MUNIHOLDINGS CALIFORNIA INSURED FUND II, INC.
Articles Supplementary creating three series of
Auction Market Preferred Stock(R) ("AMPS(R)")
MUNIHOLDINGS CALIFORNIA INSURED FUND II, INC., a Maryland corporation
having its principal Maryland office in the City of Baltimore (the
"Corporation"), certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by article fifth of its Charter, the Board of Directors has
reclassified 9,800 authorized and unissued shares of common stock of the
Corporation as preferred stock of the Corporation and has authorized the
issuance of three series of preferred stock, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, to be designated
respectively: Auction Market Preferred Stock, Series C; Auction Market Preferred
Stock, Series D; and Auction Market Preferred Stock, Series E.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each such series of preferred stock are as follows:
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
DESIGNATION
Series C: A series of 3,200 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series C." Each share of
Auction Market Preferred Stock, Series C (sometimes referred to herein as
"Series C AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series C shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series C shall be identical.
Series D: A series of 2,960 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series D." Each share of
Auction Market Preferred Stock, Series D (sometimes referred to herein as
"Series D AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms
2
and conditions of redemption as are set forth in these Articles Supplementary.
The Auction Market Preferred Stock, Series D shall constitute a separate series
of preferred stock of the Corporation, and each share of Auction Market
Preferred Stock, Series D shall be identical.
Series E: A series of 3,640 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series E." Each share of
Auction Market Preferred Stock, Series E (sometimes referred to herein as
"Series E AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series E shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series E shall be identical.
1. Definitions. (a) Unless the context or use indicates another or
different meaning or intent, in these Articles Supplementary the following terms
have the following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by
3
another nationally recognized rating agency, as such rate is made available on a
discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day immediately preceding such date, or (ii) in the event that the
Federal Reserve Bank of New York does not make available such a rate, then the
arithmetic average of the Interest Equivalent of the rate on commercial paper
placed on behalf of such issuers, as quoted on a discount basis or otherwise by
Merrill Lynch, Pierce, Fenner & Smith Incorporated or its successors that are
Commercial Paper Dealers, to the Auction Agent for the close of business on the
Business Day immediately preceding such date. If one of the Commercial Paper
Dealers does not quote a rate required to determine the "AA" Composite
Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Corporation to provide such rate or rates not being supplied by
the Commercial Paper Dealer. If the number of Dividend Period days shall be (i)
7 or more but fewer than 49 days, such rate shall be the Interest Equivalent of
the 30-day rate on such commercial paper; (ii) 49 or more but fewer than 70
days, such rate shall be the Interest Equivalent of the 60-day rate on such
commercial paper; (iii) 70 or more days but fewer than 85 days, such rate shall
be the arithmetic average of the Interest Equivalent on the 60-day and 90-day
rates on such commercial paper; (iv) 85 or more days but fewer than 99 days,
such rate shall be the Interest Equivalent of the 90-day rate on such commercial
paper; (v) 99 or more days but fewer than 120 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 90-day and 120-day rates on
such commercial paper; (vi) 120 or more days but fewer than 141 days, such rate
shall be the Interest Equivalent of the 120-day rate on such commercial paper;
(vii) 141 or more days but fewer than 162 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 120-day and
4
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c)
of these Articles Supplementary.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.
"Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, L.P.
"Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner
& Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.
"Agent Member" means a member of the Securities Depository that will
act on behalf of a Beneficial Owner of one or more shares of AMPS or a Potential
Beneficial Owner.
"AMPS" means, as the case may be, the Auction Market Preferred Stock,
Series C; the Auction Market Preferred Stock, Series D; or the Auction Market
Preferred Stock, Series E.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares of
AMPS of each series and Other AMPS Outstanding on such Valuation Date multiplied
by the sum of (a) $25,000 and (b) any applicable redemption premium attributable
to the designation of a Premium Call Period; (B) the aggregate amount of cash
dividends (whether or not earned or declared) that will have
5
accumulated for each share of AMPS and Other AMPS Outstanding, in each case, to
(but not including) the end of the current Dividend Period for each series of
AMPS that follows such Valuation Date in the event the then current Dividend
Period will end within 49 calendar days of such Valuation Date or through the
49th day after such Valuation Date in the event the then current Dividend Period
for each series of AMPS will not end within 49 calendar days of such Valuation
Date; (C) in the event the then current Dividend Period will end within 49
calendar days of such Valuation Date, the aggregate amount of cash dividends
that would accumulate at the Maximum Applicable Rate applicable to a Dividend
Period of 28 or fewer days on any shares of AMPS and Other AMPS Outstanding from
the end of such Dividend Period through the 49th day after such Valuation Date,
multiplied by the larger of the Moody's Volatility Factor and the S&P Volatility
Factor, determined from time to time by Moody's and S&P, respectively (except
that if such Valuation Date occurs during a Non-Payment Period, the cash
dividend for purposes of calculation would accumulate at the then current
Non-Payment Period Rate); (D) the amount of anticipated expenses of the
Corporation for the 90 days subsequent to such Valuation Date (including any
premiums payable with respect to a Policy); (E) the amount of the Corporation's
Maximum Potential Additional Dividend Liability as of such Valuation Date; and
(F) any current liabilities as of such Valuation Date to the extent not
reflected in any of (i)(A) through (i)(E) (including, without limitation, and
immediately upon determination, any amounts due and payable by the Corporation
pursuant to repurchase agreements and any amounts payable for California
Municipal Bonds or Municipal Bonds purchased as of such Valuation Date) less
(ii) either (A) the Discounted Value of any of the Corporation's assets, or (B)
the face value of any of the Corporation's assets if such assets mature prior to
or on the date of redemption of AMPS or payment of a liability and are either
securities issued or guaranteed by the United States
6
Government or Deposit Securities, in both cases irrevocably deposited by the
Corporation for the payment of the amount needed to redeem shares of AMPS
subject to redemption or to satisfy any of (i)(B) through (i)(F). For Moody's
and S&P, the Corporation shall include as a liability an amount calculated
semi-annually equal to 150% of the estimated cost of obtaining other insurance
guaranteeing the timely payment of interest on a Moody's Eligible Asset or S&P
Eligible Asset and principal thereof to maturity with respect to Moody's
Eligible Assets and S&P Eligible Assets that (i) are covered by a Policy which
provides the Corporation with the option to obtain such other insurance and (ii)
are discounted by a Moody's Discount Factor or a S&P Discount Factor, as the
case may be, determined by reference to the insurance claims-paying ability
rating of the issuer of such Policy.
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date,
means the sixth Business Day following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim and
in aggregate), and the AMPS Basic Maintenance Amount.
7
"Anticipation Notes" shall mean the following California Municipal
Bonds: revenue anticipation notes, tax anticipation notes, tax and revenue
anticipation notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
10(a)(vii) of these Articles Supplementary.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Whitehall Bank & Trust Company unless and
until another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a duly
authorized committee thereof enters into an agreement with the Corporation to
follow the Auction Procedures for the purpose of determining the Applicable Rate
and to act as transfer agent, registrar, dividend disbursing agent and
redemption agent for the AMPS and Other AMPS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of these Articles Supplementary.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of AMPS or a Broker-Dealer that holds AMPS for its own account.
8
"Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 10 of
these Articles Supplementary, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of these Articles Supplementary.
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.
"California Municipal Bonds" means Municipal Bonds issued by or on
behalf of the State of California, its political subdivisions, agencies and
instrumentalities and by other qualifying issuers that pay interest which, in
the opinion of bond counsel to the issuer, is exempt from Federal and California
income taxes, and includes Inverse Floaters.
"Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.
"Code" means the Internal Revenue Code of 1986, as amended.
9
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the
Corporation may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"Common Stock" means the common stock, par value $.10 per share, of the
Corporation.
"Corporation" means MuniHoldings California Insured Fund II, Inc., a
Maryland corporation.
"Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Corporation originally issues such share.
"Deposit Securities" means cash and California Municipal Bonds and
Municipal Bonds rated at least A2 (having a remaining maturity of 12 months or
less), P-1, VMIG-1 or MIG-1 by Moody's or A (having a remaining maturity of 12
months or less), A-1+ or SP-1+ by S&P.
"Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to AMPS, has the meaning set
forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period and any Special Dividend Period.
10
"Existing Holder" means a Broker-Dealer or any such other Person as may
be permitted by the Corporation that is listed as the holder of record of shares
of AMPS in the Stock Books.
"Fitch" means Fitch IBCA, Inc. or its successors.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of
these Articles Supplementary.
"Holder" means a Person identified as a holder of record of shares of
AMPS in the Stock Register. "Independent Accountant" means a nationally
recognized accountant, or firm of accountants, that is, with respect to the
Corporation, an independent public accountant or firm of independent public
accountants under the Securities Act of 1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Directors of the Corporation with respect to each
series of AMPS or Other AMPS, as the case may be.
"Initial Dividend Period," with respect to each series of AMPS, has the
meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.
"Initial Dividend Rate," with respect to each series of AMPS, means the
rate per annum applicable to the Initial Dividend Period for such series of AMPS
and, with respect to Other AMPS, has the equivalent meaning.
11
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Inverse Floaters" means trust certificates or other instruments
evidencing interests in one or more California Municipal Bonds that qualify as
S&P Eligible Assets (and are not part of a private placement of California
Municipal Bonds and satisfy the issuer and original issue size requirements of
clause (vi) of the definition of S&P Eligible Assets) the interest rates on
which are adjusted at short term intervals on a basis that is inverse to the
simultaneous readjustment of the interest rates on corresponding floating rate
trust certificates or other instruments issued by the same issuer, provided that
the ratio of the aggregate dollar amount of floating rate instruments to inverse
floating rate instruments issued by the same issuer does not exceed one to one
at their time of original issuance unless the floating rate instruments have
only one reset remaining until maturity.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
12
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation shall be the market
value thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value as determined by the Pricing Service using methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
type of issue, coupon, maturity and rating; indications as to value from
dealers; and general market conditions. The Pricing Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security, the
security shall be valued at the lower of two dealer bids obtained by the
Corporation from dealers who are members of the National Association of
Securities Dealers, Inc. and who make a market in the security, at least one of
which shall be in writing. Futures contracts and options are valued at closing
prices for such instruments established by the exchange or board of trade on
which they are traded, or if market quotations are not readily available, are
valued at fair value on a consistent basis using methods determined in good
faith by the Board of Directors.
"Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.
13
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date and assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any California Municipal Bond or Municipal Bond which
constitutes a Moody's Eligible Asset, the percentage determined by reference to
(a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the
Moody's Eligible Asset is insured under a Policy and the terms of the Policy
permit the Corporation, at its option, to obtain other insurance guaranteeing
the timely payment of interest on such Moody's Eligible Asset and principal
thereof to maturity, the Moody's insurance claims-paying ability rating of the
issuer of the Policy or (iii) in the event the Moody's Eligible Asset is insured
under an insurance policy which guarantees the timely payment of interest on
such Moody's Eligible Asset and principal thereof to maturity, the Moody's
insurance claims-paying ability rating of the issuer of the insurance policy
(provided that for purposes of clauses (ii) and (iii) if the insurance
claims-paying ability of an issuer of a Policy or insurance policy is not rated
by Moody's but is rated by S&P, such issuer shall be deemed to have a Moody's
insurance claims-paying ability rating which is two full categories lower than
the S&P insurance claims-paying ability rating) and (b) the Moody's Exposure
Period, in accordance with the table set forth below:
14
Rating Category
---------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1*** SP-1+***
- ----------------------- ---- --- -- ---- ------- --------- --------
7 weeks or less............... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than seven weeks...... 154 164 173 205 235 137 149
9 weeks or less but
greater than eight weeks...... 158 169 179 209 242 138 150
- ----------
* Moody's rating.
** California Municipal Bonds and Municipal Bonds not rated by Moody's but
rated BBB or BBB+ by S&P.
