencies,
such as authorities and special districts created by the states and certain
federally sponsored agencies such as local housing authorities (payments made on
Municipal Obligations are exempt from federal income tax and are generally
exempt from state and local taxes in the state of issuance); (b) interest
bearing and pays interest at least semi-annually; (c) payable in U.S. dollars;
(d) publicly rated BBB or higher by S&P or, if not rated by S&P but rated by
Moody's, rated at least A by Moody's; provided that such Moody's-rated Municipal
Obligations will be included in S&P Eligible Assets only to the extent the fair
market value of such Municipal Obligations does not exceed 50% of the aggregate
fair market value of the S&P Eligible Assets (for purposes of determining the
S&P Discount Factors applicable to such Moody's-rated Municipal Obligations, any
such Municipal Obligations will be deemed to have an S&P rating which is one
full rating category lower than its Moody's rating); (e) not a private
placement; (f) part of an issue with an original issue size of at least $10
million or, if of an issue with an original issue size below $10 million but in
no event lower than $5 million, be issued by an issuer with a total of at least
$50 million of issues outstanding; and (g) owned by the Corporation.
Notwithstanding the foregoing:
(a) Municipal Obligations of any one issuer or guarantor (excluding
bond insurers) will be considered S&P Eligible Assets only to the extent
the fair market value of such Municipal Obligations does not exceed 10% of
the aggregate fair market value of the S&P Eligible Assets, provided that
2% is added to the applicable S&P Discount Factor for every 1% by which the
fair market value of such Municipal Obligations exceeds 5% of the aggregate
fair market value of the S&P Eligible Assets.
(b) Municipal Obligations guaranteed or insured by any one bond
insurer will be considered S&P Eligible Assets only to the extent the fair
market value of such Municipal Obligations does not exceed 25% of the
aggregate fair market value of the S&P Eligible Assets.
(c) Municipal Obligations of any one issue type category will be
considered S&P Eligible Assets only to the extent the fair market value of
such Municipal Obligations does not exceed 20% of the aggregate fair market
value of S&P Eligible Assets. For purposes of this requirement, Municipal
Obligations will be classified into one of the following categories: health
care issues, housing issues, educational facilities issues, student loan
issues, transportation issues, industrial development bond issues, public
power utilities issues, water and sewer utilities issues, special utilities
issues, general obligation issues, lease obligations, escrowed bonds and
other issues not falling within one of the aforementioned categories.
Furthermore, special utilities issues that are not rated by S&P will
not be considered S&P Eligible Assets.
(d) Non-Minnesota Municipal Obligations will be considered S&P
Eligible Assets only to the extent the fair market value of such Municipal
Obligations does not exceed 20% of the aggregate fair market value of S&P
Eligible Assets.
"S&P Exposure Period" on a given Valuation Date means the period commencing
on such date and ending three Business Days thereafter, as such exposure period
may be modified by the Board of Directors of the Corporation; provided, however,
that any such modification shall not adversely affect the then-current S&P
rating of the Preferred Shares.
"S&P Hedging Transaction" means a purchase or sale position with respect to
futures contracts based on the Municipal Index or Treasury Bonds, a purchase of
a put or call option on such contracts, or the sale of a covered call option or
a secured put option on such contracts or on Municipal Obligations.
"S&P Volatility Factor" means for each series of Preferred Shares, (a)
during the Initial Dividend Period, 277% for Series A and 217% for Series B, and
(b) thereafter, depending upon the applicable Reference Rate, the following
percentages:
Rate Percentage
Taxable Equivalent of the Short-Term Municipal Bond Rate........... 277%
30-day "AA" Composite Commercial Paper Rate........................ 228%
60-day "AA" Composite Commercial Paper Rate........................ 228%
Average of 60-day and 90-day "AA" Composite Commercial Paper Rate.. 228%
90-day "AA" Composite Commercial Paper Rate........................ 222%
180-day "AA" Composite Commercial Paper Rate....................... 217%
1-year U.S. Treasury Bill Rate..................................... 198%
2-year U.S. Treasury Note Rate..................................... 185%
3-year U.S. Treasury Note Rate..................................... 178%
4-year U.S. Treasury Note Rate..................................... 171%
5-year U.S. Treasury Note Rate..................................... 169%
Notwithstanding the foregoing, the S&P Volatility Factor may mean such other
potential dividend rate increase factor as S&P advises the Corporation in
writing is applicable.
"Securities Depository" means DTC or any successor company or other entity
selected by the Corporation as securities depository for the Preferred Shares
that agrees to follow the procedures required to be followed by such securities
depository in connection with the Preferred Shares.
"Settlement Date" means the first Business Day after a Remarketing Date.
"Seven-day Dividend Period," with respect to any series of Preferred
Shares, means (a) any Dividend Period commencing after a failed Remarketing for
such series, or (b) any Dividend Period commencing after the first day of, and
during, a Non-Payment Period with respect to such series and, in all such cases,
generally containing seven days.
"Special Dividend Period," with respect to any series of Preferred Shares,
means a Dividend Period established by the Board of Directors for the Preferred
Shares of such series as described in Part 1, Section 3(d) of this Statement.
"Specific Redemption Provisions" means, with respect to any Special
Dividend Period of 365 or more days, either, or any combination of, (a) a period
(a "Non-Call Period") determined by the Board of Directors, after consultation
with the Remarketing Agent, during which the shares subject to such Special
Dividend Period are not subject to redemption at the option of the Corporation,
and (b) a period (a "Premium Call Period") consisting of a number of whole years
and determined by the Board of Directors, after consultation with the
Remarketing Agent, during each year of which the shares subject to such Special
Dividend Period shall be redeemable at the Corporation's option at a price per
share equal to $50,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $50,000 as determined by the Board of Directors,
after consultation with the Remarketing Agent.
"Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations selected by the Corporation to act
as the substitute rating agency or substitute rating agencies, as the case may
be, to determine the credit ratings of the Preferred Shares.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (a) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index or any successor
index (the "Kenny Index"), made available for the Business Day immediately
preceding such date but in any event not later than 8:30 a.m., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code or successor provisions, for purposes of the
"alternative minimum tax," divided by (b) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 a.m., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (i) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (ii) 1.00-minus the
Marginal Tax Rate (expressed as a decimal). For so long as Preferred Shares are
rated by Moody's and/or S&P, the Corporation will not use a successor index to
the Kenny S&P 30-day High Grade Index unless it receives confirmation in writing
from Moody's and/or S&P, as the case may be, that the use of such successor
index would not impair the then current rating of the Preferred Shares.
"Tender and Dividend Reset" means the process pursuant to which Preferred
Shares may be tendered in a Remarketing or held and become subject to the new
Applicable Dividend Rate determined by the Remarketing Agent in such
Remarketing.
"Treasury Bonds" means United States Treasury Bonds backed by the full
faith and credit of the United States government with remaining maturities of
ten years or more.
"Treasury Rate," on any date for any Dividend Period, means:
(a) the yield on the most recently auctioned non-callable direct
obligations of the U.S. Government (excluding "flower" bonds) with a
remaining maturity within three months of the duration of such Dividend
Period, as quoted in The Wall Street Journal on such date for the Business
Day next preceding such date; or
(b) in the event that any such rate is not published by The Wall
Street Journal, then the arithmetic average of the yields (expressed as an
interest equivalent in the case of a Dividend Period which is one year or
less and expressed as a bond equivalent in the case of any longer Dividend
Period) on the most recently auctioned non-callable direct obligations of
the U.S. Government (excluding "flower" bonds) with a remaining maturity
within three months of the duration of such Dividend Period as quoted on a
discount basis or otherwise by the U.S. Government Securities Dealers to
the Remarketing Agent for the close of business on the Business Day
immediately preceding such date.
If any U.S. Government Securities Dealer does not quote a rate required to
determine the Treasury Rate, the Treasury Rate shall be determined on the basis
of the quotation or quotations furnished by the remaining U.S. Government
Securities Dealer or U.S. Government Securities Dealers and any Substitute U.S.
Government Securities Dealers selected by the Corporation to provide such rate
or rates not being supplied by any U.S. Government Securities Dealer or U.S.
Government Securities Dealers, as the case may be, or, if the Corporation does
not select any such Substitute U.S. Government Securities Dealer or U.S.
Government Securities Dealers, by the remaining U. S. Government Securities
Dealer or U.S. Government Securities Dealers. As used herein, "U.S. Government
Securities Dealer" means Smith Barney, Harris Upham & Co. Incorporated and
Morgan Guaranty Trust Company of New York or their respective affiliates or
successors, if such entity is a U.S. Government securities dealer. As used
herein, "Substitute U.S. Government Securities Dealer" shall mean The First
Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated or
their respective affiliates or successors, if such entity is a U.S. Government
securities dealer, provided that none of such entities shall be a U.S.
Government Securities Dealer.
"28-day Dividend Period" means the Dividend Period generally applicable to
each series of Preferred Shares and generally contains 28 days.
"Valuation Date" means every Business Day, beginning with the Date of
Original Issue.
"Variation Margin" means, in connection with outstanding purchase or sale
positions in futures contracts and outstanding sales positions with respect to
options thereon by the Corporation, the amount of cash or securities paid to and
received from a futures commission merchant (subsequent to the Initial Margin
payment) from time to time as the value of such position fluctuates.
2. Number of Shares; Ranking
(a) There are 600 authorized shares constituting the Series A Preferred
Shares and 600 authorized shares constituting the Series B Preferred Shares. No
fractional Preferred Shares shall be issued.
(b) Any Preferred Shares which at any time hereafter have been redeemed,
exchanged, or otherwise acquired by the Corporation shall return to the status
of authorized and unissued preferred shares of the Corporation without
designation as to series. Upon the redemption, exchange, or other acquisition by
the Corporation of all outstanding Preferred Shares, all provisions of this
Statement shall cease to be of further effect and shall cease to be a part of
the Articles. Upon the occurrence of such events, the Board of Directors shall
have the power, pursuant to Minnesota Statutes Section 302A.135, Subdivision 5
or any successor provision and without shareholder action, to cause restated
articles of incorporation of the Corporation to be prepared and filed with the
Secretary of State of the State of Minnesota which reflect the removal of this
Statement and of all other provisions of the Articles, if any, relating to the
Preferred Shares.
(c) The Preferred Shares of each series shall rank on a parity with shares
of any other series of preferred stock of the Corporation as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Corporation.
3. Dividends
(a) Holders of Preferred Shares of any series will be entitled to receive,
when, as and if declared by the Corporation, out of funds legally available
therefor, cumulative cash dividends, at the rates per annum set forth in this
Statement under "Designation" for the Initial Dividend Period and, in the case
of any other Dividend Period, at the Applicable Dividend Rate for the applicable
Dividend period and no more (except as otherwise provided below in Section 3(i)
of this Statement), payable on the respective dates set forth below and, except
as described below, set by the Remarketing Agent in accordance with the
remarketing procedures described in Part II of this Statement.
(b) Initial Dividend Payment Date and Dividend Period. The Initial Dividend
Period for Preferred Shares will commence on their Date of Original Issue and
end on June 3, 1993 for Series A Preferred Shares and June 15, 1993 for Series B
Preferred Shares. Dividends for the Initial Dividend Period will be paid, when,
as and if declared, out of funds legally available therefor, (i) for Series A
Preferred Shares, on June 4, 1993, and (ii) for Series B Preferred Shares, on
June 16, 1993, in each case to the Securities Depository or such other record
holder as of the Business Day preceding the date of such payment. Dividends for
each Dividend Period thereafter will be payable, when, as and if declared, on
each Dividend Payment Date, subject to certain exceptions.
(c) Subsequent Dividend Periods.
(i) After the Initial Dividend Period for each Preferred Share, a
Dividend Period therefor will commence on each Dividend Payment Date with
respect to such share (which, except during a Non-Payment Period, will be a
Settlement Date). Each subsequent Dividend Period for any series of
Preferred Shares, with the exception of Seven-day Dividend Periods, will
comprise, beginning with and including the date on which it commences, 28
consecutive days or, in the event the Board of Directors has designated
such Dividend Period as a Special Dividend Period, such number of
consecutive days or whole years as shall be designated by the Board of
Directors. Notwithstanding the foregoing, any adjustment of the remarketing
schedule by the Remarketing Agent which includes an adjustment of a
Settlement Date will lengthen or shorten Dividend Periods by causing them
always to end on and include the day before the Settlement Date as so
adjusted.
(ii) With respect to each series of Preferred Shares, except during a
Non-Payment Period for such series, by 12:00 noon, New York City time, on
the Remarketing Date in each applicable Remarketing, the Holder of a
Preferred Share of such series may elect to tender such share or to hold
such share for the next applicable Dividend Period. If the holder of such
share fails to tender such share on such Remarketing Date, such Holder will
continue to hold such share at the Applicable Dividend Rate determined in
such Remarketing for the next Dividend Period for such series; provided
that, if there is no Remarketing Agent, the Remarketing Agent is not
required to conduct a Remarketing or the Remarketing Agent is unable to
remarket in the Remarketing following such Remarketing Date all shares of
such series tendered to it at a price of $50,000 per share, then the next
Dividend Period for such share and for all other shares of such series will
be a Seven-day Dividend Period and the Applicable Dividend Rate therefor
will be the Maximum Dividend Rate for a Seven-day Dividend Period. If a
Preferred Share is tendered (or deemed tendered) but not sold in a
Remarketing, the Holder of such share will hold such share for a Seven-day
Dividend Period at the Maximum Dividend Rate therefor.
(d) Special Dividend Periods. The Board of Directors may at any time
designate a subsequent Dividend Period with respect to any series of Preferred
Shares on the Remarketing Date for such series next preceding the commencement
of such Dividend Period as a Special Dividend Period with such number of days or
whole years (subject to adjustment as described above) as the Board of Directors
shall specify; provided that (i) written notice of any such designation, of the
Maximum Dividend Rate, if applicable, and Specific Redemption Provisions, if
applicable, in respect thereof and of the consequences of failure to tender, or
to elect to hold, shares must be given at least seven days prior to such
Remarketing Date to the Remarketing Agent, the Paying Agent, the Securities
Depository and the Holders of Preferred Shares which are to be subject to such
Special Dividend Period; (ii) no Special Dividend Period for a series of
Preferred Shares may commence during a Non-Payment Period with respect to such
series; and (iii) in respect of any Special Dividend Period of 365 or more days,
the Board of Directors, after consultation with the Remarketing Agent, may
establish Specific Redemption Provisions; provided further that prior to such
designation, the Corporation shall provide a Certificate of Preferred Share
Basic Maintenance Amount showing, as of the third Business Day next preceding
such proposed Special Dividend Period, (x) Moody's Eligible Assets, assuming for
the purposes of calculating Moody's Eligible Assets, in connection with a
Certificate of Preferred Share Basic Maintenance Amount required to be prepared
pursuant to this proviso, a Moody's Exposure Period of "eight weeks or less but
greater than seven weeks" (if Moody's is then rating the Preferred Shares) and
(y) S&P Eligible Assets (if S&P is then rating the Preferred Shares), each with
a Discounted Value at least equal to the Preferred Share Basic Maintenance
Amount as of such Business Day (assuming for purposes of the foregoing
calculation that the Maximum Dividend Rate is the Maximum Dividend Rate on such
Business Day as if such Business Day were the last Business Day prior to the
proposed Special Dividend Period). If for any reason, subsequent to giving
notice of the designation of a Special Dividend Period with respect to a series
of Preferred Shares, the Board of Directors determines to rescind such
designation, written notice of such determination shall be given to the
Remarketing Agent, the Paying Agent, the Securities Depository and the Holders
of Preferred Shares which were to be subject to such Special Dividend Period, at
least two Business Days prior to such previously proposed Special Dividend
Period, and the next succeeding Dividend Period of such series of Preferred
Shares shall be a 28-day Dividend Period. The existence or rescission of any
Special Dividend Period with respect to a series of Preferred Shares will not
affect the current Dividend Period for such series or prevent the Board of
Directors from establishing other Special Dividend Periods of similar duration
or in any way restrict the Maximum Dividend Rate or Specific Redemption
Provisions which may be designated in connection with any other Special Dividend
Period. The Board of Directors will not change the frequency of the Valuation
Dates unless it receives confirmation in writing from each of S&P and Moody's
that such change would not so impair the then current rating of the Preferred
Shares.
(e) Dividend Payment Dates. Dividends on each Preferred Share of a series
will accumulate from its Date of Original Issue and will be payable, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, on the applicable Dividend Payment Dates to the Securities Depository
(or such other record holder) as of the Business Day preceding the applicable
Dividend Payment Date. The Dividend Payment Dates will be: (i) with respect to a
Special Dividend Period of more than 28 days, the first Business Day of each
calendar month after the designation of such Special Dividend Period and the day
after the last business day thereof; and (ii) with respect to any other Dividend
Period, the day after the last day thereof; provided that, if any such day is
not a Business Day, the ,Dividend Payment Date will be the first Business Day
after such day.
(f) Dividend Payments.
(i) So long as there is a Securities Depository with respect to the
Preferred Shares, each dividend on such shares will be paid to the
Securities Depository or its nominee as the record holder of all shares.
The Securities Depository will credit the accounts of the Agent Members of
the beneficial owners of Preferred Shares in accordance with the Securities
Depository's normal procedures. Each Agent Member will be responsible for
holding or disbursing such payments to the Holders of the Preferred Shares
for which it is acting in accordance with the instructions of such Holders.
Dividends on any Preferred Share in arrears with respect to any past
Dividend Payment Date may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to the holder thereof as of
a date not exceeding five Business Days preceding the date of payment
thereof as may be fixed by the Board of Directors. Any dividend payment
made on Preferred Shares will be first credited against the dividends
accumulated but unpaid (whether or not earned or declared) with respect to
the earliest Dividend Payment Date on which dividends were not paid.
Holders of Preferred Shares will not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends
thereon. Except for the late charge described in paragraph (g) of this
Section 3, Holders of Preferred Shares will not be entitled to any interest
or other additional amount on any dividend payment on any Preferred Share
which may be in arrears.
(ii) The amount of declared dividends for each Preferred Share of a
series payable on each Dividend Payment Date for such series in respect of
a Seven-day Dividend Period, a 28-day Dividend Period or a Special Dividend
Period of fewer than 365 days will be computed by the Corporation by
multiplying the Applicable Dividend Rate in effect with respect to
dividends payable on such share on such Dividend Payment Date by a fraction
the numerator of which will be the number of days such share was
Outstanding from and including its Date of Original Issue or the preceding
Dividend Payment Date for such share, as the case may be, to and including
the last day of such Dividend Period, and the denominator of which will be
365, and then multiplying the rate so obtained by $50,000, and the amount
of declared dividends for each Preferred Share of a series in respect of a
Special Dividend Period for such series of 365 or more days will be
computed on the basis of a 360-day year of twelve 30-day months.