*** California Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or P-1
or, if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not mature or
have a demand feature at par exercisable within the Moody's Exposure Period and
which do not have a long-term rating. For the purposes of the definition of
Moody's Eligible Assets, these securities will have an assumed rating of "A" by
Moody's.
; provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.
Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will
be applied to short-term California Municipal Bonds and short-term Municipal
Bonds, so long as such California Municipal Bonds and Municipal Bonds are rated
at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at
par exercisable within the Moody's Exposure Period, and the Moody's Discount
Factor for such Bonds will be 125% if such Bonds are not rated by Moody's but
are rated A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for California Municipal Bonds
or Municipal Bonds Sold. "Receivables for California Municipal Bonds or
Municipal Bonds Sold," for purposes of calculating Moody's Eligible Assets as of
any Valuation Date, means no more than
15
the aggregate of the following: (i) the book value of receivables for California
Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation Date if
such receivables are due within five Business Days of such Valuation Date, and
if the trades which generated such receivables are (x) settled through clearing
house firms with respect to which the Corporation has received prior written
authorization from Moody's or (y) with counterparties having a Moody's long-term
debt rating of at least Baa3; and (ii) the Moody's Discounted Value of
California Municipal Bonds or Municipal Bonds sold as of or prior to such
Valuation Date which generated receivables, if such receivables are due within
five Business Days of such Valuation Date but do not comply with either of
conditions (x) or (y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for California
Municipal Bonds or Municipal Bonds Sold, a California Municipal Bond or a
Municipal Bond that (i) pays interest in cash, (ii) is publicly rated Baa or
higher by Moody's or, if not rated by Moody's but rated by S&P, is rated at
least BBB by S&P (provided that, for purposes of determining the Moody's
Discount Factor applicable to any such S&P-rated California Municipal Bond or
S&P-rated Municipal Bond, such California Municipal Bond or Municipal Bond
(excluding any short-term California Municipal Bond or Municipal Bond) will be
deemed to have a Moody's rating which is one full rating category lower than its
S&P rating), (iii) does not have its Moody's rating suspended by Moody's; and
(iv) is part of an issue of California Municipal Bonds or Municipal Bonds of at
least $10,000,000. In addition, California Municipal Bonds and Municipal Bonds
in the Corporation's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:
16
Minimum Maximum Maximum Maximum Maximum
Issue Size Underlying Issue Type County State or Territory
Rating ($ Millions) Obligor (%)(1) Concentration(%)(1)(3) Concentration(%)(1)(4) Concentration (1)(5)
- ------ ------------ -------------- ---------------------- ---------------------- --------------------
Aaa........ 10 100 100 100 100
Aa......... 10 20 60 60 60
A.......... 10 10 40 40 40
Baa........ 10 6 20 20 20
Other(2)... 10 4 12 12 12
- ----------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) California Municipal Bonds and Municipal Bonds not rated by Moody's but
rated BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to California Municipal Bonds. Territorial bonds (other than
those issued by Puerto Rico and counted collectively) are each limited to
10% of Moody's Eligible Assets. For diversification purposes, Puerto Rico
will be treated as a state.
17
For purposes of the maximum underlying obligor requirement described above, any
California Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Bond. For purposes of the issue type concentration
requirement described above, California Municipal Bonds and Municipal Bonds will
be classified within one of the following categories: health care issues
(teaching and non-teaching hospitals, public and private), housing issues
(single- and multi-family), educational facilities issues (public and private
schools), student loan issues, resource recovery issues, transportation issues
(mass transit, airport and highway bonds), industrial revenue/pollution control
bond issues, utility issues (including water, sewer and electricity), general
obligation issues, lease obligations/certificates of participation, escrowed
bonds and other issues ("Other Issues") not falling within one of the
aforementioned categories (includes special obligations to crossover, excise and
sales tax revenue, recreation revenue, special assessment and telephone revenue
bonds). In no event shall (a) more than 10% of Moody's Eligible Assets consist
of student loan issues, (b) more than 10% of Moody's Eligible Assets consist of
resource recovery issues or (c) more than 10% of Moody's Eligible Assets consist
of Other Issues.
When the Corporation sells a California Municipal Bond or Municipal
Bond and agrees to repurchase it at a future date, the Discounted Value of such
Bond will constitute a Moody's Eligible Asset and the amount the Corporation is
required to pay upon repurchase of such Bond will count as a liability for
purposes of calculating the AMPS Basic Maintenance Amount. For so long as the
AMPS are rated by Moody's, the Corporation will not enter into any such reverse
repurchase agreements unless it has received written confirmation from Moody's
that such
18
transactions would not impair the ratings then assigned the AMPS by Moody's.
When the Corporation purchases a California Municipal Bond or Municipal Bond and
agrees to sell it at a future date to another party, cash receivable by the
Corporation thereby will constitute a Moody's Eligible Asset if the long-term
debt of such other party is rated at least A2 by Moody's and such agreement has
a term of 30 days or less; otherwise the Discounted Value of such Bond will
constitute a Moody's Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Corporation for the payment of
dividends or redemption.
"Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.
"Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of these Articles Supplementary.
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
19
% Change in Marginal Moody's Volatility
Tax Rate Factor
-------------------- ------------------
<=5% 292%
>5% but <=10% 313%
>10% but <=15% 338%
>15% but <=20% 364%
>20% but <=25% 396%
>25% but <=30% 432%
>30% but <=35% 472%
>35% but <=40% 520%
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Corporation in
writing is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the
Corporation's Registration Statement on Form N-14 (File No. ) relating to the
AMPS on file with the Securities and Exchange Commission, as such Registration
Statement may be amended from time to time, as well as short-term municipal
obligations and Inverse Floaters.
"Municipal Index" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Corporation which are stock, including all outstanding
shares of AMPS and Other AMPS (or such other asset coverage as may in the future
be specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are stock of a closed-end investment company as a condition of
paying dividends on its common stock).
20
"1940 Act Cure Date," with respect to the failure by the Corporation to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Non-Payment Period" means, with respect to each series of AMPS, any
period commencing on and including the day on which the Corporation shall fail
to (i) declare, prior to the close of business on the second Business Day
preceding any Dividend Payment Date, for payment on or (to the extent permitted
by paragraph 2(c)(i) of these Articles Supplementary) within three Business Days
after such Dividend Payment Date to the Holders as of 12:00 noon, New York City
time, on the Business Day preceding such Dividend Payment Date, the full amount
of any dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS or,
in the case of an optional redemption, the Optional Redemption Price per share,
and ending on and including the Business Day on which, by 12:00 noon, New York
City time, all unpaid cash dividends and unpaid redemption prices shall have
been so deposited or shall have otherwise been made available to Holders in
same-day funds; provided that, a Non-Payment Period shall not end unless the
Corporation shall have given at least five days' but no more than 30 days'
written notice of such deposit or availability to the Auction Agent, all
Existing Holders
21
(at their addresses appearing in the Stock Books) and the Securities Depository.
Notwithstanding the foregoing, the failure by the Corporation to deposit funds
as provided for by clauses (ii)(A) or (ii)(B) above within three Business Days
after any Dividend Payment Date or redemption date, as the case may be, in each
case to the extent contemplated by paragraph 2(c)(i) of these Articles
Supplementary, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of AMPS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and Moody's and S&P (and any Substitute Rating Agency in lieu of
Moody's or S&P in the event either of such parties shall not rate the AMPS)
advise the Corporation in writing that such adjustment, modification, alteration
or change will not adversely affect their then-current ratings on the AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.
"Notice of Redemption" means any notice with respect to the redemption
of shares of AMPS pursuant to paragraph 4 of these Articles Supplementary.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of these Articles Supplementary.
22
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" means $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium Call
Period.
"Other AMPS" means the auction rate preferred stock of the Corporation,
other than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, shares of
AMPS theretofore issued by the Corporation except, without duplication, (A) any
shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and Deposit Securities shall have been
deposited in trust or segregated by the Corporation pursuant to paragraph 4(c)
and (B) any shares of AMPS as to which the Corporation or any Affiliate thereof
shall be a Beneficial Owner, provided that shares of AMPS held by an Affiliate
shall be deemed outstanding for purposes of calculating the AMPS Basic
Maintenance Amount and (ii) with respect to shares of other Preferred Stock, has
the equivalent meaning.
"Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case
23
may be, in proportion to the full respective preferential amounts to which they
are entitled, without preference or priority one over the other.
"Person" means and includes an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Corporation which
guarantees the payment of principal and interest on specified California
Municipal Bonds or Municipal Bonds during the period in which such California
Municipal Bonds or Municipal Bonds are owned by the Corporation; provided,
however, that, as long as the AMPS are rated by Moody's and S&P, the Corporation
will not obtain any Policy unless Moody's and S&P advise the Corporation in
writing that the purchase of such Policy will not adversely affect their
then-current rating on the AMPS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of AMPS but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of AMPS.
"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Corporation, including any Existing Holder, who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).
"Preferred Stock" means the preferred stock, par value $.10 per share,
of the Corporation, and includes AMPS and Other AMPS.
24
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Pricing Service" means J.J. Kenny or any pricing service designated by
the Board of Directors of the Corporation provided the Corporation obtains
written assurance from S&P and Moody's that such designation will not impair the
rating then assigned by S&P and Moody's to the AMPS.
"Quarterly Valuation Date" means the last Business Day of the last
month of each fiscal quarter of the Corporation in each fiscal year of the
Corporation, commencing , 2000.
"Receivables for California Municipal Bonds Sold" has the meaning set
forth under the definition of S&P Discount Factor.
"Receivables for California Municipal Bonds or Municipal Bonds Sold"
has the meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the applicable
"AA" Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, (ii) with respect to any Short Term Dividend
Period having more than 28 but fewer than 183 days, the applicable "AA"
Composite Commercial Paper Rate, (iii) with respect to any Short Term Dividend
Period having 183 or more but fewer than 364 days, the applicable U.S. Treasury
Bill Rate and (iv) with respect to any Long Term Dividend Period, the applicable
U.S. Treasury Note Rate.
25
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Right," with respect to each series of AMPS, has the meaning set forth
in paragraph 2(e) of these Articles Supplementary and, with respect to Other
AMPS, has the equivalent meaning.
"S&P" means Standard & Poor's, a division of The McGraw Hill Companies,
Inc. or its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any California Municipal Bond which constitutes an S&P Eligible Asset,
the percentage determined by reference to (a)(i) the rating by S&P, Moody's or
Fitch on such Bond or (ii) in the event the California Municipal Bond is insured
under a Policy and the terms of the Policy permit the Corporation, at its
option, to obtain other permanent insurance guaranteeing the timely payment of
interest on such California Municipal Bond and principal thereof to maturity,
the S&P insurance claims-paying ability rating of the issuer of the Policy or
(iii) in the event the California Municipal Bond is insured under an insurance
policy which guarantees the timely payment of interest on such California
Municipal Bond and principal thereof to maturity, the
26
S&P insurance claims-paying ability rating of the issuer of the insurance policy
and (b) the S&P Exposure Period, in accordance with the tables set forth below:
For California Municipal Bonds:
- -------------------------------
Rating Category
---------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------- ---------------------------------------
45 Business Days 200% 205% 220% 260%
25 Business Days 180 185 200 240
10 Business Days 165 170 185 225
7 Business Days 160 165 180 220
3 Business Days 140 145 160 200
- ----------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term California Municipal Bonds will be 115%, so long as such California
Municipal Bonds are rated A-1+ or SP-1+ by S&P and mature or have a demand
feature exercisable in 30 days or less, or 120% so long as such California
Municipal Bonds are rated A-1 or SP-1 by S&P and mature or have a demand feature
exercisable in 30 days or less, or 125% if such California Municipal Bonds are
not rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's or F-1+ by Fitch;
provided, however, such short-term California Municipal Bonds rated by Moody's
or Fitch but not rated by S&P having a demand feature exercisable in 30 days or
less must be backed by a letter of credit, liquidity facility or guarantee from
a bank or other financial institution having a short-term rating of at least
A-1+ from S&P; and further provided that such short-term California Municipal
Bonds rated by Moody's or Fitch but not rated by S&P may comprise no more than
50% of short-term California Municipal Bonds that qualify as S&P Eligible
Assets, (ii) the S&P Discount Factor for Receivables for California Municipal
Bonds Sold that are due in more than five Business Days from such Valuation Date
will be the S&P Discount Factor applicable to the
27
California Municipal Bonds sold, and (iii) no S&P Discount Factor will be
applied to cash or to Receivables for California Municipal Bonds Sold if such
receivables are due within five Business Days of such Valuation Date.