(g) Non-Payment Period; Late Charge. A Non-Payment Period with respect to
any series of Preferred Shares will commence if the Corporation fails to (i)
declare, prior to 12:00 noon, New York City time, on any Dividend Payment Date
for Preferred Shares of such series, for payment on or within three Business
Days after such Dividend Payment Date to the persons who held such shares as of
12:00 noon, New York City time, on the Business Day preceding such Dividend
Payment Date, the full amount of any dividend on such Preferred Shares payable
on such Dividend Payment Date, or (ii) deposit, irrevocably and in trust, in
same-day funds, with the Paying Agent by 12:00 noon, New York City time, (A) on
or within three Business Days after any Dividend Payment Date for Preferred
Shares of such series the full amount of any dividend on such shares (whether or
not earned or declared) payable on such Dividend Payment Date, or (B) on or
within three Business Days after any redemption date for Preferred Shares of
such series called for redemption, the Mandatory Redemption Price or the
Optional Redemption Price per share. Such Non-Payment Period will consist of the
period commencing on and including the aforementioned Dividend Payment Date or
redemption date, as the case may be, and ending on and including the Business
Day on which, by 12:00 noon, New York City time, all unpaid dividends and unpaid
redemption prices shall have been so deposited or shall have otherwise been made
available to the applicable holders in same-day funds; provided that a
Non-Payment Period will not end during the first seven days thereof unless the
Corporation shall have given at least three days' written notice to the Paying
Agent, the Remarketing Agent and the Securities Depository and thereafter will
not end unless the Corporation shall have given at least fourteen days' written
notice to the Paying Agent, the Remarketing Agent, the Securities Depository and
all Holders of Preferred Shares of such series. The Applicable Dividend Rate for
any series of Preferred Shares for each Dividend Period commencing during a
Non-Payment Period with respect to such series will be equal to the Non-Payment
Period Rate; any share for which a Special Dividend Period would otherwise have
commenced on the first day of a Non-Payment Period will have, instead, a
Seven-day Dividend Period; and each Dividend Period for Preferred Shares of such
series commencing after the first day of, and during, a Non-Payment Period shall
be a Seven-day Dividend Period. Any dividend on Preferred Shares of any series
due on any Dividend Payment Date for such shares (if, prior to 12:00 noon, New
York City time, on such Dividend Payment Date, the Corporation has declared such
dividend payable on or within three Business Days after such Dividend Payment
Date to the persons who held such shares as of 12:00 noon, New York City time,
on the Business Day preceding such Dividend Payment Date) or redemption price
with respect to such shares not paid to such persons when due (if such
non-payment is not solely due to the willful failure of the Corporation) but
paid to such persons in the same form of funds by 12:00 noon, New York City
time, on any of the first three Business Days after such Dividend Payment Date
or due date, as the case may be, will incur a late charge to be paid therewith
to such persons and calculated for such period of non-payment at the Non-Payment
Period Rate applied to the amount of such non-payment based on the actual number
of days comprising such period divided by 365. For the purposes of the
foregoing, payment to a person in same-day funds on any Business Day at any time
will be considered equivalent to payment to that person in New York Clearing
House (next-day) funds at the same time on the preceding Business Day, and any
payment made after 12.00 noon, New York City time, on any Business Day shall be
considered to have been made instead in the same form of funds and to the same
person before 12:00 noon, New York City time, on the next Business Day. The
Non-Payment Period Rate for any series of Preferred Shares will be 250% (300% at
any time the Corporation has notified the Remarketing Agent of its intent to
allocate income that is taxable for federal income tax purposes to the Preferred
Shares of such series prior to any Remarketing with respect to such shares) of
the Reference Rate.
(h) Restrictions on Dividends and Other Payments.
(i) Under the 1940 Act, the Corporation may not declare dividends
(except a dividend payable in shares of Common Stock) or make other
distributions on shares of Common Stock or purchase any such shares if, at
the time of the declaration, distribution or purchase, as applicable (and
after giving effect thereto), asset coverage (as defined in the 1940 Act)
with respect to the outstanding Preferred Shares would be less than 200%
(or such other percentage as may in the future be required by law).
(ii) In addition, for so long as any Preferred Shares are Outstanding,
(A) the Corporation will not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid
in shares of, or options, warrants or rights to subscribe for or purchase,
Common Stock or other capital stock, if any, ranking junior to Preferred
Shares as to dividends and upon liquidation) in respect of Common Stock or
any other capital stock of the Corporation ranking junior to or on a parity
with Preferred Shares as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any
shares of Common Stock or any other such junior capital stock (except by
conversion into or exchange for shares of the Corporation ranking junior to
Preferred Shares as to dividends and upon liquidation) or any such parity
capital stock (except by conversion into or exchange for shares of the
Corporation ranking junior to or on a parity with Preferred Shares as to
dividends and upon liquidation), unless (1) full cumulative dividends on
Preferred Shares through the most recently ended Dividend Period (or, if
such transaction is on a Dividend Payment Date, through the Dividend Period
ending on the day prior to such Dividend Payment Date) shall have been paid
or shall have been declared and sufficient funds for the payment thereof
deposited with the Paying Agent, and (2) the Corporation has redeemed the
full number of Preferred Shares required to be redeemed by any provision
for mandatory redemption contained in the Articles, and (B) the Corporation
will not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Stock or
other capital stock, if any, ranking junior to Preferred Shares as to
dividends and upon liquidation) in respect of Common Stock or any other
capital stock of the Corporation ranking junior to or on a parity with
Preferred Shares as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any
shares of Common Stock or any other such junior capital stock (except by
conversion into or exchange for stock of the Corporation ranking junior to
Preferred Shares as to dividends or upon liquidation) or any such parity
capital stock (except by conversion into or exchange for shares of the
Corporation ranking junior to or on a parity with Preferred Shares as to
dividends and upon liquidation), unless immediately after such transaction
the aggregate Discounted Value of the Corporation's Eligible Assets would
at least equal the Preferred Share Basic Maintenance Amount.
(i) Additional Dividends. If the Corporation allocates any net capital
gains or other income taxable for federal income tax purposes to Preferred
Shares without having given advance notice of such allocation to the Paying
Agent and the Remarketing Agent as provided in Section 2 of Part II (such
allocation being referred to herein as a "Retroactive Taxable Allocation"), the
Corporation shall, within 270 days after the end of the Corporation's taxable
year in which a Retroactive Taxable Allocation is made, provide notice thereof
to the Remarketing Agent, the Paying Agent and to each Holder of such shares
during such taxable year at such Holder's address as the same appears or last
appeared on the stock books of the Corporation. Such Holders of such shares
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends in an amount equal
to the aggregate Additional Dividends with respect to all Retroactive Taxable
Allocations made to such shares during the taxable year in question, such
dividends to be payable by the Corporation to the Paying Agent, for distribution
to such Holders, within 30 days after the notice described above is given to the
Remarketing Agent and the Paying Agent.
4. Redemption
(a) Optional Redemption.
(i) After the Initial Dividend Period, upon giving a Notice of
Redemption, as provided below, the Corporation at its option may redeem
Preferred Shares of any series, in whole or in part, on any scheduled
Dividend Payment Date applicable to the shares of such series called for
redemption, out of funds legally available therefor, at a redemption price
equal to the Optional Redemption Price; provided that no Preferred Share of
a series will be subject to optional redemption during any Non-Call Period
to which such series of Preferred Shares is subject. Additionally, without
the consent of the Remarketing Agent, the Preferred Shares of any series
may not be redeemed in part if after such partial redemption fewer than 100
Preferred Shares of such series remain Outstanding.
(ii) So long as either Moody's or S&P is rating the Preferred Shares,
no Preferred Shares shall be redeemed pursuant to this Section 4(a) unless
(A) on the date on which the Corporation intends to give notice of such
redemption pursuant to paragraph (d) of this Section 4, the Corporation has
available Deposit Securities with maturity or tender dates not later than
the day preceding the applicable redemption date and having a value not
less than the amount (including any applicable premium) due to Holders of
Preferred Shares by reason of the redemption of such shares on such
redemption date, and (B) on the date on which the Corporation intends to
give notice of such redemption and on the redemption date, Moody's Eligible
Assets (if Moody's is then rating the Preferred Shares) and S&P Eligible
Assets (if S&P is then rating the Preferred Shares) each at least equal the
Preferred Share Basic Maintenance Amount, and would at least equal the
Preferred Share Basic Maintenance Amount immediately subsequent to such
redemption if such redemption were to occur on such date.
(b) Mandatory Redemption.
(i) The Corporation will redeem, at a redemption price equal to the
Mandatory Redemption Price, certain of the Outstanding Preferred Shares, if
the Corporation fails to maintain as of each Valuation Date Eligible Assets
having in the aggregate a Discounted Value at least equal to the Preferred
Share Basic Maintenance Amount or as of the last Business Day of any
calendar month fails to maintain the 1940 Act Asset Coverage and such
failure is not cured on or before the Preferred Share Basic Maintenance
Cure Date or the 1940 Act Cure Date (herein respectively referred to as a
"Cure Date"), as the case may be. The number of Preferred Shares to be
redeemed will be equal to the lesser of (A) the minimum number of Preferred
Shares the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the Cure Date, would result in the
satisfaction of the Preferred Share Basic Maintenance Amount or the 1940
Act Asset Coverage, as the case may be, on such Cure Date (provided that,
if there is no such minimum number of shares the redemption of which would
have such result, all Preferred Shares then Outstanding will be redeemed;
and provided further that, if less than 100 Preferred Shares of any series
would remain Outstanding following any partial redemption hereunder, the
Remarketing Agent may direct the Corporation to redeem all of the Preferred
Shares of such series then Outstanding), and (B) the maximum number of
Preferred Shares that can be redeemed out of funds expected to be legally
available therefor.
(ii) The Corporation will effect such a mandatory redemption not
earlier than 20 days and not later than 40 days after such Cure Date,
except that if the Corporation does not have funds legally available for
the redemption of all of the required number of Preferred Shares which are
subject to mandatory redemption or the Corporation otherwise is unable to
effect such redemption on or prior to 40 days after such Cure Date, the
Corporation will redeem those Preferred Shares which it was unable to
redeem on the earliest practicable date on which it is able to effect such
redemption.
(c) Allocation. If fewer than all the outstanding Preferred Shares of any
series are to be redeemed, the number of Preferred Shares of such series to be
so redeemed will be a whole number of shares and will be determined by the Board
of Directors (subject to the provisions described above under subparagraph (b))
and the Corporation will give a Notice of Redemption. Unless certificates
representing shares are held by persons other than the Securities Depository or
its nominee, the Securities Depository, upon receipt of such Notice of
Redemption, shall use its best efforts to determine, by 10:00 a.m., New York
City time, on the second Business Day immediately succeeding the date on which
it receives such Notice of Redemption, by lot the number of Preferred Shares of
such series to be redeemed from the account of each Agent Member (which may
include an Agent Member, including the Remarketing Agent, holding shares for its
own account) and shall immediately notify the Paying Agent of such
determination. The Paying Agent, upon receipt of such notice, will in turn
determine by lot the number of shares to be redeemed from the accounts of the
Holders of the shares whose Agent Members have been selected by the Securities
Depository. In doing so, the Paying Agent may determine that shares will be
redeemed from the accounts of some Holders, which may include the Remarketing
Agent, without shares being redeemed from the accounts of other Holders.
Notwithstanding the foregoing, if any certificates for Preferred Shares are not
held by the Securities Depository or its nominee, the shares to be redeemed will
be selected by the Corporation by lot.
(d) Notice of Redemption.
(i) The Corporation will give 30 days' Notice of Redemption. Such
notice shall be given by telephone or facsimile, to the Securities
Depository (and any other record holder), the Paying Agent and the
Remarketing Agent, and promptly confirmed in writing. In the event the
Corporation obtains appropriate exemptive or no-action relief from the
Commission, the number of days' notice required for a mandatory redemption
may be reduced by the Board of Directors of the Corporation to as few as
two Business Days if Moody's and S&P each has agreed in writing that the
revised notice provision would not adversely affect its then current rating
of the Preferred Shares. The Paying Agent will use its reasonable efforts
to provide telephonic notice to each Holder of Preferred Shares called for
redemption not later than the close of business on the Business Day on
which the Paying Agent determines the shares to be redeemed (as described
above) (or, during a Non-Payment Period with respect to such shares, not
later than the close of business on the Business Day immediately following
the day on which the Paying Agent receives Notice of Redemption from the
Corporation). Such telephonic notice will be confirmed promptly in writing
not later than the close of business on the third Business Day preceding
the redemption date by notice sent by the Paying Agent to each Holder of
record of Preferred Shares called for redemption, the Remarketing Agent and
the Securities Depository.
(ii) Every Notice of Redemption and other redemption notice with
respect to Preferred Shares will state (A) the redemption date, (B) the
number of Preferred Shares to be redeemed, (C) the redemption price, (D)
that dividends on the Preferred Shares to be redeemed will cease to
accumulate as of such redemption date, and (E) the provision of the
Articles pursuant to which such shares are being redeemed. No defect in the
Notice of Redemption or other redemption notice or in the transmittal or
the mailing thereof will affect the validity of the redemption proceedings,
except as required by applicable law.
(iii) Preferred Shares, the Holders of which shall have been given
Notice of Redemption, will not be transferable outside of a Remarketing.
(e) Other Redemption Procedures.
(i) To the extent that any redemption for which Notice of Redemption
has been given is not made by reason of the absence of legally available
funds therefor, such redemption will be made as soon as practicable to the
extent such funds become available. Failure to redeem Preferred Shares will
be deemed to exist at any time after the date specified for redemption in a
Notice of Redemption when the Corporation shall have failed, for any reason
whatsoever, to deposit with the Paying Agent funds with respect to any
shares for which such Notice of Redemption has been given. Notwithstanding
the fact that the Corporation may not have redeemed Preferred Shares for
which a Notice of Redemption has been given, dividends may be declared and
paid on such shares and will include those shares for which Notice of
Redemption has been given.
(ii) Upon the deposit of funds sufficient to redeem Preferred Shares
with the Paying Agent and the giving of Notice of Redemption, all rights of
the Holders of the shares so called for redemption will cease and
terminate, except the right of the Holders thereof to receive the Optional
Redemption Price or the Mandatory Redemption Price, as the case may be, but
without any interest or other additional amount (except for the late charge
described under Part I, Section 3(g) hereof), and such shares will no
longer be deemed Outstanding for any purpose. The Corporation will be
entitled to receive from the Paying Agent, promptly after the date fixed
for redemption, any cash deposited with the Paying Agent in excess of (A)
the aggregate redemption price of the Preferred Shares called for
redemption on such date and (B) all other amounts to which Holders of
Preferred Shares called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption
date will, to the extent permitted by law, be repaid to the Corporation,
after which time the holders of Preferred Shares so called for redemption
will look only to the Corporation for payment of the redemption price and
all other amounts to which they may be entitled. The Corporation will be
entitled to receive, from time to time after the date fixed for redemption,
any interest on the funds so deposited.
(iii) Nothing contained in the Articles limits any legal right of the
Corporation or any affiliate to purchase or otherwise acquire Preferred
Shares of any series outside of a Remarketing at any price, whether higher
or lower than the Optional Redemption Price or Mandatory Redemption Price,
so long as, at the time of any such purchase, there is no arrearage in the
payment of dividends on the Preferred Shares of such series and the
Corporation is in compliance with the 1940 Act Asset Coverage and has
assets with a Discounted Value at least equal, in the aggregate, to the
Preferred Share Basic Maintenance Amount after giving effect to such
purchase or acquisition on the date thereof. Any shares which are
purchased, redeemed or otherwise acquired by the Corporation shall have no
voting rights. If fewer than all the Outstanding Preferred Shares of any
series are redeemed or otherwise acquired by the Corporation, the
Corporation shall give notice of such transaction in accordance with the
procedures agreed upon the Board of Directors. Subject to Section 18 of the
1940 Act and the Preferred Share Provisions, any Preferred Shares redeemed
or otherwise acquired by the Corporation may be reissued by the
Corporation; provided, however, that after giving effect to such reissuance
the Corporation shall have Eligible Assets with an aggregate Discounted
Value at least equal to the Preferred Share Basic Maintenance Amount.
(iv) The Corporation has the right to arrange for others to purchase
from the Holders thereof Preferred Shares which are to be redeemed as
described in paragraph 4(a) above.
(v) The Remarketing Agent may, in its sole discretion, modify the
procedures concerning notification of redemption described above so long as
any such modification does not adversely affect the Holders of the
Preferred Shares.
(vi) In effecting any redemption pursuant to this Section 4, the
Corporation shall use its best efforts to comply with all applicable
procedural conditions precedent to effecting such redemption under the 1940
Act and Minnesota law, but shall effect no redemption except in accordance
with the 1940 Act and Minnesota law.
5. Liquidation
(a) Upon a liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the Holders of Preferred Shares
then Outstanding will be entitled, whether from capital or surplus, before any
assets of the Corporation will be distributed among or paid over to the holders
of the Common Stock or any other class of capital stock of the Corporation
junior to the Preferred Shares as to liquidation payments, to be paid an amount
equal to the liquidation preference with respect to such shares. The liquidation
preference for Preferred Shares is $50,000 per share plus an amount equal to all
accumulated but unpaid dividends thereon (whether or not earned or declared) to
the date of final distribution in same-day funds, together with any payments
required to be made pursuant to Part I, Section 3(i) of this Statement in
connection with liquidation of the Corporation. After any such payment, the
Holders of Preferred Shares will not be entitled to any further participation in
any distribution of assets of the Corporation. If, upon any such liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
shall be insufficient to make such full payments to the Holders of Preferred
Shares and to the holders of any shares of preferred stock with preference
rights of the Corporation ranking as to liquidation, dissolution or winding up,
on a parity with the Preferred Shares, then such assets will be distributed pro
rata among the holders of Preferred Shares and any other such preferred stock.
(b) Neither the consolidation nor the merger of the Corporation with or
into any other entity or entities nor a reorganization of the Corporation alone
nor the sale, lease or transfer by the Corporation of all or substantially all
of its assets shall be deemed to be a dissolution or liquidation of the
Corporation.
6. Voting Rights
(a) Except as otherwise indicated in the Articles and except as otherwise
required by applicable law, Holders of Preferred Shares will have equal voting
rights with holders of shares of Common Stock and any other preferred stock (one
vote per share) and will vote together with holders of shares of Common Stock
and any other preferred stock as a single class.
(b) In connection with the election of the Corporation's Directors, Holders
of shares of preferred stock, including Preferred Shares, voting as a separate
class, shall be entitled to elect two of the Corporation's Directors, and the
remaining Directors will be elected by holders of shares of Common Stock and
shares of preferred stock, including Preferred Shares, voting together as a
single class. In addition, if at any time dividends on outstanding shares of
preferred stock, including Preferred Shares, shall be unpaid in an amount equal
to two full years' dividends thereon, then the number of Directors constituting
the Board of Directors shall automatically be increased by the smallest number
that, when added to the two Directors elected exclusively by the Holders of
shares of preferred stock, including Preferred Shares, as described above, would
constitute a majority of the Board of Directors as so increased by such smallest
number; and at a special meeting of shareholders which will be called and held
as soon as practicable, and at all subsequent meetings at which Directors are to
be elected, the Holders of shares of preferred stock, including Preferred
Shares, voting as a separate class, will be entitled to elect the smallest
number of additional Directors that, together with the two Directors which such
holders will be in any event entitled to elect, constitutes a majority of the
total number of Directors of the Corporation as so increased. The terms of
office of the persons who are Directors at the time of that election will
continue. If the Corporation thereafter shall pay, or declare and set apart for
payment, in full all dividends payable on all Outstanding Preferred Shares for
all past Dividend Periods, the voting rights stated in the preceding sentence
shall cease, and the terms of office of all of the additional Directors elected
by the Holders of Preferred Shares (but not of the Directors with respect to
whose election the holders of Common Stock were entitled to vote or the two
Directors the holders of Preferred Shares have the right to elect in any event)
will terminate automatically. If at any time the holders of any series of
preferred stock other than the Preferred Shares are entitled under the 1940 Act
to elect a majority of the Board of Directors, then Holders of Preferred Shares
will have equal voting rights with holders of shares of such other series (one
vote per share) with respect to the election of the Corporation's Directors.