"Receivables for California Municipal Bonds Sold," for purposes of calculating
S&P Eligible Assets as of any Valuation Date, means the book value of
receivables for California Municipal Bonds sold as of or prior to such Valuation
Date. The Corporation may adopt S&P Discount Factors for Municipal Bonds other
than California Municipal Bonds provided that S&P advises the Corporation in
writing that such action will not adversely affect its then current rating on
the AMPS. For purposes of the foregoing, Anticipation Notes rated SP-1 or, if
not rated by S&P, rated VMIG-1 by Moody's or F-1+ by Fitch, which do not mature
or have a demand feature exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term California Municipal
Bonds.
"S&P Eligible Asset" means cash, Receivables for California Municipal
Bonds Sold or a California Municipal Bond that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in United States Dollars; (iii) is publicly rated BBB or higher by S&P
or, except in the case of Anticipation Notes that are grant anticipation notes
or bond anticipation notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by Moody's or Fitch, is rated at
least A by Moody's or Fitch (provided that such Moody's-rated or Fitch-rated
California Municipal Bonds will be included in S&P Eligible Assets only to the
extent the Market Value of such California Municipal Bonds does not exceed 50%
of the aggregate Market Value of the S&P Eligible Assets; and further provided
that, for purposes of determining the S&P Discount Factor applicable to any such
Moody's-rated or Fitch-rated California Municipal Bond, such California
28
Municipal Bond will be deemed to have an S&P rating which is one full rating
category lower than its Moody's rating or Fitch rating); (iv) is not subject to
a covered call or covered put option written by the Corporation; (v) except for
Inverse Floaters, is not part of a private placement of California Municipal
Bonds; and (vi) except for Inverse Floaters, is part of an issue of California
Municipal Bonds with an original issue size of at least $20 million or, if of an
issue with an original issue size below $20 million (but in no event below $10
million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Notwithstanding the foregoing:
(1) California Municipal Bonds of any one issuer or guarantor
(excluding bond insurers) will be considered S&P Eligible Assets only to the
extent the Market Value of such California Municipal Bonds does not exceed 10%
of the aggregate Market Value of the S&P Eligible Assets, provided that 2% is
added to the applicable S&P Discount Factor for every 1% by which the Market
Value of such California Municipal Bonds exceeds 5% of the aggregate Market
Value of the S&P Eligible Assets;
(2) California Municipal Bonds of any one issue type category (as
described below) will be considered S&P Eligible Assets only to the extent the
Market Value of such Bonds does not exceed 25% of the aggregate Market Value of
S&P Eligible Assets, except that California Municipal Bonds falling within the
utility issue type category will be broken down into three sub-categories (as
described below) and such California Municipal Bonds will be considered S&P
Eligible Assets to the extent the Market Value of such Bonds in each such
sub-category does not exceed 25% of the aggregate Market Value of S&P Eligible
Assets and the Market Value of such Bonds in all three sub-categories combined
does not exceed 60% of the aggregate Market Value of S&P Eligible Assets, except
that California Municipal Bonds falling within the transportation issue type
category will be broken down into two sub-categories (as described below) and
such California Municipal Bonds will be
29
considered S&P Eligible Assets to the extent the Market Value of such Bonds in
both sub-categories combined (as described below) does not exceed 40% of the
aggregate Market Value of S&P Eligible Assets and except that California
Municipal Bonds falling within the general obligation issue type category will
be considered S&P Eligible Assets to the extent the Market Value of such Bonds
does not exceed 50% of the aggregate Market Value of S&P Eligible Assets. For
purposes of the issue type category requirement described above, California
Municipal Bonds will be classified within one of the following categories:
health care issues, housing issues, educational facilities issues, student loan
issues, transportation issues, industrial development bond issues, utility
issues, general obligation issues, lease obligations, escrowed bonds and other
issues not falling within one of the aforementioned categories. The general
obligation issue type category includes any issuer that is directly or
indirectly guaranteed by the State of California or its political subdivisions.
Utility issuers are included in the general obligation issue type category if
the issuer is directly or indirectly guaranteed by the State of California or
its political subdivisions. For purposes of the issue type category requirement
described above, California Municipal Bonds in the utility issue type category
will be classified within one of the three following sub-categories: (i)
electric, gas and combination issues (if the combination issue includes an
electric issue), (ii) water and sewer utilities and combination issues (if the
combination issue does not include an electric issue), and (iii) irrigation,
resource recovery, solid waste and other utilities, provided that California
Municipal Bonds included in this sub-category (iii) must be rated by S&P in
order to be included in S&P Eligible Assets. For purposes of the issue type
category requirement described above, California Municipal Bonds in the
transportation issue type category will be classified within one of the two
following
30
sub-categories: (i) streets and highways, toll roads, bridges and tunnels,
airports and multi-purpose port authorities (multiple revenue streams generated
by toll roads, airports, real estate, bridges), (ii) mass transit, parking,
seaports and others. Exposure to transportation sub-category (i) is limited to
25% of the aggregate Market Value of S&P Eligible Assets, provided, however,
exposure to transportation sub-category (i) can exceed the 25% limit to the
extent that exposure to transportation sub-category (ii) is reduced, for a total
exposure up to and not exceeding 40% of the aggregate Market Value of S&P
Eligible Assets for the transportation issue type category; and
(3) California Municipal Bonds which are escrow bonds or defeased bonds
may compose up to 100% of the aggregate Market Value of S&P Eligible Assets if
such Bonds initially are assigned a rating by S&P in accordance with S&P's legal
defeasance criteria or rerated by S&P as economic defeased escrow bonds and
assigned an AAA rating. California Municipal Bonds may be rated as escrow bonds
by another nationally recognized rating agency or rerated as an escrow bond and
assigned the equivalent of an S&P AAA rating, provided that such equivalent
rated Bonds are limited to 50% of the aggregate Market Value of S&P Eligible
Assets and are deemed to have an AA S&P rating for purposes of determining the
S&P Discount Factor applicable to such California Municipal Bonds. The
limitations on California Municipal Bonds of any one issuer in clause (1) above
is not applicable to escrow bonds, however, economically defeased bonds that are
either initially rate or rerated by S&P or another nationally recognized rating
agency and assigned the same rating level as the issuer of the Bonds will remain
in its original issue type category set forth in clause (2) above. California
Municipal Bonds that are legally defeased and secured by securities issued or
guaranteed by the United
31
States Government are not required to meet the minimum issuance size requirement
set forth above.
The Corporation may include Municipal Bonds other than California
Municipal Bonds as S&P Eligible Assets pursuant to guidelines and restrictions
to be established by S&P provided that S&P advises the Corporation in writing
that such action will not adversely affect its then current rating on the AMPS.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Corporation has under these Articles Supplementary to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount (as described in
paragraph 7(a) of these Articles Supplementary).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a)
of these Articles Supplementary.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Corporation in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of AMPS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
AMPS.
"Service" means the United States Internal Revenue Service.
32
"7-Day Dividend Period" means a Dividend Period consisting of seven
days.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven) evenly divisible by seven and
not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of AMPS subject to such Dividend Period shall not be subject to
redemption at the option of the Corporation and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined by the Board of
Directors of the Corporation, after consultation with the Auction Agent and the
Broker-Dealers, during each year of which the shares of AMPS subject to such
Dividend Period shall be redeemable at the Corporation's option at a price per
share equal to $25,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $25,000, as determined by the Board of Directors of
the Corporation after consultation with the Auction Agent and the
Broker-Dealers.
"Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.
33
"Stock Register" means the register of Holders maintained on behalf of
the Corporation by the Auction Agent in its capacity as transfer agent and
registrar for the AMPS.
"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Corporation may from time to time appoint or, in
lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Corporation, to act as the substitute rating agency
or substitute rating agencies, as the case may be, to determine the credit
ratings of the shares of AMPS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component
34
issuers selected by Kenny Information Systems Inc. or any such successor from
time to time in its discretion, which component issuers shall include, without
limitation, issuers of general obligation bonds but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section 57(a)(5)
of the Code, or successor provisions, for purposes of the "alternative minimum
tax," divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal);
provided, however, that if the Kenny Index is not made so available by 8:30
A.M., New York City time, on such date by Kenny Information Systems Inc. or any
successor, the Taxable Equivalent of the Short-Term Municipal Bond Rate shall
mean the quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a
decimal). The Corporation may not utilize a successor index to the Kenny Index
unless Moody's and S&P provide the Corporation with written confirmation that
the use of such successor index will not adversely affect the then-current
respective Moody's and S&P ratings of the AMPS.
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the
35
Interest Equivalent of the yield as calculated by reference to the arithmetic
average of the bid price quotations of the actively traded Treasury Bill with a
maturity most nearly comparable to the length of the related Dividend Period, as
determined by bid price quotations as of any time on the Business Day
immediately preceding such date, obtained from at least three recognized primary
U.S. Government securities dealers selected by the Auction Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the AMPS Basic Maintenance Amount, each Business Day
commencing with the Date of Original Issue.
36
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities paid
to or received from a broker (subsequent to the Initial Margin payment) from
time to time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Inverse Floaters, Market Value, Maximum Potential Additional Dividend
Liability, Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure
Period, Moody's Hedging Transactions, Moody's Volatility Factor, S&P Discount
Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging Transactions, S&P
Volatility Factor, Valuation Date and Variation Margin have been determined by
the Board of Directors of the Corporation in order to obtain a "aaa" rating from
Moody's and a AAA rating from S&P on the AMPS on their Date of Original Issue;
and the Board of Directors of the Corporation shall have the authority, without
shareholder approval, to amend, alter or repeal from time to time the foregoing
definitions and the restrictions and guidelines set forth thereunder if Moody's
and S&P or any Substitute Rating Agency advises the Corporation in writing that
such amendment, alteration or repeal will not adversely affect their then
current ratings on the AMPS.
2. Dividends. (a) The Holders shall be entitled to receive, when, as
and if declared by the Board of Directors of the Corporation, out of funds
legally available therefor, cumulative dividends each consisting of (i) cash at
the Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f)
37
below, and no more, payable on the respective dates set forth below. Dividends
on the shares of AMPS so declared and payable shall be paid (i) in preference to
and in priority over any dividends declared and payable on the Common Stock, and
(ii) to the extent permitted under the Code and to the extent available, out of
net tax-exempt income earned on the Corporation's investments. To the extent
permitted under the Code, dividends on shares of AMPS will be designated as
exempt-interest dividends. For the purposes of this section, the term "net
tax-exempt income" shall exclude capital gains of the Corporation.