(c) (i) So long as any Preferred Shares are outstanding, the
Corporation shall not, without the affirmative vote or consent of the
Holders of a majority of the Outstanding Preferred Shares in person or by
proxy, either in writing or at a meeting (voting separately as one class):
(A) authorize, create or issue any class or series of stock ranking prior
to or on a parity with the Preferred Shares with respect to the payment of
dividends or the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Corporation, or increase the authorized
amount of Preferred Shares (except that, notwithstanding the foregoing, but
subject to the provisions of Section 9(a)(iv) of this Part I, the Board of
Directors, without the vote or consent of the Holders of Preferred Shares,
may from time to time authorize and create, and the Corporation may from
time to time issue, classes or series of preferred stock ranking on a
parity with the Preferred Shares with respect to the payment of dividends
and the distribution of assets upon dissolution, liquidation or winding up
of the affairs of the Corporation, subject to continuing compliance by the
Corporation with the 1940 Act Asset Coverage and Preferred Share Basic
Maintenance Amount requirements, provided that the Corporation obtains
written confirmation from Moody's (if Moody's is then rating the Preferred
Shares) and S&P (if S&P is then rating the Preferred Shares) that the
issuance of any such additional class or series would not impair the rating
then assigned by such rating agency or agencies, as the case may be, to the
Preferred Shares; (B) amend, alter or repeal the provisions of the
Articles, including this Statement, whether by merger, consolidation or
otherwise, so as to affect any preference, right or power of such Preferred
Shares or the Holders thereof; provided that the authorization, creation
and issuance of classes or series of stock ranking junior to the Preferred
Shares with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the
Corporation, will not be deemed to affect such preferences, rights or
powers unless such issuance would, at the time thereof, cause the
Corporation not to satisfy the 1940 Act Asset Coverage or the Preferred
Shares Basic Maintenance Amount, or (C) file a voluntary application for
relief under federal bankruptcy law or any similar application under state
law for so long as the Corporation is solvent and does not foresee becoming
insolvent.
(ii) The Board of Directors, without the vote or consent of the
Holders of Preferred Shares, may from time to time amend, alter or repeal
any or all of the rating agency guidelines described herein, and any such
amendment, alteration or repeal will not be deemed to affect the
preferences, rights or powers of Preferred Shares or the Holders thereof,
provided the Board of Directors receives written confirmation from Moody's
and S&P that any such amendment, alteration or repeal would not impair the
ratings then assigned by Moody's or S&P, as the case may be, to Preferred
Shares.
(d) Unless otherwise required by law, the Holders of Preferred Shares shall
not have any relative rights or preferences or other special rights other than
those specifically set forth herein. The Holders of Preferred Shares shall have
no preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the Preferred Shares, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this Section 6.
(e) Unless a higher percentage is specifically provided for in the
Articles, the affirmative vote of the Holders of a majority of the outstanding
Preferred Shares, voting as a separate class, shall be required to approve any
plan of reorganization (as such term is defined in the 1940 Act) adversely
affecting such shares or any action requiring a vote of security holders of the
Corporation under Section 13(a) of the 1940 Act. In the event a vote of Holders
of Preferred Shares is required pursuant to the provisions of Section 13(a) of
the 1940 Act, the Corporation (i) shall, not later than ten Business Days prior
to the date on which such vote is to be taken, notify Moody's and S&P that such
vote is to be taken and the nature of the action with respect to which such vote
is to be taken, and (ii) not later than three Business Days after the date of
such vote, notify Moody's and S&P of the results of such vote.
(f) The affirmative vote of the holders of a majority (unless a higher
percentage vote is required under the Articles) of the outstanding shares of
each series of Preferred Shares, each voting as a separate class, is required
with respect to any matter that materially affects the series in a manner
different from that of other series of classes of the Corporation's capital
stock, including, without limitation, any proposal to do the following: (i)
increase or decrease the aggregate number of authorized shares of the series;
(ii) effect an exchange, reclassification or cancellation of all or part of the
shares of the series; (iii) effect an exchange, or create a right of exchange,
of all or any part of the shares of the series; (iv) change the rights or
preferences of the shares of the series; (v) change the shares of the series,
whether with or without par value, into the same or a different number of
shares, either with or without par value, of the same or another class or
series; (vi) create a new class or series of shares having rights and
preferences prior and superior to the shares of the series, or increase the
rights and preferences or the number of authorized shares of a series having
rights and preferences prior or superior to the shares of the series; or (vii)
cancel or otherwise affect distributions on the shares of the series that have
accrued but have not been declared. The vote of holders of Preferred Shares
described above will in each case be in addition to a separate vote of the
requisite percentage of shares of Common Stock and Preferred Shares necessary to
authorize the action in question.
(g) The foregoing voting provisions will not apply with respect to
Preferred Shares if, at or prior to the time when a vote is required, such
shares shall have been (i) redeemed or (ii) called for redemption and sufficient
funds shall have been deposited in trust to effect such redemption.
7. Asset Maintenance
(a) 1940 Act Asset Coverage. The Corporation will maintain, with respect to
Preferred Shares, as of the last Business Day of each month in which any
Preferred Shares are Outstanding, 1940 Act Asset Coverage.
(b) Preferred Share Basic Maintenance Amount. So long as Preferred Shares
are Outstanding, the Corporation will maintain as of each Valuation Date
Eligible Assets having in the aggregate a Discounted Value at least equal to the
Preferred Share Basic Maintenance Amount.
(c) Minimum Liquidity Level. The Corporation will have, as of each
Valuation Date, Deposit Securities with maturities or tender dates not later
than the day preceding the first respective Dividend Payment Dates
(collectively, "Dividend Coverage Assets") for each Outstanding Preferred Share
of each series that follow such Valuation Date and having a value of not less
than the Dividend Coverage Amount (the "Minimum Liquidity Level"). If, as of
each Valuation Date, the Corporation does not have the required Dividend
Coverage Assets, the Corporation shall, as soon as practicable, adjust its
portfolio in order to meet the Minimum Liquidity Level, but only if S&P is then
rating the Preferred Shares. The "Dividend Coverage Amount," as of any Valuation
Date, means (i) the aggregate amount of dividends that will accumulate on each
Preferred Share to (but not including) the first Dividend Payment Date for such
share that follows such Valuation Date plus any liabilities of the Corporation
that are required to be paid on or prior to the next Dividend Payment Date for
such share, less (ii) the combined value of Deposit Securities irrevocably
deposited for the payment of dividends on Preferred Shares. "Deposit Securities"
means cash, Receivables for Municipal Obligations Sold (as defined above in Part
I, Section 1 under "S&P Discount Factor") which become due before the Dividend
Payment Date, interest with respect to Municipal Obligations which is payable to
the Corporation prior to or on such Dividend Payment Date, and Municipal
Obligations rated at least A-1+ or SP-1+ by S&P,-except that, for purposes of
the requirements regarding Optional Redemption and the definition of
"Outstanding," as set forth in Section 1 of this Part I, such Municipal
Obligations shall be considered "Deposit Securities" only if they are also rated
P-1, MIG-1 or VMIG-1 by Moody's. The definitions of "Deposit Securities,"
"Dividend Coverage Assets" and "Dividend Coverage Amount" may be changed from
time to time by the Corporation without shareholder approval, but only in the
event the Corporation receives written confirmation from S&P that any such
change would not impair the ratings then assigned by S&P to the Preferred
Shares.
8. Compliance Procedures for Asset Maintenance
(a) As of each Valuation Date, the Corporation shall determine in
accordance with the procedures specified herein (i) the Market Value of each
Eligible Asset owned by the Corporation on that date, (ii) the Discounted Value
of each such Eligible Asset using discount factors the ranges of which are set
forth herein, (iii) whether the Corporation has Moody's Eligible Assets and S&P
Eligible Assets with a Discounted Value at least equal, in the aggregate, to the
Preferred Share Basic Maintenance Amount as of that date with respect to
Preferred Shares, (iv) the Dividend Coverage Assets owned by the Corporation on
that date with respect to Preferred Shares of each series, (v) the Dividend
Coverage Amount on that date with respect to Preferred Shares of each series,
(vi) whether the Minimum Liquidity Level is met as of that date, (vii) the value
of the total assets of the Corporation, less all liabilities, (viii) statutory
asset coverage on that date, and (ix) whether the 1940 Act Asset Coverage is met
as of that date. In managing the Corporation's portfolio, the Adviser will not
alter the composition of -the Corporation's portfolio if, in the reasonable
belief of the Adviser, the effect of any such alteration would be to cause the
Corporation to have Eligible Assets with an aggregate Discounted Value, as of
the immediately preceding Valuation Date, less than the Preferred Share Basic
Maintenance Amount as of such Valuation Date; provided, however, that in the
event that, as of the immediately preceding Valuation Date, the aggregate
Discounted Value of the Corporation's Eligible Assets exceeded the Preferred
Share Basic Maintenance Amount by five percent or less, the Adviser will not
alter the composition of the Corporation's portfolio in a manner reasonably
expected to reduce the aggregate Discounted Value of the Corporation's Eligible
Assets unless the Corporation shall have confirmed that, after giving effect to
such alteration, the aggregate Discounted Value of the Corporation's Eligible
Assets would exceed the Preferred Share Basic Maintenance Amount.
(b) If the Corporation does not maintain as of any Valuation Date Moody's
Eligible Assets and S&P Eligible Assets with an aggregate Discounted Value at
least equal to the Preferred Share Basic Maintenance Amount or the Corporation
fails to meet, as of the last Business Day of the month, the 1940 Act Asset
Coverage, then the Corporation shall, by the Preferred Share Basic Maintenance
Cure Date or 1940 Act Cure Date, as the case may be, (i) change the composition
of the portfolio of Municipal Obligations or (ii) purchase Preferred Shares
outside of a Remarketing, or both, so that the Preferred Share Basic Maintenance
Amount with respect to any Preferred Shares and 1940 Act Asset Coverage would be
met on a pro forma basis as of such Cure Date. Any such purchase of Preferred
Shares outside of a Remarketing must be made in compliance with the applicable
requirements of the 1940 Act and the rules and regulations thereunder.
(c) For purposes of determining whether any such asset maintenance test is
met, no Preferred Shares shall be deemed to be Outstanding for purposes of any
computation if, prior to or concurrently with the determination of such asset
maintenance test, (i) the requisite funds for the redemption of any such share
shall have been deposited in trust with the Remarketing Agent for that purpose
and the requisite notice of redemption shall have been given or (ii) any such
share shall have been redeemed, purchased or otherwise acquired by the
Corporation.
(d) Such determinations, as of any date as to which they are made, shall be
set forth in Certificates of Preferred Share Basic Maintenance Amount (which
will include a .determination of items (i) through (iii) in Section 8(a) above),
Minimum Liquidity Level (which will include a determination of items (iv)
through (vi) in Section 8(a) above) and 1940 Act Asset Coverage (which will
include a determination of items (vii) through (ix) in Section 8(a) above), as
the case may be. On or before the third Business Day after a Valuation Date on
which the Corporation fails to meet any asset maintenance test, the Corporation
is required to deliver to the Remarketing Agent, S&P and Moody's the relevant
Certificates of Preferred Share Basic Maintenance Amount, Minimum Liquidity
Level and 1940 Act Asset Coverage, as the case may be.
(e) The Corporation will also deliver Certificates of Preferred Share Basic
Maintenance Amount, Minimum Liquidity Level and 1940 Act Asset Coverage (i) to
the Remarketing Agent, S&P and Moody's as of the Date of Original Issue, any
Cure Date and the last Business Day of each fiscal quarter of the Corporation,
in each case on or before the third Business Day after such day; (ii) to Moody's
or S&P on or before the third Business Day after any day on which the Discounted
Value of Moody's Eligible Assets or S&P Eligible Assets, respectively, is equal
to or less than the Preferred Share Basic Maintenance Amount or does not exceed
the Preferred Share Basic Maintenance Amount by more than 5%; (iii) to Moody's
on or before the third Business Day after the Corporation redeems any shares of
Common Stock; (iv) for the first year after issuance of the Preferred Shares, to
S&P and the Remarketing Agent as of the fifteenth day of each month (or, if such
day is not a Business Day, the next succeeding Business Day) and the last
Business Day of each month, in each case on or before the third Business Day
after such day; and (v) to S&P upon request.
(f) Within ten Business Days after delivery of such report relating to the
last Business Day of each fiscal quarter of the Corporation, commencing June 30,
1993, and within ten Business Days after delivery of such report relating to the
Date of Original Issue and any Cure Date, the Corporation will deliver to the
Remarketing Agent, S&P and Moody's a letter prepared by the Corporation's
independent accountants regarding the accuracy of the calculations made by the
Corporation in its most recent Certificates of Preferred Share Basic Maintenance
Amount, Minimum Liquidity Level and 1940 Act Asset Coverage and in Certificates
of Preferred Share Basic Maintenance Amount, Minimum Liquidity Level and 1940
Act Asset Coverage on a Valuation Date during such quarter selected at random by
such accountants. If any such letter prepared by the Corporation's independent
accountants shows that an error was made in any of the most recent Certificates
of Preferred Share Basic Maintenance Amount, Minimum Liquidity Level and 1940
Act Asset Coverage, the calculation or determination made by the Corporation's
independent accountants will be conclusive and binding on the Corporation and
notice of such discrepancy shall be given in writing to each of Moody's and S&P.
(g) The letter referred to in subsection (f) will confirm (i) the
mathematical accuracy of the calculations reflected in the related Certificates
of Preferred Share Basic Maintenance Amount, Minimum Liquidity Level and 1940
Act Asset Coverage, (ii) that the method used by the Corporation in determining
whether or not the Preferred Share Basic Maintenance Amount, Minimum Liquidity
Level and 1940 Act Asset Coverage are met is in accordance with the applicable
requirements of the Corporation's Preferred Share Provisions, (iii) that the
written price quotations used by the Corporation in such determination conform
to the written quotations obtained by the Corporation in accordance with the
applicable requirements of the Corporation's Preferred Share Provisions, and
(iv) that the assets listed as Eligible Assets and Dividend Coverage Assets in
the Preferred Share Basic Maintenance Amount and Minimum Liquidity Level tests
conform to the description of Eligible Assets and Dividend Coverage Assets, as
the case may be, set forth in the Corporation's Preferred Share Provisions.
(h) The Corporation shall give prompt written notice to S&P and to Moody's
of (i) any material change to the Articles of the Corporation, including the
Preferred Share Provisions, or the by-laws of the Corporation, (ii) any failure
by the Corporation to declare or pay any dividend on the Preferred Shares, (iii)
any issuance of a notice of optional or mandatory redemption of the Preferred
Shares, (iv) the assumption of control of the Board of Directors of the
Corporation by Holders of the Preferred Shares pursuant to Section 6(b) of Part
I of the Preferred Share Provisions, (v) the unavailability of pricing
information with respect to the Municipal Obligations in the Corporation's
portfolio, whether pursuant to a pricing service or through dealer bids, (vi)
any change in any pricing service utilized by the Corporation, (vii) any
Dividend Period in which the Applicable Dividend Rate is greater than or equal
to 95% of the "AA" Composite Commercial Paper Rate, (viii) the designation by
the Board of Directors of any Special Divided Period, (ix) any person's
acquisition, to the knowledge of the Corporation, of beneficial ownership of 5%
or more of any class of the Corporation's voting securities (including the
Preferred Shares), (x) any change in the index used in determining the Reference
Rate, (xi) any tax changes that affect the calculation of the Additional
Dividends, and (xii) any change in the Corporation's Adviser. In addition, the
Corporation shall give prompt written notice to Moody's of (A) any increase in
the Marginal Tax Rate of 40% or more and (B) any increase in the Marginal Tax
Rate such that the Marginal Tax Rate equals or exceeds 50%.
9. Certain Other Restrictions
(a) For so long as any Preferred Shares are Outstanding and Moody's and S&P
are rating such shares, the Corporation will not, unless it has received written
confirmation from Moody's and S&P, as appropriate, that any such action would
not impair the ratings then assigned by Moody's and S&P to Preferred Shares,
engage in any one or more of the following transactions:
(i) borrow money, except that the Corporation may, without obtaining
the written confirmation described above, borrow money for the purpose of
clearing securities transactions if the Preferred Share Basic Maintenance
Amount would continue to be satisfied after giving effect to such
borrowing, provided that so long as any Preferred Shares are rated by
Moody's, such borrowing will not exceed 5% of the value of the total assets
of the Corporation, will be required to be repaid within 60 days and will
not be extendable or renewable.
(ii) engage in any short sales of securities;
(iii) lend securities; or
(iv) issue any class of stock ranking prior to `or on a parity with
the Preferred Shares with respect to paying dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Corporation.
(b) For so long as Preferred Shares are rated by Moody's and such shares
remain Outstanding, the Corporation will not, except as necessary to effect
Closing Transactions, engage in transactions in options on securities, futures
contracts or options on futures contracts, except that, in connection with
Moody's Hedging Transactions, (i) the Corporation may buy call or put option
contracts, (ii) the Corporation may write covered call options, and (iii) the
Corporation may write put options, in each case on securities. For purposes of
valuation of Moody's Eligible Assets, (i) if the Corporation writes a call
option, the underlying asset will be valued as follows: (A) if the option is
exchange-traded and may be offset readily or if the option expires before the
earliest possible redemption date of the Preferred Shares, at the lower of the
Discounted Value of the underlying security and exercise price of the option or
(B) otherwise, it has no value; (ii) if the Corporation writes a put option, the
underlying asset will be valued as follows: the lesser of (A) exercise price and
(B) the Discounted Value of the underlying security; and (iii) call or put
option contracts which the Corporation buys have no value. For so long as
Preferred Shares are rated by Moody's, (i) the Corporation will not engage in
options transactions for leveraging or speculative purposes; (ii) the
Corporation will not write any anticipatory call options pursuant to which the
Corporation hedges the anticipated purchase of an asset prior to completion of
such purchase; (iii) the Corporation will not enter into an option unless, after
giving effect thereto, the Corporation would continue to have Moody's Eligible
Assets with an aggregate Discounted Value equal to or greater than the Preferred
Share Basic Maintenance Amount; (iv) the Corporation will not enter into an
option unless after giving effect to such transaction the Corporation would
continue to be in compliance with Section 7(b) of this Part I; (v) for purposes
of the Preferred Share Basic Maintenance Amount, (A) assets in margin accounts
are not Moody's Eligible Assets, (B) 10% of the settlement price of assets sold
under a futures contract, the settlement price of assets purchased under a
futures contract and the settlement price of an underlying futures contract if
the Corporation writes put options on futures contracts will constitute
liabilities of the Corporation and (C) if the Corporation writes call options on
futures contracts and does not own the underlying futures contract, 105% of the
fair market value of the underlying futures contract will constitute a liability
of the Corporation; (vi) the Corporation shall write only exchange-traded
options on exchanges approved by Moody's; (vii) where delivery may be made to
the Corporation with any of a class of securities, the Corporation shall assume
for purposes of the Preferred Share Basic Maintenance Amount that it takes
delivery of that security which yields it the least value; (viii) the
Corporation will not engage in forward contracts; (ix) the Corporation will
enter into future contracts as sellers only if it owns the underlying
securities; and (x) there shall be a quarterly audit made of the Corporation's
futures and options transactions by the Corporation's independent accountants to
confirm that the Corporation is in compliance with these standards. The
foregoing restrictions on options and futures transactions may be modified if
the Corporation receives written confirmation from Moody's that the action the
Corporation proposes to take would not impair the rating then assigned to the
Preferred Shares.