(b) (i) Cash dividends on shares of AMPS shall accumulate from the Date
of Original Issue and shall be payable, when, as and if declared by the Board of
Directors, out of funds legally available therefor, commencing on the Initial
Dividend Payment Date with respect to each series of AMPS. Following the Initial
Dividend Payment Date for each series of AMPS, dividends on each series of AMPS
will be payable, at the option of the Corporation, either (i) with respect to
any 7-Day Dividend Period and any Short Term Dividend Period of 35 or fewer
days, on the day next succeeding the last day thereof or (ii) with respect to
any Short Term Dividend Period of more than 35 days and with respect to any Long
Term Dividend Period, monthly on the first Business Day of each calendar month
during such Short Term Dividend Period or Long Term Dividend Period and on the
day next succeeding the last day thereof (each such date referred to in clause
(i) or (ii) being herein referred to as a "Normal Dividend Payment Date"),
except that if such Normal Dividend Payment Date is not a Business Day, then the
Dividend Payment Date shall be the first Business Day next succeeding such
Normal Dividend Payment Date. Although any particular Dividend Payment Date may
not occur on the originally scheduled date because of the exceptions discussed
above, the next succeeding Dividend
38
Payment Date, subject to such exceptions, will occur on the next following
originally scheduled date. If for any reason a Dividend Payment Date cannot be
fixed as described above, then the Board of Directors shall fix the Dividend
Payment Date. The Board of Directors by resolution prior to authorization of a
dividend by the Board of Directors may change a Dividend Payment Date if such
change does not adversely affect the contract rights of the Holders of shares of
AMPS set forth in the Charter. The Initial Dividend Period, 7-Day Dividend
Periods and Special Dividend Periods are hereinafter sometimes referred to as
Dividend Periods. Each dividend payment date determined as provided above is
hereinafter referred to as a "Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear in the
Stock Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Stock Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Directors of the Corporation.
(c) (i) During the period from and including the Date of Original Issue
to but excluding the Initial Dividend Payment Date for each series of AMPS (the
"Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend
Rate. Commencing on the Initial Dividend Payment Date for each series of AMPS,
the Applicable Rate for each subsequent dividend period (hereinafter referred to
as a "Subsequent Dividend Period"), which Subsequent Dividend Period shall
commence on and include a Dividend Payment Date and shall end on and include the
calendar day prior to the next Dividend Payment Date (or last Dividend Payment
39
Date in a Dividend Period if there is more than one Dividend Payment Date),
shall be equal to the rate per annum that results from implementation of the
Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period in the case of each series of AMPS.
Except in the case of the willful failure of the Corporation to pay a dividend
on a Dividend Payment Date or to redeem any shares of AMPS on the date set for
such redemption, any amount of any dividend due on any Dividend Payment Date
(if, prior to the close of business on the second Business Day preceding such
Dividend Payment Date, the Corporation has declared such dividend payable on
such Dividend Payment Date to the Holders of such shares of AMPS as of 12:00
noon, New York City time, on the Business Day preceding such Dividend Payment
Date) or redemption price with respect to any shares of AMPS not paid to such
Holders when due may be paid to such Holders in the same form of funds by 12:00
noon, New York City time, on any of the first three Business Days after such
Dividend Payment Date or due date, as the case may be, provided that, such
amount is accompanied by a late charge calculated for such period of non-payment
at the Non-Payment Period Rate applied to the amount of such non-payment based
on the actual number of days comprising such period divided by 365. In the case
of a willful failure of the Corporation to pay a dividend on a Dividend Payment
Date or to redeem any shares of AMPS on the date set for such redemption, the
preceding sentence shall not apply and the Applicable Rate for the Dividend
Period commencing during the Non-Payment Period resulting from such failure
shall be the Non-Payment Period Rate. For the purposes of the foregoing, payment
to a person in same-day funds on any Business
40
Day at any time shall be considered equivalent to payment to such person in New
York Clearing House (next-day) funds at the same time on the preceding Business
Day, and any payment made after 12:00 noon, New York City time, on any Business
Day shall be considered to have been made instead in the same form of funds and
to the same person before 12:00 noon, New York City time, on the next Business
Day.
(ii) The amount of cash dividends per share of any series of AMPS
payable (if declared) on the Initial Dividend Payment Date, each 7-Day Dividend
Period and each Dividend Payment Date of each Short Term Dividend Period shall
be computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and the denominator of
which will be 365, multiplying the amount so obtained by $25,000, and rounding
the amount so obtained to the nearest cent. During any Long Term Dividend
Period, the amount of cash dividends per share of AMPS payable (if declared) on
any Dividend Payment Date shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction, the numerator of which will be such
number of days in such part of such Dividend Period that such share was
outstanding and for which dividends are payable on such Dividend Payment Date
and the denominator of which will be 360, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent.
(iii) With respect to each Dividend Period that is a Special Dividend
Period, the Corporation may, at its sole option and to the extent permitted by
law, by telephonic and written notice (a "Request for Special Dividend Period")
to the Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of AMPS be a
41
number of days (other than seven), evenly divisible by seven, and not fewer than
seven nor more than 364 in the case of a Short Term Dividend Period or one whole
year or more but not greater than five years in the case of a Long Term Dividend
Period, specified in such notice, provided that the Corporation may not give a
Request for Special Dividend Period of greater than 28 days (and any such
request shall be null and void) unless, for any Auction occurring after the
initial Auction, Sufficient Clearing Bids were made in the last occurring
Auction and unless full cumulative dividends, any amounts due with respect to
redemptions, and any Additional Dividends payable prior to such date have been
paid in full. Such Request for Special Dividend Period, in the case of a Short
Term Dividend Period, shall be given on or prior to the second Business Day but
not more than seven Business Days prior to an Auction Date for a series of AMPS
and, in the case of a Long Term Dividend Period, shall be given on or prior to
the second Business Day but not more than 28 days prior to an Auction Date for
the AMPS. Upon receiving such Request for Special Dividend Period, the
Broker-Dealer(s) shall jointly determine whether, given the factors set forth
below, it is advisable that the Corporation issue a Notice of Special Dividend
Period for the series of AMPS as contemplated by such Request for Special
Dividend Period and the Optional Redemption Price of the AMPS during such
Special Dividend Period and the Specific Redemption Provisions and shall give
the Corporation and the Auction Agent written notice (a "Response") of such
determination by no later than the second Business Day prior to such Auction
Date. In making such determination the Broker-Dealer(s) will consider (1)
existing short-term and long-term market rates and indices of such short-term
and long-term rates, (2) existing market supply and demand for short-term and
long-term securities, (3) existing yield curves for short-term and long-term
securities comparable to the AMPS, (4) industry and financial conditions which
may affect the AMPS, (5) the investment objective of the
42
Corporation, and (6) the Dividend Periods and dividend rates at which current
and potential beneficial holders of the AMPS would remain or become beneficial
holders. If the Broker-Dealer(s) shall not give the Corporation and the Auction
Agent a Response by such second Business Day or if the Response states that
given the factors set forth above it is not advisable that the Corporation give
a Notice of Special Dividend Period for the series of AMPS, the Corporation may
not give a Notice of Special Dividend Period in respect of such Request for
Special Dividend Period. In the event the Response indicates that it is
advisable that the Corporation give a Notice of Special Dividend Period for the
series of AMPS, the Corporation may by no later than the second Business Day
prior to such Auction Date give a notice (a "Notice of Special Dividend Period")
to the Auction Agent, the Securities Depository and each Broker-Dealer which
notice will specify (i) the duration of the Special Dividend Period, (ii) the
Optional Redemption Price as specified in the related Response and (iii) the
Specific Redemption Provisions, if any, as specified in the related Response.
The Corporation also shall provide a copy of such Notice of Special Dividend
Period to Moody's and S&P. The Corporation shall not give a Notice of Special
Dividend Period and, if the Corporation has given a Notice of Special Dividend
Period, the Corporation is required to give telephonic and written notice of its
revocation (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer,
and the Securities Depository on or prior to the Business Day prior to the
relevant Auction Date if (x) either the 1940 Act AMPS Asset Coverage is not
satisfied or the Corporation shall fail to maintain S&P Eligible Assets and
Moody's Eligible Assets each with an aggregate Discounted Value at least equal
to the AMPS Basic Maintenance Amount, in each case on each of the two Valuation
Dates immediately preceding the Business Day prior to the relevant Auction Date
on an actual basis and on a pro forma basis giving effect to the proposed
Special Dividend Period
43
(using as a pro forma dividend rate with respect to such Special Dividend Period
the dividend rate which the Broker-Dealers shall advise the Corporation is an
approximately equal rate for securities similar to the AMPS with an equal
dividend period), provided that, in calculating the aggregate Discounted Value
of Moody's Eligible Assets for this purpose, the Moody's Exposure Period shall
be deemed to be one week longer, (y) sufficient funds for the payment of
dividends payable on the immediately succeeding Dividend Payment Date have not
been irrevocably deposited with the Auction Agent by the close of business on
the third Business Day preceding the related Auction Date or (z) the
Broker-Dealer(s) jointly advise the Corporation that after consideration of the
factors listed above they have concluded that it is advisable to give a Notice
of Revocation. The Corporation also shall provide a copy of such Notice of
Revocation to Moody's and S&P. If the Corporation is prohibited from giving a
Notice of Special Dividend Period as a result of any of the factors enumerated
in clause (x), (y) or (z) above or if the Corporation gives a Notice of
Revocation with respect to a Notice of Special Dividend Period for any series of
AMPS, the next succeeding Dividend Period will be a 7-Day Dividend Period. In
addition, in the event Sufficient Clearing Bids are not made in the applicable
Auction or such Auction is not held for any reason, such next succeeding
Dividend Period will be a 7-Day Dividend Period and the Corporation may not
again give a Notice of Special Dividend Period for the AMPS (and any such
attempted notice shall be null and void) until Sufficient Clearing Bids have
been made in an Auction with respect to a 7-Day Dividend Period.
(d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the shares of AMPS (except for
Additional Dividends as provided in paragraph 2(e)
44
hereof and additional payments as provided in paragraph 2(f) hereof). Except for
the late charge payable pursuant to paragraph 2(c)(i) hereof, no interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment on the shares of AMPS that may be in arrears.
(ii) For so long as any share of AMPS is Outstanding, the Corporation
shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of AMPS as to dividends or upon
liquidation) in respect of the Common Stock or any other stock of the
Corporation ranking junior to or on a parity with the shares of AMPS as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Stock or any other
such junior stock (except by conversion into or exchange for stock of the
Corporation ranking junior to the shares of AMPS as to dividends and upon
liquidation) or any other such Parity Stock (except by conversion into or
exchange for stock of the Corporation ranking junior to or on a parity with the
shares of AMPS as to dividends and upon liquidation), unless (A) immediately
after such transaction, the Corporation shall have S&P Eligible Assets and
Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount and the Corporation shall
maintain the 1940 Act AMPS Asset Coverage, (B) full cumulative dividends on
shares of AMPS and shares of Other AMPS due on or prior to the date of the
transaction have been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, (C)
any Additional Dividend required to be paid under paragraph 2(e) below on or
before the date of
45
such declaration or payment has been paid and (D) the Corporation has redeemed
the full number of shares of AMPS required to be redeemed by any provision for
mandatory redemption contained herein.
(e) Each dividend shall consist of (i) cash at the Applicable Rate,
(ii) an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the share or shares of AMPS
on which the dividend was paid. The Corporation shall cause to be maintained a
record of each Right received by the respective Holders. A Right may not be
transferred other than by operation of law. If the Corporation retroactively
allocates any net capital gains or other income subject to regular Federal
income taxes to shares of AMPS without having given advance notice thereof to
the Auction Agent as described in paragraph 2(f) hereof solely by reason of the
fact that such allocation is made as a result of the redemption of all or a
portion of the outstanding shares of AMPS or the liquidation of the Corporation
(the amount of such allocation referred to herein as a "Retroactive Taxable
Allocation"), the Corporation will, within 90 days (and generally within 60
days) after the end of the Corporation's fiscal year for which a Retroactive
Taxable Allocation is made, provide notice thereof to the Auction Agent and to
each holder of a Right applicable to such shares of AMPS (initially Cede & Co.
as nominee of The Depository Trust Company) during such fiscal year at such
holder's address as the same appears or last appeared on the Stock Books of the
Corporation. The Corporation will, within 30 days after such notice is given to
the Auction Agent, pay to the Auction Agent (who will then distribute to such
holders of Rights), out of funds legally available therefor, an amount equal to
46
the aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question.