(c) For so long as Preferred Shares are rated by S&P and such shares remain
Outstanding, the Corporation will not merge or consolidate with any other
corporation or change pricing services. In addition, the Corporation will not
purchase or sell futures contracts or options thereon or write unsecured put or
uncovered call options on portfolio securities, except that (i) the Corporation
may engage in any S&P Hedging Transactions based on the Municipal Index,
provided that (A) the Corporation shall not engage in any S&P Hedging
Transactions based on the Municipal Index (other than Closing Transactions)
which would cause the Corporation at the time of such transaction to own or have
sold the least of (1) more than 1,000 outstanding futures contracts based on the
Municipal Index, (2) outstanding futures contracts based on the Municipal Index
and on Treasury Bonds exceeding in number 25% of the quotient of the fair market
value of the Corporation's total assets divided by 100,000, or (3) outstanding
futures contracts based on the Municipal Index exceeding in number 10% of the
average number of daily traded futures contracts based on the Municipal Index in
the month prior to the time of effecting such transaction as reported by The
Wall Street Journal; and (ii) the Corporation may engage in S&P Hedging
Transactions based on Treasury Bonds, provided that (A) the Corporation shall
not engage in any S&P Hedging Transactions based on Treasury Bonds (other than
Closing Transactions) which would cause the Corporation at the time of such
transaction to own or have sold the lesser of (1) outstanding futures contracts
based on Treasury Bonds and on the Municipal Index exceeding in number 25% of
the quotient of the fair market value of the Corporation's total assets divided
by 100,000 or (2) outstanding futures contracts based on Treasury Bonds
exceeding in number 10% of the average number of daily traded futures contracts
based on Treasury Bonds in the month prior to the time of effecting such
transaction as reported by The Wall Street Journal. For so long as Preferred
Shares are rated by S&P, the Corporation will engage in Closing Transactions to
close out any outstanding futures contract which the Corporation owns or has
sold or any outstanding option thereon owned by the Corporation in the event (i)
the Corporation does not have S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the Preferred Share Basic Maintenance Amount on
two consecutive Valuation Dates and (ii) the Corporation is required to pay
Variation Margin on the second such Valuation Date. For so long as Preferred
Shares are rated by S&P, the Corporation will engage in a Closing Transaction to
close out any outstanding futures contract or option thereon in the month prior
to the delivery month under the terms of such futures contract or option thereon
unless the Corporation holds securities deliverable under such terms. For
purposes of determining S&P Eligible Assets to determine compliance with the
Preferred Share Basic Maintenance Amount, no amounts on deposit with the
Corporations, custodian or broker representing Initial Margin or Variation
Margin shall constitute S&P Eligible Assets. For so long as Preferred Shares are
rated by S&P, when the Corporation writes a futures contract or option thereon,
it will maintain an amount of cash, cash equivalents or short-term, fixed-income
securities in a segregated account with the Corporations custodian, so that the
amount so segregated plus the amount of Initial Margin and Variation Margin held
in the account of the Corporation's broker equals the fair market value of the
futures contract, except that in the event the Corporation writes a futures
contract or option thereon which requires delivery of an underlying security,
the Corporation shall hold such underlying security. The restrictions set forth
in this subsection (c) may be modified if the Corporation receives written
confirmation from S&P that the action the Corporation proposes to take would not
impair the rating then assigned to the Preferred Shares.
PART II
1. Remarketing Schedule
Each Remarketing shall take place over a two-day period consisting of the
Remarketing Date and the Settlement Date. Such dates or the method of
establishing such dates shall be determined by the Board of Directors from time
to time.
2. Advance Notice of Allocation of Taxable Income
If the Corporation intends to allocate any net capital gains or other
income taxable for federal income tax purposes to any dividend on Preferred
Shares, the Corporation may notify the Remarketing Agent and the Paying Agent of
the amount to be so included seven days prior to the Remarketing on which the
Applicable Dividend Rate for such dividend is to be established. Whenever the
Remarketing Agent receives such notice from the Corporation, it will in turn
notify the Holders of Preferred Shares and prospective purchasers believed by it
to be interested in purchasing Preferred Shares in such Remarketing.
3. Procedure for Tendering
(a) Preferred Shares of any series are subject to Tender and Dividend Reset
at the end of each Dividend Period applicable to such series in the Remarketing
which commences on the Remarketing Date immediately prior to the end of such
Dividend Period. By 9:00 a.m., New York City time, on each Remarketing Date for
a series of Preferred Shares, the Remarketing Agent shall, after canvassing the
market and considering prevailing market conditions at the time for Preferred
Shares of such series and similar securities, provide Beneficial Owners of
Preferred Shares of such shares non-binding indications of the Applicable
Dividend Rate for such shares for the next succeeding 28-day Dividend Period;
provided that, if the Board of Directors has designated the next Dividend Period
for Preferred Shares of such series as a Special Dividend Period, the
Remarketing Agent will provide to Beneficial Owners of Preferred Shares of such
series a non-binding indication only of the Applicable Dividend Rate for such
Special Dividend Period. The actual Applicable Dividend Rate for such Dividend
Period may be greater than or less than the rate per annum indicated in such
non-binding indications (but not greater than the applicable Maximum Dividend
Rate) and will not be determined until after a Holder is required to elect to
hold or sell its Preferred Shares. By 12:00 noon, New York City time, on such
Remarketing Date, each Holder of Preferred Shares of such series must notify the
Remarketing Agent of its desire, on a share-by-share basis, either to tender
such Preferred Shares at a price of $50,000 per share or to continue to hold
such share for the next Dividend Period for such series. Any notice given to the
Remarketing Agent to tender or hold shares for a particular Dividend Period
shall be irrevocable and may not be waived by the Remarketing Agent, except that
the Remarketing Agent may, in its sole discretion (i) at the request of a Holder
that has tendered one or more shares to the Remarketing Agent, waive such
Holder's tender, and thereby enable such Holder to continue to hold the share or
shares for a 28-day Dividend Period or a designated Special Dividend Period, if
applicable, as agreed to by such Holder and the Remarketing Agent at such time,
so long as such tendering Holder has indicated to the Remarketing Agent that it
would accept the new Applicable Dividend Rate for such Dividend Period, such
waiver to be contingent upon the Remarketing Agent's ability to remarket all
shares tendered in such Remarketing, and (ii) at the request of a Holder that
has elected to hold one or more of its Preferred Shares, waive such Holder's
election with respect thereto. Notwithstanding the foregoing, any holder or
prospective purchaser may informally indicate to the Remarketing Agent its
Applicable Dividend Rate preferences. The Applicable Dividend Rate with respect
to a Dividend Period may be greater or less than such informal rate preferences.
(b) The right of each Holder to tender Preferred Shares in a Remarketing
shall be limited to the extent that (i) the Remarketing Agent conducts a
Remarketing pursuant to the terms of the Remarketing Agreement, (ii) shares
tendered have not been called for redemption, and (iii) the Remarketing Agent is
able to find a purchaser or purchasers for tendered Preferred Shares at an
Applicable Dividend Rate for a 28-day Dividend Period or a designated Special
Dividend Period, if any, not in excess of any applicable Maximum Dividend Rate.
(c) Subject to the condition set forth in the next sentence, holders of
Preferred Shares that fail on a Remarketing Date for such shares to elect to
tender or hold such shares will be deemed to have elected to continue to hold
such shares for the next applicable Dividend Period. If, on a Remarketing Date
for Preferred Shares of any series, the current Dividend Period with respect to
such shares is a Special Dividend Period of more than 90 days, or the succeeding
Dividend Period with respect to such shares has been designated by the Board of
Directors as a Special Dividend Period of more than 90 days, then holders of
such shares that fail to tender or hold such shares will be deemed to have
elected to tender such shares.
4. Determination of Applicable Dividend Rates
(a) By 3:00 p.m., New York City time, on each Remarketing Date with respect
to a series of Preferred Shares, the Remarketing Agent shall determine the
Applicable Dividend Rate for such series to the nearest one-thousandth (0.001)
of one percent per annum for the next Dividend Period. The Applicable Dividend
Rate for each such Dividend Period, except as otherwise required herein, shall
be the dividend rate per annum which the Remarketing Agent determines, in its
sole judgment, to be the lowest rate that will enable it to remarket on behalf
of the Holders thereof the Preferred Shares of such series in such Remarketing
and tendered to it on such Remarketing Date at a price of $50,000 per share.
(b) If no Applicable Dividend Rate for a series of Preferred Shares shall
have been established on a Remarketing Date in a Remarketing for the next
Dividend Period for such series, for any reason (other than because there is no
Remarketing Agent or the Remarketing Agent is not required to conduct a
Remarketing pursuant to the terms of the Remarketing Agreement), then the
Remarketing Agent, in its sole discretion, shall, if necessary and except during
a Non-Payment Period with respect to such series, after taking into account
market conditions as reflected in the prevailing yields on fixed and variable
rate taxable and tax-exempt debt securities and the prevailing dividend yields
of fixed and variable rate preferred stock, determine such Applicable Dividend
Rate which will be the rate per annum that would be the initial dividend rate
fixed in an offering on such Remarketing Date, assuming in each case a
comparable dividend period, issuer and security. If there is no Remarketing for
a series of Preferred Shares because there is no Remarketing Agent or the
Remarketing Agent is not required to conduct a Remarketing pursuant to the
Remarketing Agreement, then, except during a Non-Payment Period with respect to
such series, the Applicable Dividend Rate for shares of such series for the
subsequent Dividend Period and for each subsequent Dividend Period for which no
Remarketing takes place because of the foregoing shall be the applicable Maximum
Dividend Rate and the next succeeding Dividend Period shall be a Seven-day
Dividend Period.