An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars (after
Federal and California income tax consequences) from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be equal to the
dollar amount of the dividends which would have been received by such holder if
the amount of the aggregate Retroactive Taxable Allocations would have been
excludable from the gross income of such holder. Such Additional Dividend shall
be calculated (i) without consideration being given to the time value of money;
(ii) assuming that no holder of shares of AMPS is subject to the Federal
alternative minimum tax with respect to dividends received from the Corporation;
and (iii) assuming that each Retroactive Taxable Allocation would be taxable in
the hands of each holder of shares of AMPS at the greater of: (x) the maximum
combined marginal regular Federal and California individual income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (y) the maximum
combined marginal regular Federal and California corporate income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (x) and (y) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets and assuming the taxability of Federally
tax-exempt dividends for corporations for California state income tax purposes).
47
(f) Except as provided below, whenever the Corporation intends to
include any net capital gains or other income subject to regular Federal income
taxes in any dividend on shares of AMPS, the Corporation will notify the Auction
Agent of the amount to be so included at least five Business Days prior to the
Auction Date on which the Applicable Rate for such dividend is to be
established. The Corporation may also include such income in a dividend on
shares of a series of AMPS without giving advance notice thereof if it increases
the dividend by an additional amount calculated as if such income was a
Retroactive Taxable Allocation and the additional amount was an Additional
Dividend, provided that the Corporation will notify the Auction Agent of the
additional amounts to be included in such dividend at least five Business Days
prior to the applicable Dividend Payment Date.
(g) No fractional shares of AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the Holders shall be
entitled to receive, out of the assets of the Corporation available for
distribution to shareholders, before any distribution or payment is made upon
any Common Stock or any other capital stock ranking junior in right of payment
upon liquidation to the AMPS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments other than Additional Dividends as provided in paragraph 2(e) hereof.
If upon any liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to the AMPS and any other Outstanding class or
series of Preferred Stock of the Corporation ranking on a parity with the AMPS
as to payment upon liquidation are not paid in full, the Holders and the holders
of such other class or series will
48
share ratably in any such distribution of assets in proportion to the respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the Holders
will not be entitled to any further participation in any distribution of assets
by the Corporation except for any Additional Dividends. A consolidation, merger
or statutory share exchange of the Corporation with or into any other
corporation or entity or a sale, whether for cash, shares of stock, securities
or properties, of all or substantially all or any part of the assets of the
Corporation shall not be deemed or construed to be a liquidation, dissolution or
winding up of the Corporation.
4. Redemption. (a) Shares of AMPS shall be redeemable by the
Corporation as provided below:
(i) To the extent permitted under the 1940 Act and Maryland law, upon
giving a Notice of Redemption, the Corporation at its option may redeem shares
of AMPS, in whole or in part, out of funds legally available therefor, at the
Optional Redemption Price per share, on any Dividend Payment Date; provided that
no share of AMPS may be redeemed at the option of the Corporation during (A) the
Initial Dividend Period with respect to a series of shares or (B) a Non-Call
Period to which such share is subject. In addition, holders of AMPS which are
redeemed shall be entitled to receive Additional Dividends to the extent
provided herein. The Corporation may not give a Notice of Redemption relating to
an optional redemption as described in this paragraph 4(a)(i) unless, at the
time of giving such Notice of Redemption, the Corporation has available Deposit
Securities with maturity or tender dates not later than the day preceding the
applicable redemption date and having a value not less than the amount due to
Holders by reason of the redemption of their shares of AMPS on such redemption
date.
49
(ii) The Corporation shall redeem, out of funds legally available
therefor, at the Mandatory Redemption Price per share, shares of AMPS to the
extent permitted under the 1940 Act and Maryland law, on a date fixed by the
Board of Directors, if the Corporation fails to maintain S&P Eligible Assets and
Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount as provided in paragraph 7(a) or
to satisfy the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and such
failure is not cured on or before the AMPS Basic Maintenance Cure Date or the
1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as the
case may be. In addition, holders of AMPS so redeemed shall be entitled to
receive Additional Dividends to the extent provided herein. The number of shares
of AMPS to be redeemed shall be equal to the lesser of (i) the minimum number of
shares of AMPS the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the Cure Date, together with all shares of
other Preferred Stock subject to redemption or retirement, would result in the
Corporation having S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the case may be,
on such Cure Date (provided that, if there is no such minimum number of shares
of AMPS and shares of other Preferred Stock the redemption of which would have
such result, all shares of AMPS and shares of other Preferred Stock then
Outstanding shall be redeemed), and (ii) the maximum number of shares of AMPS,
together with all shares of other Preferred Stock subject to redemption or
retirement, that can be redeemed out of funds expected to be legally available
therefor on such redemption date. In determining the number of shares of AMPS
required to be redeemed in accordance with the foregoing, the Corporation shall
allocate the number required to be redeemed which would result in the
50
Corporation having S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the case may be,
pro rata among shares of AMPS of all series, Other AMPS and other Preferred
Stock subject to redemption pursuant to provisions similar to those contained in
this paragraph 4(a)(ii); provided that, shares of AMPS which may not be redeemed
at the option of the Corporation due to the designation of a Non-Call Period
applicable to such shares (A) will be subject to mandatory redemption only to
the extent that other shares are not available to satisfy the number of shares
required to be redeemed and (B) will be selected for redemption in an ascending
order of outstanding number of days in the Non-Call Period (with shares with the
lowest number of days to be redeemed first) and by lot in the event of shares
having an equal number of days in such Non-Call Period. The Corporation shall
effect such redemption on a Business Day which is not later than 35 days after
such Cure Date, except that if the Corporation does not have funds legally
available for the redemption of all of the required number of shares of AMPS and
shares of other Preferred Stock which are subject to mandatory redemption or the
Corporation otherwise is unable to effect such redemption on or prior to 35 days
after such Cure Date, the Corporation shall redeem those shares of AMPS which it
is unable to redeem on the earliest practicable date on which it is able to
effect such redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares
of AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Stock shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption
51
thereof would result in the Corporation's failure to maintain Moody's Eligible
Assets or S&P Eligible Assets with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount. In the event that less than all
the outstanding shares of a series of AMPS are to be redeemed and there is more
than one Holder, the shares of that series of AMPS to be redeemed shall be
selected by lot or such other method as the Corporation shall deem fair and
equitable.
(c) Whenever shares of AMPS are to be redeemed, the Corporation, not
less than 17 nor more than 60 days prior to the date fixed for redemption, shall
mail a notice ("Notice of Redemption") by first-class mail, postage prepaid, to
each Holder of shares of AMPS to be redeemed and to the Auction Agent. The
Corporation shall cause the Notice of Redemption to also be published in the
eastern and national editions of The Wall Street Journal. The Notice of
Redemption shall set forth (i) the redemption date, (ii) the amount of the
redemption price, (iii) the aggregate number of shares of AMPS of such series to
be redeemed, (iv) the place or places where shares of AMPS of such series are to
be surrendered for payment of the redemption price, (v) a statement that
dividends on the shares to be redeemed shall cease to accumulate on such
redemption date (except that holders may be entitled to Additional Dividends)
and (vi) the provision of these Articles Supplementary pursuant to which such
shares are being redeemed. No defect in the Notice of Redemption or in the
mailing or publication thereof shall affect the validity of the redemption
proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent, or segregated in an account at the Corporation's custodian
bank for the benefit of the Auction Agent, Deposit
52
Securities (with a right of substitution) having an aggregate Discounted Value
(utilizing in the case of S&P an S&P Exposure Period of 22 Business Days) equal
to the redemption payment for the shares of AMPS as to which such Notice of
Redemption has been given with irrevocable instructions and authority to pay the
redemption price to the Holders of such shares, then upon the date of such
deposit or, if no such deposit is made, then upon such date fixed for redemption
(unless the Corporation shall default in making the redemption payment), all
rights of the Holders of such shares as shareholders of the Corporation by
reason of the ownership of such shares will cease and terminate (except their
right to receive the redemption price in respect thereof and any Additional
Dividends, but without interest), and such shares shall no longer be deemed
outstanding. The Corporation shall be entitled to receive, from time to time,
from the Auction Agent the interest, if any, on such Deposit Securities
deposited with it and the Holders of any shares so redeemed shall have no claim
to any of such interest. In case the Holder of any shares so called for
redemption shall not claim the redemption payment for his shares within one year
after the date of redemption, the Auction Agent shall, upon demand, pay over to
the Corporation such amount remaining on deposit and the Auction Agent shall
thereupon be relieved of all responsibility to the Holder of such shares called
for redemption and such Holder thereafter shall look only to the Corporation for
the redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided in the
Charter or By-Laws, each Holder of shares of AMPS shall be entitled to one vote
for each share held on each matter submitted to a vote of shareholders of the
Corporation, and the holders of outstanding shares of Preferred Stock, including
AMPS, and of shares of Common Stock shall vote together as a single class;
provided that, at any meeting of the shareholders of the
53
Corporation held for the election of directors, the holders of outstanding
shares of Preferred Stock, including AMPS, shall be entitled, as a class, to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation, to elect two directors of the Corporation. Subject to paragraph
5(b) hereof, the holders of outstanding shares of capital stock of the
Corporation, including the holders of outstanding shares of Preferred Stock,
including AMPS, voting as a single class, shall elect the balance of the
directors.
(b) Right to Elect Majority of Board of Directors. During any period in
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Stock, would constitute a majority of the Board
of Directors as so increased by such smallest number; and the holders of shares
of Preferred Stock shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation), to elect such smallest number of additional directors,
together with the two directors that such holders are in any event entitled to
elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or
declared, and whether or not funds are then legally available in an amount
sufficient therefor) on the outstanding shares of AMPS equal to at least two
full years' dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for the payment
of such accumulated dividends; or
54
(ii) if at any time holders of any other shares of Preferred Stock are
entitled to elect a majority of the directors of the Corporation under the 1940
Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters. So long as any
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue any class or series of stock ranking prior to the AMPS or any other
series of Preferred Stock with respect to payment of dividends or the
distribution of assets on liquidation, or (ii) amend, alter or repeal the
provisions of the Charter, whether by merger, consolidation or otherwise, so as
to adversely affect any of the contract rights expressly set forth in the
Charter of holders of shares of AMPS or any other Preferred Stock. To the extent
permitted under the 1940 Act, in the event shares of more than one series of
AMPS are outstanding, the Corporation shall not approve any of the actions set
forth in clause (i) or (ii) which adversely affects the contract rights
expressly set forth in the Charter of a Holder of shares of a series of AMPS
differently than those of a Holder of shares of any other series of AMPS without
the affirmative vote of the holders of at least a majority of the shares of AMPS
of each series adversely affected and outstanding at such time (each such
adversely affected series voting separately as a class). The Corporation shall
notify Moody's and S&P ten Business Days prior to any such vote described in
clause (i) or (ii). Unless a higher percentage is provided for under the
Charter, the affirmative vote of the holders of a majority of the outstanding
shares of
55
Preferred Stock, including AMPS, voting together as a single class, will be
required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act. The class vote of holders
of shares of Preferred Stock, including AMPS, described above will in each case
be in addition to a separate vote of the requisite percentage of shares of
Common Stock and shares of Preferred Stock, including AMPS, voting together as a
single class necessary to authorize the action in question.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Stock to elect additional directors as described
in paragraph 5(b) above, the Corporation shall call a special meeting of such
holders and instruct the Auction Agent to mail a notice of such special meeting
to such holders, such meeting to be held not less than 10 nor more than 20 days
after the date of mailing of such notice. If the Corporation fails to send such
notice to the Auction Agent or if the Corporation does not call such a special
meeting, it may be called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such special
meeting shall be the close of business on the fifth Business Day preceding the
day on which such notice is mailed. At any such special meeting and at each
meeting held during a Voting Period, such Holders, voting together as a class
(to the exclusion of the holders of all other securities and classes of capital
stock of the Corporation), shall be entitled to elect the number of directors
prescribed in paragraph 5(b) above. At any such meeting or adjournment thereof
in the absence of a quorum, a majority of such holders present in person or
56
by proxy shall have the power to adjourn the meeting without notice, other than
by an announcement at the meeting, to a date not more than 120 days after the
original record date.