(c) In determining such Applicable Dividend Rate for a series of Preferred
Shares, the Remarketing Agent shall, after taking into account market conditions
as reflected in the prevailing yields on fixed and variable rate taxable and
tax-exempt debt securities and the prevailing dividend yields of fixed and
variable rate preferred stocks determined for the purpose of providing
non-binding indications of the Applicable Dividend Rate to Holders and potential
purchasers of Preferred Shares of such series, (i) consider the number of
Preferred Shares of such series tendered and the number of Preferred Shares of
such series potential purchasers are willing to purchase, and (ii) contact by
telephone or otherwise current and potential Holders of Preferred Shares of such
series to ascertain the dividend rates at which they would be willing to hold
Preferred Shares of such series.
(d) The Applicable Dividend Rate shall be determined as aforesaid by the
Remarketing Agent in its sole discretion (except as otherwise provided in this
Statement with respect to an Applicable Dividend Rate that shall be the
Non-Payment Period Rate or the Maximum Dividend Rate) and shall be conclusive
and binding on Holders.
(e) Except during a Non-Payment Period, the Applicable Dividend Rate for
any Dividend Period shall not be more than the applicable Maximum Dividend Rate.
5. Allocation of Shares: Failure to Remarket at $50,000 Per Share
(a) If the Remarketing Agent is unable to remarket by 1:00 p.m., New York
City time, on a Settlement Date all Preferred Shares of any series tendered to
it in the related Remarketing at a price of $50,000 per share, (i) each Holder
that tendered or was deemed to have tendered Preferred Shares of such series for
sale shall sell a number of Preferred Shares of such series on a pro rata basis,
to the extent practicable, or by lot, as determined by the Remarketing Agent in
its sole discretion, based upon the number of orders to purchase Preferred
Shares of such series in such Remarketing, and (ii) the Dividend Period for such
series will be a Seven-day Dividend Period and the Applicable Dividend Rate for
such Dividend Period shall be the Maximum Dividend Rate for a Seven-day Dividend
Period.
(b) If the allocation procedures described above would result in the sale
of a fraction of a Preferred Share, the Remarketing Agent shall, in its sole
discretion, round up or down the number of Preferred Shares sold by each Holder
on the applicable Settlement Date so that each share sold by a Holder shall be a
whole Preferred Share, and the total number of shares sold equals the total
number of shares purchased on such Settlement Date.
6. Notification of Results; Settlement
(a) Subject to a failure to remarket as described in Part II, Section 5 of
this Statement, by telephone at approximately 3:30 p.m., New York City time, on
each Remarketing Date, the Remarketing Agent shall advise each Holder of
tendered shares and each purchaser thereof (or the Agent Member thereof who in
turn will advise such Holder or purchaser) (i) of the number of shares such
Holder or purchaser is to sell or purchase and (ii) to give instructions to its
Agent Member to deliver such shares against payment therefor or to pay the
purchase price against delivery as appropriate. The Remarketing Agent will also
advise each Holder or purchaser that is to continue to hold, or to purchase,
shares with a Dividend Period beginning on such Settlement Date of the
Applicable Dividend Rate for such shares.
(b) In accordance with the Securities Depository's normal procedures, on
the Settlement Date, the transactions described above with respect to each
Preferred Share shall be executed through the Securities Depository, if the
Securities Depository or its nominee holds or is to hold the certificate
relating to the shares to be purchased, and the accounts of the respective Agent
Members of the Securities Depository shall be debited and credited and shares
delivered by book entry as necessary to effect the purchases and sales of
Preferred Shares of a series in the related Remarketing. Purchasers of Preferred
Shares shall make payment to the Paying Agent in same-day funds against delivery
to other purchasers or their nominees of one or more certificates representing
Preferred Shares, or, if the Securities Depository or its nominee holds or is to
hold the certificate relating to the shares to be purchased, through their Agent
Members in same-day funds to the Securities Depository against delivery by book
entry of Preferred Shares through their Agent Members. The Securities Depository
shall make payment in accordance with its normal procedures. If the certificate
for a series of Preferred Shares is not held by the Securities Depository or its
nominee, payment with respect to shares of such series will be made in same-day
funds to the Paying Agent against delivery of certificates for such shares. As
long as the Securities Depository or its nominee holds the certificates
representing the Preferred Shares of each series, no share certificates will
need to be delivered by any selling Holder to reflect any transfer of Preferred
Shares effected in a Remarketing.
(c) If any Holder selling Preferred Shares in a Remarketing fails to
deliver such shares, the Agent Member of such selling Holder and of any other
person that was to have purchased Preferred Shares in such Remarketing may
deliver to any such other person a number of whole Preferred Shares that is less
than the number of shares that otherwise was to be purchased by such person In
such event, the number of Preferred Shares to be so delivered shall be
determined by such Agent Member. Delivery of such lesser number of Preferred
Shares shall constitute good delivery.
(d) The Remarketing Agent, the Paying Agent and the Securities Depository
each will use its reasonable commercial efforts to meet the timing requirements
set forth in paragraphs (a) and (b) above; provided that, in the event that
there is a delay in the occurrence of any delivery or other event connected with
a Remarketing, the Remarketing Agent, the Paying Agent and the Securities
Depository each will use its reasonable commercial efforts to accommodate such
delay in furtherance of the Remarketing.
(e) Notwithstanding any of the foregoing provisions of this Section 6, the
Remarketing Agent may, in its sole discretion, modify the settlement procedures
set forth above with respect to any Remarketing, provided any such modification
does not adversely affect the Holders of Preferred Shares or the Corporation.
7. Purchase of Preferred Shares by Remarketing Agent
The Remarketing Agent may purchase for its own account Preferred Shares of
any series in a Remarketing for shares of such series, provided that it
purchases all tendered (or deemed tendered) preferred Shares of such series not
sold in such Remarketing to other purchasers and that the Applicable Dividend
Rate established with respect to such shares in such Remarketing is no higher
than the Applicable Dividend Rate that would have been established if the
Remarketing Agent had not purchased such shares. Except as provided in the
previous sentence, the Remarketing Agent shall not be obligated to purchase any
Preferred Shares that would otherwise remain unsold in a Remarketing. If the
Remarketing Agent owns any Preferred Shares of a series subject to a Remarketing
immediately prior to such Remarketing and if all Preferred Shares of such series
tendered for sale by other owners have been sold in such Remarketing, then the
Remarketing Agent may sell such number of its shares in such Remarketing as
there are outstanding orders to purchase that have not been filled by shares
tendered for sale by other Holders. Neither the Corporation, the Paying Agent
nor the Remarketing Agent shall be obligated in any case to provide funds to
make payment to a Holder upon such Holder's tender of its Preferred Shares in a
Remarketing.
8. Applicable Dividend Rate During a Non-Payment Period
So long as a Non-Payment Period with respect to any series of Preferred
Shares shall continue, paragraphs 1, 2, 3, 4, 5, 6 and 7 of this Part II shall
not be applicable to any of the Preferred Shares of such series and such
Preferred Shares shall not be subject to Tender and Dividend Reset and the
Applicable Dividend Rate for such shares shall be the Non-Payment Period Rate.
9. Transfers
Unless the Corporation has elected, during a Non-Payment Period, to waive
this requirement, ownership of Preferred Shares will be maintained in book entry
form by the Securities Depository, for the account of an Agent Member designated
by each purchaser of Preferred Shares to the Remarketing Agent. Such Agent
Member, in turn, shall maintain records of such purchaser's beneficial
ownership. Furthermore, unless the Corporation shall have elected, during a
Non-Payment Period, to waive this requirement, a Beneficial Owner may sell,
transfer or otherwise dispose of any Preferred Shares held by it only pursuant
to orders placed in a Remarketing or, in the case of any transfer other than
pursuant to a Remarketing, if such Beneficial Owner or its Agent Member advises
the Remarketing Agent of such transfer and the Remarketing Agent is provided
such information about the new Beneficial Owner as may be required by the Paying
Agent.
10. Miscellaneous
To the extent permitted by applicable law, the Board of Directors of the
Corporation may interpret or adjust the provisions hereof to resolve any
inconsistency or ambiguity, or to remedy any formal defect.
11. Securities Depository; Stock Certificates
(a) If there is a Securities Depository, one certificate for each series of
Preferred Shares shall be issued to the Securities Depository and registered in
the name of the Securities Depository or its nominee. Each such certificate
shall bear a legend to the effect that such certificate is issued subject to the
provisions contained in this Statement. Unless the Corporation shall have
elected, during a Non-Payment Period, to waive this requirement, the Corporation
will also issue stop-transfer instructions to the paying Agent for the Preferred
Shares. Except as provided in paragraph (b) below, the Securities Depository or
its nominee will be the only holder of certificates representing Preferred
Shares, and no Holder shall receive certificates representing its ownership
interest in such shares.
(b) If the Applicable Dividend Rate applicable to any series of Preferred
Shares shall be the Non-Payment Period Rate or there is no Securities
Depository, the Corporation may at its option issue one or more new certificates
with respect to such shares (without the legend referred to in paragraph 11(a)
of this Part II) registered in the names of the Holders or their nominees and
rescind the stop-transfer instructions referred to in paragraph 11(a) of this
Part II with respect to such shares.
IN WITNESS WHEREOF, VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC. has
caused these presents to be signed in its name and on its behalf by its
Executive Vice President, and attested by its Secretary, and the said officers
of the Corporation further acknowledged said instrument to be the corporate act
of the Corporation, and stated under the penalties of perjury that to the best
of their knowledge, information and belief the matters and facts therein set
forth with respect to approval are true in all material respects, all on
_____________,1993.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
By
John G. Taft
Executive Vice President
ATTEST:
Theodore E. Jessen
Secretary