(ii) For purposes of determining any rights of the Holders to vote on
any matter or the number of shares required to constitute a quorum, whether such
right is created by these Articles Supplementary, by the other provisions of the
Charter, by statute or otherwise, a share of AMPS which is not Outstanding shall
not be counted.
(iii) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of Holders and holders of other
Preferred Stock to elect directors shall continue, notwithstanding the election
at such meeting by the Holders and such other holders of the number of directors
that they are entitled to elect, and the persons so elected by the Holders and
such other holders, together with the two incumbent directors elected by the
Holders and such other holders of Preferred Stock and the remaining incumbent
directors elected by the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Corporation.
(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional directors elected by the Holders and holders of
other Preferred Stock pursuant to paragraph 5(b) above shall terminate, the
remaining directors shall constitute the directors of the Corporation and the
voting rights of the Holders and such other holders to elect additional
directors pursuant to paragraph 5(b) above shall cease, subject to the
provisions of the last sentence of paragraph 5(b).
57
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
shares of AMPS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of AMPS shall have no
preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of AMPS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify S&P and Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote is
taken, notify S&P and Moody's of the result of such vote.
6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of
the last Business Day of each month in which any share of AMPS is outstanding,
the 1940 Act AMPS Asset Coverage.
7. AMPS Basic Maintenance Amount. (a) The Corporation shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date, (i) S&P Eligible Assets having an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance Amount and
(ii) Moody's Eligible Assets having an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Corporation will use its best efforts to
58
alter the composition of its portfolio to reattain a Discounted Value at least
equal to the AMPS Basic Maintenance Amount on or prior to the AMPS Basic
Maintenance Cure Date.
(b) On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Corporation fails to satisfy the AMPS
Basic Maintenance Amount, the Corporation shall complete and deliver to the
Auction Agent, and Moody's and S&P, as the case may be, a complete AMPS Basic
Maintenance Report as of the date of such failure, which will be deemed to have
been delivered to the Auction Agent if the Auction Agent receives a copy or
telecopy, telex or other electronic transcription thereof and on the same day
the Corporation mails to the Auction Agent for delivery on the next Business Day
the complete AMPS Basic Maintenance Report. The Corporation will deliver an AMPS
Basic Maintenance Report to the Auction Agent and Moody's and S&P, as the case
may be, on or before 5:00 p.m., New York City time, on the third Business Day
after a Valuation Date on which the Corporation cures its failure to maintain
Moody's Eligible Assets or S&P Eligible Assets, as the case may be, with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or on which the Corporation fails to maintain Moody's Eligible Assets or
S&P Eligible Assets, as the case may be, with an aggregate Discounted Value
which exceeds the AMPS Basic Maintenance Amount by 5% or more. The Corporation
will also deliver an AMPS Basic Maintenance Report to the Auction Agent, Moody's
and S&P as of each Quarterly Valuation Date on or before the third Business Day
after such date. Additionally, on or before 5:00 p.m., New York City time, on
the third Business Day after the first day of a Special Dividend Period, the
Corporation will deliver an AMPS Basic Maintenance Report to S&P and the Auction
Agent. The Corporation shall also provide Moody's and S&P with an AMPS Basic
Maintenance Report
59
when specifically requested by either Moody's or S&P. A failure by the
Corporation to deliver an AMPS Basic Maintenance Report under this paragraph
7(b) shall be deemed to be delivery of an AMPS Basic Maintenance Report
indicating the Discounted Value for S&P Eligible Assets and Moody's Eligible
Assets of the Corporation is less than the AMPS Basic Maintenance Amount, as of
the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an AMPS
Basic Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Corporation during the quarter ending on such Quarterly Valuation Date),
(ii) that, in such Report (and in such randomly selected Report), the
Corporation correctly determined the assets of the Corporation which constitute
S&P Eligible Assets or Moody's Eligible Assets, as the case may be, at such
Quarterly Valuation Date in accordance with these Articles Supplementary, (iii)
that, in such Report (and in such randomly selected Report), the Corporation
determined whether the Corporation had, at such Quarterly Valuation Date (and at
the Valuation Date addressed in such randomly selected Report) in accordance
with these Articles Supplementary, S&P Eligible Assets of an aggregate
Discounted Value at least equal to the AMPS Basic Maintenance Amount and Moody's
Eligible Assets of an aggregate Discounted Value at least equal to the AMPS
Basic Maintenance Amount, (iv) with respect to the S&P ratings on California
Municipal Bonds or Municipal Bonds, the issuer name, issue size and coupon rate
listed in such Report, that the Independent Accountant has requested that S&P
verify
60
such information and the Independent Accountant shall provide a listing in its
letter of any differences, (v) with respect to the Moody's ratings on California
Municipal Bonds or Municipal Bonds, the issuer name, issue size and coupon rate
listed in such Report, that such information has been verified by Moody's (in
the event such information is not verified by Moody's, the Independent
Accountant will inquire of Moody's what such information is, and provide a
listing in its letter of any differences), (vi) with respect to the bid or mean
price (or such alternative permissible factor used in calculating the Market
Value) provided by the custodian of the Corporation's assets to the Corporation
for purposes of valuing securities in the Corporation's portfolio, the
Independent Accountant has traced the price used in such Report to the bid or
mean price listed in such Report as provided to the Corporation and verified
that such information agrees (in the event such information does not agree, the
Independent Accountant will provide a listing in its letter of such differences)
and (vii) with respect to such confirmation to Moody's, that the Corporation has
satisfied the requirements of paragraph 8(b) of these Articles Supplementary
(such confirmation is herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above relating to any Valuation Date on which the Corporation
failed to maintain S&P Eligible Assets with an aggregate Discounted Value and
Moody's Eligible Assets with an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount, and relating to the AMPS Basic
Maintenance Cure Date with respect to such failure, the Independent Accountant
will provide to the Auction Agent, S&P and Moody's an Accountant's Confirmation
as to such AMPS Basic Maintenance Report.
61
(e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Corporation was determined by the
Independent Accountant, the calculation or determination made by such
Independent Accountant shall be final and conclusive and shall be binding on the
Corporation, and the Corporation shall accordingly amend and deliver the AMPS
Basic Maintenance Report to the Auction Agent, S&P and Moody's promptly
following receipt by the Corporation of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of the shares of AMPS, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such Date of Original Issue. Within five Business Days
of such Date of Original Issue, the Independent Accountant will confirm in
writing to S&P and Moody's (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the aggregate Discounted Value of S&P
Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets
reflected thereon equals or exceeds the AMPS Basic Maintenance Amount reflected
thereon. Also, on or before 5:00 p.m., New York City time, on the first Business
Day after shares of Common Stock are repurchased by the Corporation, the
Corporation will complete and deliver to S&P and Moody's an AMPS Basic
Maintenance Report as of the close of business on such date that Common Stock is
repurchased.
62
(g) For so long as shares of AMPS are rated by Moody's, in managing the
Corporation's portfolio, the Adviser will not alter the composition of the
Corporation's portfolio if, in the reasonable belief of the Adviser, the effect
of any such alteration would be to cause the Corporation to have Moody's
Eligible Assets with an aggregate Discounted Value, as of the immediately
preceding Valuation Date, less than the AMPS Basic Maintenance Amount as of such
Valuation Date; provided, however, that in the event that, as of the immediately
preceding Valuation Date, the aggregate Discounted Value of Moody's Eligible
Assets exceeded the AMPS Basic Maintenance Amount by five percent or less, the
Adviser will not alter the composition of the Corporation's portfolio in a
manner reasonably expected to reduce the aggregate Discounted Value of Moody's
Eligible Assets unless the Corporation shall have confirmed that, after giving
effect to such alteration, the aggregate Discounted Value of Moody's Eligible
Assets would exceed the AMPS Basic Maintenance Amount.
8. Certain Other Restrictions and Requirements.
(a) For so long as any shares of AMPS are rated by S&P, the Corporation
will not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not impair
the ratings then assigned to the shares of AMPS by S&P, except that the
Corporation may purchase or sell futures contracts based on the Bond Buyer
Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds or
Notes ("Treasury Bonds") and write, purchase or sell put and call options on
such contracts (collectively, "S&P Hedging Transactions"), subject to the
following limitations:
63
(i) the Corporation will not engage in any S&P Hedging Transaction
based on the Municipal Index (other than transactions which terminate a futures
contract or option held by the Corporation by the Corporation's taking an
opposite position thereto ("Closing Transactions")), which would cause the
Corporation at the time of such transaction to own or have sold the least of (A)
more than 1,000 outstanding futures contracts based on the Municipal Index, (B)
outstanding futures contracts based on the Municipal Index exceeding in number
25% of the quotient of the Market Value of the Corporation's total assets
divided by $1,000 or (C) outstanding futures contracts based on the Municipal
Index exceeding in number 10% of the average number of daily traded futures
contracts based on the Municipal Index in the 30 days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(ii) the Corporation will not engage in any S&P Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) which would cause the
Corporation at the time of such transaction to own or have sold the lesser of
(A) outstanding futures contracts based on Treasury Bonds exceeding in number
50% of the quotient of the Market Value of the Corporation's total assets
divided by $100,000 ($200,000 in the case of the two-year United States Treasury
Note) or (B) outstanding futures contracts based on Treasury Bonds exceeding in
number 10% of the average number of daily traded futures contracts based on
Treasury Bonds in the 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal;
(iii) the Corporation will engage in Closing Transactions to close out
any outstanding futures contract which the Corporation owns or has sold or any
outstanding option thereon owned by the Corporation in the event (A) the
Corporation does not have S&P Eligible
64
Assets with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount on two consecutive Valuation Dates and (B) the
Corporation is required to pay Variation Margin on the second such Valuation
Date;
(iv) the Corporation will engage in a Closing Transaction to close out
any outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon unless
the Corporation holds the securities deliverable under such terms; and
(v) when the Corporation writes a futures contract or option thereon,
it will either maintain an amount of cash, cash equivalents or high grade (rated
A or better by S&P), fixed-income securities in a segregated account with the
Corporation's custodian, so that the amount so segregated plus the amount of
Initial Margin and Variation Margin held in the account of or on behalf of the
Corporation's broker with respect to such futures contract or option equals the
Market Value of the futures contract or option, or, in the event the Corporation
writes a futures contract or option thereon which requires delivery of an
underlying security, it shall hold such underlying security in its portfolio.
For purposes of determining whether the Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of
the aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Corporation plus
65
(ii) 25% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on Treasury Bonds which contracts are owned
by the Corporation.
(b) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not buy or sell futures contracts, write, purchase or sell call
options on futures contracts or purchase put options on futures contracts or
write call options (except covered call options) on portfolio securities unless
it receives written confirmation from Moody's that engaging in such transactions
would not impair the ratings then assigned to the shares of AMPS by Moody's,
except that the Corporation may purchase or sell exchange-traded futures
contracts based on the Municipal Index or Treasury Bonds and purchase, write or
sell exchange-traded put options on such futures contracts and purchase, write
or sell exchange-traded call options on such futures contracts (collectively,
"Moody's Hedging Transactions"), subject to the following limitations:
(i) the Corporation will not engage in any Moody's Hedging Transaction
based on the Municipal Index (other than Closing Transactions) which would cause
the Corporation at the time of such transaction to own or have sold (A)
outstanding futures contracts based on the Municipal Index exceeding in number
10% of the average number of daily traded futures contracts based on the
Municipal Index in the 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal or (B) outstanding futures contracts
based on the Municipal Index having a Market Value exceeding 50% of the Market
Value of all Municipal Bonds constituting Moody's Eligible Assets owned by the
Corporation (other than Moody's Eligible Assets already subject to a Moody's
Hedging Transaction);
66
(ii) the Corporation will not engage in any Moody's Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) which would cause the
Corporation at the time of such transaction to own or have sold (A) outstanding
futures contracts based on Treasury Bonds having an aggregate Market Value
exceeding 20% of the aggregate Market Value of Moody's Eligible Assets owned by
the Corporation and rated Aa by Moody's (or, if not rated by Moody's but rated
by S&P, rated AAA by S&P) or (B) outstanding futures contracts based on Treasury
Bonds having an aggregate Market Value exceeding 40% of the aggregate Market
Value of all Municipal Bonds constituting Moody's Eligible Assets owned by the
Corporation (other than Moody's Eligible Assets already subject to a Moody's
Hedging Transaction) and rated Baa or A by Moody's (or, if not rated by Moody's
but rated by S&P, rated A or AA by S&P) (for purposes of the foregoing clauses
(i) and (ii), the Corporation shall be deemed to own the number of futures
contracts that underlie any outstanding options written by the Corporation);
(iii) the Corporation will engage in Closing Transactions to close out
any outstanding futures contract based on the Municipal Index if the amount of
open interest in the Municipal Index as reported by The Wall Street Journal is
less than 5,000;
(iv) the Corporation will engage in a Closing Transaction to close out
any outstanding futures contract by no later than the fifth Business Day of the
month in which such contract expires and will engage in a Closing Transaction to
close out any outstanding option on a futures contract by no later than the
first Business Day of the month in which such option expires;
67
(v) the Corporation will engage in Moody's Hedging Transactions only
with respect to futures contracts or options thereon having the next settlement
date or the settlement date immediately thereafter;
(vi) the Corporation will not engage in options and futures
transactions for leveraging or speculative purposes and will not write any call
options or sell any futures contracts for the purpose of hedging the anticipated
purchase of an asset prior to completion of such purchase; and
(vii) the Corporation will not enter into an option or futures
transaction unless, after giving effect thereto, the Corporation would continue
to have Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Corporation is obligated to deliver or receive pursuant to an
outstanding futures contract or option shall be as follows: (i) assets subject
to call options written by the Corporation which are either exchange-traded and
"readily reversible" or which expire within 49 days after the date as of which
such valuation is made shall be valued at the lesser of (a) Discounted Value and
(b) the exercise price of the call option written by the Corporation; (ii)
assets subject to call options written by the Corporation not meeting the
requirements of clause (i) of this sentence shall have no value; (iii) assets
subject to put options written by the Corporation shall be valued at the lesser
of (A) the exercise price and (B) the Discounted Value of the subject security;
(iv) futures contracts shall be valued at the
68
lesser of (A) settlement price and (B) the Discounted Value of the subject
security, provided that, if a contract matures within 49 days after the date as
of which such valuation is made, where the Corporation is the seller the
contract may be valued at the settlement price and where the Corporation is the
buyer the contract may be valued at the Discounted Value of the subject
securities; and (v) where delivery may be made to the Corporation with any
security of a class of securities, the Corporation shall assume that it will
take delivery of the security with the lowest Discounted Value.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the following amounts shall be subtracted from
the aggregate Discounted Value of the Moody's Eligible Assets held by the
Corporation: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Corporation is the
seller under a futures contract, 10% of the settlement price of the futures
contract; (iv) where the Corporation is the purchaser under a futures contract,
the settlement price of assets purchased under such futures contract; (v) the
settlement price of the underlying futures contract if the Corporation writes
put options on a futures contract; and (vi) 105% of the Market Value of the
underlying futures contracts if the Corporation writes call options on a futures
contract and does not own the underlying contract.
(c) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a fixed
price at a future date beyond customary settlement time (other than such
contracts that constitute Moody's Hedging Transactions that are permitted under
paragraph 8(b) of these Articles Supplementary), except
69
that the Corporation may enter into such contracts to purchase newly-issued
securities on the date such securities are issued ("Forward Commitments"),
subject to the following limitations:
(i) the Corporation will maintain in a segregated account with
its custodian cash, cash equivalents or short-term, fixed-income
securities rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior
to the date of the Forward Commitment with a Market Value that equals
or exceeds the amount of the Corporation's obligations under any
Forward Commitments to which it is from time to time a party or
long-term fixed income securities with a Discounted Value that equals
or exceeds the amount of the Corporation's obligations under any
Forward Commitment to which it is from time to time a party; and
(ii) the Corporation will not enter into a Forward Commitment
unless, after giving effect thereto, the Corporation would continue to
have Moody's Eligible Assets with an aggregate Discounted Value equal
to or greater than the AMPS Basic Maintenance Amount.
(d) For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments
to which the Corporation is a party and of all securities deliverable to the
Corporation pursuant to such Forward Commitments shall be zero.
(d) For so long as AMPS are rated by S&P or Moody's, the Corporation
will not, unless it has received written confirmation from S&P and/or Moody's,
as the case may be, that such action would not impair the ratings then assigned
to AMPS by S&P and/or Moody's, as the case
70
may be, (i) borrow money except for the purpose of clearing transactions in
portfolio securities (which borrowings shall under any circumstances be limited
to the lesser of $10 million and an amount equal to 5% of the Market Value of
the Corporation's assets at the time of such borrowings and which borrowings
shall be repaid within 60 days and not be extended or renewed and shall not
cause the aggregate Discounted Value of Moody's Eligible Assets and S&P Eligible
Assets to be less than the AMPS Basic Maintenance Amount), (ii) engage in short
sales of securities, (iii) lend any securities, (iv) issue any class or series
of shares ranking prior to or on a parity with the AMPS with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the Corporation, (v) reissue any AMPS previously purchased or
redeemed by the Corporation, (vi) merge or consolidate into or with any other
corporation or entity, (vii) change the Pricing Service or (viii) engage in
reverse repurchase agreements.
(e) For so long as AMPS are rated by Moody's, the Corporation agrees to
provide Moody's with the following, unless the Corporation has received written
confirmation from Moody's that the provision of such information is no longer
required and that the current rating then assigned to the AMPS by Moody's would
not be impaired: a notification letter at least 30 days prior to any material
change in the Charter; a copy of the AMPS Basic Maintenance Report prepared by
the Corporation in accordance with this Articles Supplementary; and a notice
upon the occurrence of any of the following events: (i) any failure by the
Corporation to declare or pay any dividends on the AMPS or successfully remarket
the AMPS; (ii) any mandatory or optional redemption of the AMPS effected by the
Corporation; (iii) any assumption of control of the Board of Directors of the
Corporation by the holders of the AMPS; (iv) a general
71
unavailability of dealer quotes on the assets of the Corporation; (v) any
material auditor discrepancies on valuations; (vi) the dividend rate on the AMPS
equals or exceeds 95% of the Aaa Composite Commercial Paper Rate; (vii) the
occurrence of any Special Dividend Period; (viii) any change in the Maximum
Applicable Rate or the Reference Rate; (ix) the acquisition by any person of
beneficial ownership of more than 5% of the Corporation's voting stocks
(inclusive of Common Stock and Preferred Stock); (x) the occurrence of any
change in Internal Revenue Service rules with respect to the payment of
Additional Dividends; (xi) any change in the Pricing Service employed by the
Corporation; (xii) any change in the Investment Adviser; (xiii) any increase of
greater than 40% to the maximum marginal Federal income tax rate applicable to
individuals or corporations; and (xiv) the maximum marginal Federal income tax
rate applicable to individuals or corporations is increased to a rate in excess
of 50%.
9. Notice. All notices or communications, unless otherwise specified in
the By-Laws of the Corporation or these Articles Supplementary, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.
10. Auction Procedures. (a) Certain definitions. As used in this
paragraph 10, the following terms shall have the following meanings, unless the
context otherwise requires:
(i) "AMPS" means the shares of AMPS being auctioned pursuant to
this paragraph 10.
72
(ii) "Auction Date" means the first Business Day preceding the
first day of a Dividend Period.
(iii) "Available AMPS" has the meaning specified in paragraph
10(d)(i) below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 10(b)(i)
below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will be
determined based on (i) the lower of the credit rating or ratings assigned on
such date to such shares by Moody's and S&P (or if Moody's or S&P or both shall
not make such rating available, the equivalent of either or both of such ratings
by a Substitute Rating Agency or two Substitute Rating Agencies or, in the event
that only one such rating shall be available, such rating) and (ii) whether the
Corporation has provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to paragraph 2(f)
hereof that net capital gains or other taxable income will be included in such
dividend on shares of AMPS as follows:
Credit Ratings Applicable Percentage Applicable Percentage
-------------- of Reference Rate - of Reference Rate -
Moody's S&P No Notification Notification
- --------------- ------------- --------------- ------------
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
73
The Corporation shall take all reasonable action necessary to enable
S&P and Moody's to provide a rating for each series of the AMPS. If either S&P
or Moody's shall not make such a rating available, or neither S&P nor Moody's
shall make such a rating available, Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its affiliates and successors, after consultation with the
Corporation, shall select a nationally recognized statistical rating
organization or two nationally recognized statistical rating organizations to
act as a Substitute Rating Agency or Substitute Rating Agencies, as the case may
be.
(viii) "Order" has the meaning specified in paragraph 10(b)(i)
below.
(ix) "Sell Order" has the meaning specified in paragraph 10(b)(i)
below.
(x) "Submission Deadline" means 1:00 P.M., New York City time, on
any Auction Date or such other time on any Auction Date as may be specified by
the Auction Agent from time to time as the time by which each Broker-Dealer must
submit to the Auction Agent in writing all Orders obtained by it for the Auction
to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph
10(d)(i) below.
(xii) "Submitted Hold Order" has the meaning specified in paragraph
10(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in paragraph
10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph
10(d)(i) below.
74
(xv) "Sufficient Clearing Bids" has the meaning specified in
paragraph 10(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph
10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Corporation, Beneficial
Owners and Potential Beneficial Owners may only participate in Auctions through
their Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of AMPS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its
Broker-Dealer information as to:
(1) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold without regard to the Applicable
Rate for the next succeeding Dividend Period;
75
(2) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold, provided that the Applicable Rate
for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the Applicable Rate for the
next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose
of conducting a competitive Auction, shall contact Potential
Beneficial Owners, including Persons that are not Beneficial
Owners, on such list to determine the number of Outstanding
shares, if any, of AMPS which each such Potential Beneficial
Owner offers to purchase, provided that the Applicable Rate
for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this paragraph
10(b)(i) is hereinafter referred to as a "Hold Order";
76
an Order containing the information referred to in clause (A)(2) or (B) of this
paragraph 10(b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this paragraph
10(b)(i) is hereinafter referred to as a "Sell Order". Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii) (A) A Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS specified in such Bid
if the Applicable Rate determined on such Auction Date shall be
less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of AMPS to
be determined as set forth in paragraph 10(e)(i)(D) if the
Applicable Rate determined on such Auction Date shall be equal to
the rate per annum specified therein; or
(3) a lesser number of Outstanding shares of AMPS to be determined
as set forth in paragraph 10(e)(ii)(C) if such specified rate per
annum shall be higher than the Maximum Applicable Rate and
Sufficient Clearing Bids do not exist.
77
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS
specified in such Sell Order; or
(2) such number or a lesser number of Outstanding
shares of AMPS to be determined as set forth in paragraph
10(e)(ii)(C) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the number of Outstanding shares of AMPS
specified in such Bid if the Applicable Rate determined on
such Auction Date shall be higher than the rate per annum
specified in such Bid; or
(2) such number or a lesser number of
Outstanding shares of AMPS to be determined as set forth in
paragraph 10(e)(i)(E) if the Applicable Rate determined on
such Auction Date shall be equal to the rate per annum
specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Corporation) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
78
shares subject to Orders submitted to it by Potential Beneficial Owners, and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of Outstanding shares of AMPS that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS
subject to any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS
subject to any Bid placed by such Existing Holder and the rate
per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of AMPS
subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate
per annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more
than three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one-thousandth (.001) of 1%.
79
(iii) If an Order or Orders covering all of the Outstanding
shares of AMPS held by an Existing Holder are not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order (in
the case of an Auction relating to a Dividend Period which is not a Special
Dividend Period of 28 days or more) and a Sell Order (in the case of an Auction
relating to a Special Dividend Period of 28 days or more) to have been submitted
on behalf of such Existing Holder covering the number of Outstanding shares of
AMPS held by such Existing Holder and not subject to Orders submitted to the
Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder
covering in the aggregate more than the number of Outstanding shares of AMPS
held by such Existing Holder are submitted to the Auction Agent, such Order
shall be considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of
Outstanding shares of AMPS held by such Existing Holder;
provided that if more than one Hold Order is submitted on
behalf of such Existing Holder and the number of shares of
AMPS subject to such Hold Orders exceeds the number of
Outstanding shares of AMPS held by such Existing Holder, the
number of shares of AMPS subject to each of such Hold Orders
shall be reduced pro rata so that such Hold Orders, in the
aggregate, will cover exactly the number of Outstanding shares
of AMPS held by such Existing Holder;
80
(B) any Bids submitted on behalf of such Existing Holder shall
be considered valid, in the ascending order of their
respective rates per annum if more than one Bid is submitted
on behalf of such Existing Holder, up to and including the
excess of the number of Outstanding shares of AMPS held by
such Existing Holder over the number of shares of AMPS subject
to any Hold Order referred to in paragraph 10(c)(iv)(A) above
(and if more than one Bid submitted on behalf of such Existing
Holder specifies the same rate per annum and together they
cover more than the remaining number of shares that can be the
subject of valid Bids after application of paragraph
10(c)(iv)(A) above and of the foregoing portion of this
paragraph 10(c)(iv)(B) to any Bid or Bids specifying a lower
rate or rates per annum, the number of shares subject to each
of such Bids shall be reduced pro rata so that such Bids, in
the aggregate, cover exactly such remaining number of shares);
and the number of shares, if any, subject to Bids not valid
under this paragraph 10(c)(iv)(B) shall be treated as the
subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding shares of
AMPS held by such Existing Holder over the number of shares of
AMPS subject to Hold Orders referred to in paragraph
10(c)(iv)(A) and Bids referred to in paragraph 10(c)(iv)(B);
provided that if more than one Sell Order is submitted on
behalf of any Existing Holder and the number of shares of AMPS
subject to such Sell Orders is greater than such excess, the
number of shares of AMPS subject to each of such Sell Orders
shall be reduced
81
pro rata so that such Sell Orders, in the aggregate, cover
exactly the number of shares of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with the rate per
annum and number of shares of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed submitted
to it by the Broker-Dealers (each such Order as submitted or deemed submitted by
a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of
AMPS over the number of Outstanding shares of AMPS that are
the subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available AMPS");
(B) from the Submitted Orders whether the number of
Outstanding shares of AMPS that are the subject of Submitted
Bids by Potential Holders specifying one
82
or more rates per annum equal to or lower than the Maximum
Applicable Rate exceeds or is equal to the sum of:
(1) the number of Outstanding shares of AMPS
that are the subject of Submitted Bids by Existing Holders
specifying one or more rates per annum higher than the Maximum
Applicable Rate, and
(2) the number of Outstanding shares of AMPS
that are subject to Submitted Sell Orders (if such excess or
such equality exists (other than because the number of
Outstanding shares of AMPS in clause (1) above and this clause
(2) are each zero because all of the Outstanding shares of
AMPS are the subject of Submitted Hold Orders), such Submitted
Bids by Potential Holders being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per
annum specified in the Submitted Bids (the "Winning Bid Rate")
that if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Existing Holders specifying lower rates per annum were
rejected, thus entitling such Existing Holders to continue to
hold the shares of AMPS that are the subject of such Submitted
Bids, and
(2) each Submitted Bid from Potential
Holders specifying the Winning Bid Rate and all other
Submitted Bids from Potential Holders specifying lower rates
per annum were accepted, thus entitling the Potential Holders
to purchase
83
the shares of AMPS that are the subject of such Submitted
Bids, would result in the number of shares subject to all
Submitted Bids specifying the Winning Bid Rate or a lower rate
per annum being at least equal to the Available AMPS.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 10(d)(i), the Auction Agent shall advise
the Corporation of the Maximum Applicable Rate and, based on such
determinations, the Applicable Rate for the next succeeding Dividend Period as
follows:
(A) if Sufficient Clearing Bids exist, that the Applicable
Rate for the next succeeding Dividend Period shall be equal to the Winning Bid
Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding shares of AMPS are the subject of Submitted Hold
Orders), that the Applicable Rate for the next succeeding Dividend Period shall
be equal to the Maximum Applicable Rate; or
(C) if all of the Outstanding shares of AMPS are the subject
of Submitted Hold Orders, that the Dividend Period next succeeding the Auction
shall automatically be the same length as the immediately preceding Dividend
Period and the Applicable Rate for the next succeeding Dividend Period shall be
equal to 40% of the Reference Rate (or 60% of such rate if the Corporation has
provided notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or
84
other taxable income will be included in such dividend on
shares of AMPS) on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 10(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying
any rate per annum that is higher than the Winning Bid Rate shall
be accepted, thus requiring each such Existing Holder to sell the
Outstanding shares of AMPS that are the subject of such Submitted
Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to
hold the Outstanding shares of AMPS that are the subject of such
Submitted Bid;
85
(C) the Submitted Bid of each of the Potential Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to
hold the Outstanding shares of AMPS that are the subject of such
Submitted Bid, unless the number of Outstanding shares of AMPS
subject to all such Submitted Bids shall be greater than the number
of Outstanding shares of AMPS ("Remaining Shares") equal to the
excess of the Available AMPS over the number of Outstanding shares
of AMPS subject to Submitted Bids described in paragraph
10(e)(i)(B) and paragraph 10(e)(i)(C), in which event the Submitted
Bids of each such Existing Holder shall be accepted, and each such
Existing Holder shall be required to sell Outstanding shares of
AMPS, but only in an amount equal to the difference between (1) the
number of Outstanding shares of AMPS then held by such Existing
Holder subject to such Submitted Bid and (2) the number of shares
of AMPS obtained by multiplying (x) the number of Remaining Shares
by (y) a fraction the numerator of which shall be the number of
Outstanding shares of AMPS held by such Existing Holder subject to
such Submitted Bid and the denominator of which shall be the sum of
the number of Outstanding shares of AMPS subject to such Submitted
Bids made by all such Existing Holders that specified a rate per
annum equal to the Winning Bid Rate; and
86
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be
accepted but only in an amount equal to the number of Outstanding
shares of AMPS obtained by multiplying (x) the difference between
the Available AMPS and the number of Outstanding shares of AMPS
subject to Submitted Bids described in paragraph 10(e)(i)(B),
paragraph 10(e)(i)(C) and paragraph 10(e)(i)(D) by (y) a fraction
the numerator of which shall be the number of Outstanding shares of
AMPS subject to such Submitted Bid and the denominator of which
shall be the sum of the number of Outstanding shares of AMPS
subject to such Submitted Bids made by all such Potential Holders
that specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding shares of AMPS are subject to Submitted Hold
Orders), subject to the provisions of paragraph 10(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable
Rate shall be rejected, thus entitling such Existing Holder to
continue to hold the Outstanding shares of AMPS that are the
subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted,
87
thus requiring such Potential Holder to purchase the Outstanding
shares of AMPS that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate
per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder
shall be accepted, in both cases only in an amount equal to the
difference between (1) the number of Outstanding shares of AMPS
then held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of shares of AMPS obtained
by multiplying (x) the difference between the Available AMPS and
the aggregate number of Outstanding shares of AMPS subject to
Submitted Bids described in paragraph 10(e)(ii)(A) and paragraph
10(e)(ii)(B) by (y) a fraction the numerator of which shall be the
number of Outstanding shares of AMPS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the number of Outstanding shares of
AMPS subject to all such Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph
10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a share of AMPS on any Auction Date, the Auction Agent
shall, in such manner as in its sole discretion it shall determine, round up or
down the number of shares of AMPS to be purchased or sold by any Existing Holder
or Potential Holder on such Auction Date so that each Outstanding share of AMPS
purchased or sold by each Existing Holder or Potential Holder on such Auction
Date shall be a whole share of AMPS.
88
(iv) If, as a result of the procedures described in paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase less
than a whole share of AMPS on any Auction Date, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, allocate shares of AMPS for
purchase among Potential Holders so that only whole shares of AMPS are purchased
on such Auction Date by any Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of AMPS on such
Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of
Outstanding shares of AMPS to be purchased and the aggregate number of the
Outstanding shares of AMPS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of AMPS.
(f) Miscellaneous. The Corporation may interpret the provisions of
this paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal
defect or make any other change or modification that does not substantially
adversely affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or
an Existing Holder (A) may sell, transfer or otherwise dispose of shares of AMPS
only pursuant to a Bid or Sell Order in accordance with the procedures
89
described in this paragraph 10 or to or through a Broker-Dealer, provided that
in the case of all transfers other than pursuant to Auctions such Beneficial
Owner or Existing Holder, its Broker-Dealer, if applicable, or its Agent Member
advises the Auction Agent of such transfer and (B) except as otherwise required
by law, shall have the ownership of the shares of AMPS held by it maintained in
book entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Corporation nor any Affiliate shall submit an Order in
any Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer
or otherwise dispose of shares of AMPS to any Person other than the Corporation.
All of the Outstanding shares of AMPS of a series shall be represented by a
single certificate registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities Depository, at the Corporation's option
and upon its receipt of such documents as it deems appropriate, any shares of
AMPS may be registered in the Stock Register in the name of the Beneficial Owner
thereof and such Beneficial Owner thereupon will be entitled to receive
certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.
11. Securities Depository; Stock Certificates. (a) If there is a
Securities Depository, one certificate for all of the shares of AMPS of each
series shall be issued to the Securities Depository and registered in the name
of the Securities Depository or its nominee. Additional certificates may be
issued as necessary to represent shares of AMPS. All such certificates shall
bear a legend to the effect that such certificates are issued subject to the
provisions restricting the transfer of shares of AMPS contained in these
Articles Supplementary. Unless the Corporation
90
shall have elected, during a Non-Payment Period, to waive this requirement, the
Corporation will also issue stop-transfer instructions to the Auction Agent for
the shares of AMPS. Except as provided in paragraph (b) below, the Securities
Depository or its nominee will be the Holder, and no Beneficial Owner shall
receive certificates representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of AMPS of a
series shall be the Non-Payment Period Rate or there is no Securities
Depository, the Corporation may at its option issue one or more new certificates
with respect to such shares (without the legend referred to in paragraph 11(a))
registered in the names of the Beneficial Owners or their nominees and rescind
the stop-transfer instructions referred to in paragraph 11(a) with respect to
such shares.
91
IN WITNESS WHEREOF, MUNIHOLDINGS CALIFORNIA INSURED FUND II, INC.
has caused these presents to be signed in its name and on its behalf by a duly
authorized officer, and attested by its Secretary, and the said officers of the
Corporation further acknowledge said instrument to be the corporate act of the
Corporation, and state under penalties of perjury that to the best of their
knowledge, information and belief the matters and facts herein set forth with
respect to approval are true in all material respects, all on , 2000.
MUNIHOLDINGS CALIFORNIA INSURED
FUND II, INC.
By ____________________________
Vice President
Attest:
- ---------------------------
Alice A. Pellegrino
Secretary
92